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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000
REGISTRATION NO. 33-12789
811-05068
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 15 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2 /X/
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FARM BUREAU LIFE VARIABLE ACCOUNT
(Exact Name of Registrant)
FARM BUREAU LIFE INSURANCE COMPANY
(Name of Depositor)
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5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
(Address of Principal Executive Office)
STEPHEN M. MORAIN, ESQUIRE
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
(Name and Address of Agent for Service of Process)
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COPY TO:
STEPHEN E. ROTH, ESQUIRE
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2415
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485;
/X/ ON MAY 1, 2000 PURSUANT TO PARAGRAPH (b) OF RULE 485;
/ / DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) OF RULE 485;
/ / ON (DATE) PURSUANT TO PARAGRAPH (a) OF RULE 485.
TITLE OF SECURITIES BEING REGISTERED: FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES
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FARM BUREAU LIFE VARIABLE ACCOUNT
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
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PROSPECTUS
May 1, 2000
Farm Bureau Life Insurance Company is offering a flexible premium 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 95; and (2) to permit the purchaser of a Policy ("you," or "your") to
vary premium payments and adjust the death proceeds payable under the Policy.
Under the Policy, we will pay:
- death proceeds upon the insured's death, and
- a net cash value upon complete or partial surrender of the Policy.
You may allocate net premiums under a Policy to one or more of the subaccounts
of Farm Bureau Life Variable Account (the "Variable Account"). Death proceeds
may, and cash value will, vary with the investment experience of the Variable
Account. Each subaccount invests exclusively in shares of the investment options
listed below. Current prospectuses that describe the investment objectives and
risks of each Investment Option must accompany or precede this prospectus.
<TABLE>
<S> <C>
EquiTrust Variable Insurance 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
Managed Portfolio Series, Inc.:
Money Market Portfolio International Stock 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 4.5% 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 AND DIAGRAM OF THE POLICY........................... 5
FARM BUREAU LIFE INSURANCE COMPANY AND THE VARIABLE
ACCOUNT................................................... 11
Farm Bureau Life Insurance Company.................... 11
Iowa Farm Bureau Federation........................... 11
The Variable Account.................................. 11
Investment Options.................................... 11
Addition, Deletion or Substitution of Investments..... 15
THE POLICY.................................................. 15
Purchasing the Policy................................. 15
Premiums.............................................. 16
Examination of Policy (Cancellation Privilege)........ 18
Policy Lapse and Reinstatement........................ 18
Special Transfer Privilege............................ 19
Exchange Privilege.................................... 19
POLICY BENEFITS............................................. 21
Cash Value Benefits................................... 21
Transfers............................................. 23
Loan Benefits......................................... 24
Death Proceeds........................................ 26
Accelerated Payments of Death Proceeds................ 28
Benefits at Maturity.................................. 29
Payment Options....................................... 29
CHARGES AND DEDUCTIONS...................................... 31
Premium Expense Charge................................ 31
Monthly Deduction..................................... 32
Transfer Charge....................................... 34
Surrender Charge...................................... 35
Variable Account Charges.............................. 35
THE DECLARED INTEREST OPTION................................ 35
General Description................................... 35
Declared Interest Option Cash Value................... 36
Transfers, Surrenders and Policy Loans................ 36
GENERAL PROVISIONS.......................................... 36
The Contract.......................................... 36
Incontestability...................................... 37
Change of Provisions.................................. 37
Misstatement of Age or Sex............................ 37
Suicide Exclusion..................................... 37
Annual Report......................................... 37
Non-Participation..................................... 38
Ownership of Assets................................... 38
Written Notice........................................ 38
Postponement of Payments.............................. 38
Continuance of Insurance.............................. 38
Ownership............................................. 39
The Beneficiary....................................... 39
Changing the Policyowner or Beneficiary............... 39
Additional Insurance Benefits......................... 39
</TABLE>
1
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
DISTRIBUTION OF THE POLICIES................................ 40
FEDERAL TAX MATTERS......................................... 40
Introduction.......................................... 40
Tax Status of the Policy.............................. 40
Tax Treatment of Policy Benefits...................... 41
Possible Tax Law Change............................... 43
Taxation of the Company............................... 43
Employment-Related Benefit Plans...................... 43
ADDITIONAL INFORMATION...................................... 43
FINANCIAL STATEMENTS........................................ 49
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES............. Appendix A
DEATH BENEFIT OPTIONS....................................... Appendix B
</TABLE>
The Policy is not available in all States.
This prospectus constitutes an offering only in those jurisdictions where such
offering may lawfully be made.
Farm Bureau has not authorized any dealer, salesman or other person to give any
information or make any representations in connection with this offering other
than those contained in this prospectus. Do not rely on any such other
information or representations.
2
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DEFINITIONS
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ATTAINED AGE: The Insured's age on his or her last birthday on the Policy Date
plus the number of Policy Years since the Policy Date.
BENEFICIARY: The person or entity the Policyowner named in the application, or
by later designation, to receive the death proceeds upon the Insured's death.
BUSINESS DAY: Each day that the New York Stock Exchange is open for trading,
except: (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.
CASH VALUE: The total amount invested under the Policy. It is the sum of the
values of the Policy in each subaccount of the Variable Account, the value of
the Policy in the Declared Interest Option and any outstanding Policy Debt.
COMPANY, WE, US, OUR: Farm Bureau Life Insurance Company.
DECLARED INTEREST OPTION: A part of the Company's General Account. Policyowners
may allocate Net Premiums and transfer Cash Value to the Declared Interest
Option. The Company credits Cash Value in the Declared Interest Option with
interest at an annual rate guaranteed to be at least 4.5%.
DELIVERY DATE: The date when the Company issues the Policy and mails it to the
Policyowner.
DUE PROOF OF DEATH: Proof of death that is satisfactory to the Company. Such
proof may consist of the following:
(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 Cash Value is insufficient to cover the monthly deduction.
HOME OFFICE: The Company's principal offices at 5400 University Avenue, West Des
Moines, Iowa 50266.
INSURED: The person upon whose life the Company issues a Policy.
INVESTMENT OPTION: A separate investment portfolio of a Fund.
MATURITY DATE: The Policy Anniversary nearest the Insured's 95th birthday. It is
the date when the Policy terminates and the Policy's Cash Value less Policy Debt
becomes payable to the Policyowner or the Policyowner's estate.
MONTHLY DEDUCTION DAY: The same date in each month as the Policy Date. The
Company makes the monthly deduction on the Business Day coinciding with or
immediately following the Monthly Deduction Day. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.")
NET ASSET VALUE: The total current value of each Subaccount's securities, cash,
receivables and other assets less liabilities.
3
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NET CASH VALUE: The Cash Value of the Policy reduced by any outstanding Policy
Debt and increased by any unearned loan interest.
NET PREMIUM: The amount of premium remaining after we deduct the premium expense
charge (see "CHARGES AND DEDUCTIONS--Premium Expense Charge"). The Company will
allocate this amount, according to the Policyowner's instructions, among the
Subaccounts of the Variable Account and the Declared Interest Option.
POLICY: The flexible premium variable life insurance policy we offer and
describe in this prospectus, which term includes the Policy described in this
prospectus, the Policy application, 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 partial or complete
surrender equal to the lesser of (1) $25 or (2) 2% of the amount surrendered.
UNIT VALUE: The value determined by dividing each Subaccount's Net Asset Value
by the number of units outstanding at the time of calculation.
VALUATION PERIOD: The period between the close of business (3:00 p.m. central
time) on a Business Day and the close of business on the next Business Day.
VARIABLE ACCOUNT: Farm Bureau Life Variable Account, a separate investment
account the Company established to receive and invest the Net Premiums paid
under the Policies.
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SUMMARY AND DIAGRAM OF THE POLICY
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The following is a summary of the Policy's features. Please read the entire
Prospectus and the Policy for more detailed information. Unless otherwise
indicated, the description of the Policy contained in this Prospectus
assumes that the Policy is in force and that there is no outstanding Policy
Debt.
THE POLICY
- The Policy is a flexible premium variable life insurance policy
providing for:
- death proceeds payable to the Beneficiary upon the Insured's death,
- the accumulation of Cash Value,
- surrender rights, and
- loan privileges.
- We normally issue a Policy for a minimum Specified Amount of $25,000,
but we may issue Policies for lower Specified Amounts.
- You have flexibility in determining the frequency and amount of
premiums. (See "THE POLICY--Premiums.")
- We do not guarantee the amount and/or duration of the life insurance
coverage.
- Cash Value may increase or decrease, depending upon the investment
experience of the assets supporting the Policy. You bear the investment
risk of any depreciation of, and reap the benefit of any appreciation
in, the value of the underlying assets.
- If the Insured is alive and the Policy is in force on the Maturity Date,
we will pay you the Cash Value as of the end of the Business Day
coinciding with or immediately following the Maturity Date, reduced by
any outstanding Policy Debt.
- CANCELLATION PRIVILEGE. You may examine and cancel the Policy by
returning it to us before midnight of the 20th day after you receive it.
We will refund you the Cash Value on the Business Day we receive the
Policy plus any charges we deducted. Certain states may require us to
refund a different amount. (See "THE POLICY--Examination of Policy
(Cancellation Privilege).")
THE VARIABLE ACCOUNT
- The Variable Account has 15 Subaccounts, each of which invests
exclusively in one of the following Investment Options offered by the
Funds:
<TABLE>
<S> <C>
- Value Growth Portfolio - International Stock Portfolio
- High Grade Bond Portfolio - Growth Portfolio
- High Yield Bond Portfolio - Overseas Portfolio
- Managed Portfolio - Contrafund Portfolio
- Money Market Portfolio - Index 500 Portfolio
- Blue Chip Portfolio - Growth & Income Portfolio
- Mid-Cap Growth Portfolio - New America Growth Portfolio
- Personal Strategy Balanced Portfolio
</TABLE>
- You may instruct us to allocate Net Premiums and transfer Cash Values to
any of the Subaccounts.
- We will allocate your initial premium to the Declared Interest Option.
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- We will automatically allocate, without charge, your Cash Value in the
Declared Interest Option according to your allocation instructions upon
the earlier of:
(1) the date we receive a signed notice that you have received the
Policy, or
(2) 25 days after the Delivery Date.
- If we receive Net Premiums before (1) or (2) above, we will allocate
those monies to the Declared Interest Option.
- We will allocate Net Premiums received after (1) or (2) above according
to your allocation instructions.
THE DECLARED INTEREST OPTION
- You may allocate or transfer all or a portion of the Cash Value to the
Declared Interest Option, which guarantees a specified minimum rate of
return (at least 4.5% annually). (See "THE DECLARED INTEREST OPTION.")
PREMIUMS
- You choose when to pay and how much to pay.
- You must pay an initial premium equal to the greater of $100, or an
amount (when reduced by the premium expense charge) that is enough to
pay the first monthly deduction (for monthly premium payment mode
Policies), or the first two monthly deductions (for quarterly, semi-
annual or annual premium payment mode Policies).
- We deduct a premium expense charge (7% of each premium payment) and
credit the remaining premium (the Net Premium) according to your
instructions. (See "CHARGES and DEDUCTIONS--Premium Expense Charge.")
POLICY BENEFITS
CASH VALUE BENEFITS (SEE "POLICY BENEFITS--CASH VALUE BENEFITS.")
- Your Policy provides for a Cash Value. A Policy's Cash Value varies to
reflect:
- the amount and frequency of premium payments,
- the investment experience of the Subaccounts,
- interest earned on Cash Value in the Declared Interest Option,
- Policy Loans,
- partial surrenders and
- charges we assess under the Policy.
- You may fully surrender your Policy and receive the Net Cash Value.
- You may obtain a partial surrender of your Net Cash Value (minimum $500)
at any time before the Maturity Date.
- A partial or full surrender may have federal income tax consequences.
(See "FEDERAL TAX MATTERS".)
TRANSFERS (SEE "POLICY BENEFITS--TRANSFERS.")
- You may transfer amounts (minimum $100) among the Subaccounts an
unlimited number of times in a Policy Year.
- You may make one transfer per Policy Year between the Subaccounts and
the Declared Interest Option.
6
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- The first transfer in a Policy Year is free. We may deduct a $25 charge
from the amount transferred on subsequent transfers in that Policy Year.
- We do not count certain transfers for purposes of the one free transfer
limit. (See "THE POLICY--Special Transfer Privilege"; and "THE
POLICY--Premiums--Allocation of Net Premiums.")
LOANS (SEE POLICY BENEFITS--"LOAN BENEFITS.")
- You may borrow up to 90% of the Policy's Cash Value, less any previously
outstanding Policy Debt.
- We charge you a maximum annual interest rate of 7.4%.
- We secure your loan by segregating in the Declared Interest Option an
amount equal to the Policy Loan. We credit this amount with an effective
annual rate of interest between 4.5% and 6%.
- Policy Loans may have federal income tax consequences. (See "FEDERAL TAX
MATTERS.")
DEATH PROCEEDS (SEE "POLICY BENEFITS--DEATH PROCEEDS.")
- The Policy contains two death benefit options:
- Option A--the death benefit is the greater of the sum of the
Specified Amount and the Policy's Cash Value, or the Cash Value
multiplied by the specified amount factor for the Insured's
Attained Age, as set forth in the Policy.
- Option B--the death benefit is the greater of the Specified Amount,
or the Cash Value multiplied by the specified amount factor for the
Insured's Attained Age, as set forth in the Policy.
- Under either death benefit option, so long as the Policy remains in
force, the death benefit will not be less than the Specified Amount of
the Policy on the date of death.
- To determine the death proceeds, we reduce the death benefit by any
outstanding Policy Debt and increase the death benefit by any unearned
loan interest and any premiums paid after the date of death. We may pay
the proceeds in a lump sum or in accordance with a payment option.
- You may change the Specified Amount or the death benefit option.
CHARGES (SEE "CHARGES AND DEDUCTIONS")
PREMIUM EXPENSE CHARGE
- We deduct a Premium Expense Charge equal to 7% of each premium. The
remaining amount is the Net Premium.
CASH VALUE CHARGES
- Each month, we make a monthly deduction (that varies from month to
month) equal to the sum of:
- a cost of insurance charge,
- the cost of any additional insurance benefits added by rider, and
- a $3 administrative charge.
- During the first 12 Policy Months and during the 12 Policy Months
immediately following an increase in Specified Amount, the monthly
deduction will include a first year monthly administrative charge
ranging from $0.05 to $0.50 per $1,000 of Specified Amount. This charge
varies depending upon the Attained Age of the Insured and the Policy's
total Specified Amount.
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- Upon partial or complete surrender of a Policy, we assess a charge equal
to the lesser of $25 or 2% of the amount surrendered.
- We may deduct a $25 charge from the amount transferred on the second and
subsequent transfers in a Policy Year.
CHARGES AGAINST THE VARIABLE ACCOUNT
- We deduct a daily mortality and expense risk charge from the average
daily net assets of each Subaccount. The charge equals an effective
annual rate of .90%.
- We may assess a charge against the Variable Account for federal income
taxes that may be attributable to the Variable Account.
- Because the Variable Account purchases shares of the Investment Options,
the value of the average net assets of the Variable Account will reflect
the investment advisory fee and other expenses incurred by each
Investment Option. The following table indicates the Investment Options'
fees and expenses (after waivers or reimbursements) for the year ended
December 31, 1999.
<TABLE>
<CAPTION>
ADVISORY OTHER TOTAL
INVESTMENT OPTION FEE EXPENSES EXPENSES
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<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>
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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 that invest in the same
Investment Options of the Funds. These policies may have different
charges that could affect Subaccount performance, and may offer
different benefits more suitable to your needs. You may contact us to
obtain more information about these policies.
TAX TREATMENT (SEE "FEDERAL TAX MATTERS")
- If we issue a Policy on the basis of a standard premium class, we
believe that the Policy should qualify as a life insurance contract for
federal income tax purposes.
- If we issue a Policy on a substandard basis, it is not clear whether or
not the Policy would qualify as a life insurance contract for federal
income tax purposes.
- If a Policy qualifies as a life insurance contract for federal income
tax purposes, the Cash Value under a Policy should be subject to the
same federal income tax treatment as cash value under a conventional
fixed-benefit Policy--the Policyowner is generally not deemed to be in
constructive receipt of Cash Values under a Policy until there is a
distribution from the Policy.
- Death proceeds payable under a Policy should be completely excludable
from the gross income of the Beneficiary. As a result, the Beneficiary
generally will not be taxed on these proceeds.
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DIAGRAM
The diagram below illustrates how premium payments are distributed in the
Policy.
PREMIUM
- LESS PREMIUM EXPENSE CHARGE
AND PREMIUM TAXES
\/ \/
SUBACCOUNTS DECLARED
- LESS FUND EXPENSES INTEREST OPTION
MINIMUM = 4.5%
\/ \/
GAIN/LOSS INTEREST EARNED
\/ \/
POLICY ACCUMULATED VALUE
- LESS ADMINISTRATIVE CHARGES,
COST OF INSURANCE AND MORTALITY
AND EXPENSE CHARGES
- We deduct a 7% premium expense charge from all premium payments.
- We charge a $3 policy fee each month (monthly administrative charge) to
cover Policy maintenance.
- Each month, we deduct mortality charges (cost of insurance charge) and
charges for riders. Charges for the mortality cost may increase or
decrease.
- A first-year monthly administrative charge is deducted to cover costs of
setting up the policy. Surrenders are subject to a $25 fee or 2% of the
amount surrendered, if less.
- We assess a daily mortality and expense risk charge at an annual rate of
.90%.
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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 under the
Investment Company Act of 1940. The Variable Account meets the definition of
a separate account under the federal securities laws. Registration with the
Securities and Exchange Commission does not mean that the Commission
supervises the management or investment practices or policies of the
Variable Account or the Company. The Variable Account is also subject to the
laws of the State of Iowa which regulate the operations of insurance
companies domiciled in Iowa.
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INVESTMENT OPTIONS
The Variable Account invests in shares of the Investment Options described
below. Each of these Investment Options was formed as an investment vehicle
for insurance company separate accounts. Each Investment Option has its own
investment objectives and separately determines the income and
11
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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.
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.")
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
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.
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. 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>
13
<PAGE>
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS. Fidelity Management & Research
Company serves as the investment adviser to these Funds. Bankers Trust Company
serves as sub-investment adviser to the Index 500 Portfolio. The following
portfolios are available under the Policy.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Fidelity VIP Growth Portfolio - This Portfolio seeks capital appreciation by investing
primarily in common stocks. The Portfolio, however, is
not restricted to any one type of security and may pursue
capital appreciation through the purchase of bonds and
preferred stocks. The Portfolio does not place any
emphasis on dividend income from its investments, except
when the adviser believes this income will have a
favorable influence on the market value of the security.
Growth may be measured by factors such as earnings or
gross sales.
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.)
14
<PAGE>
We may receive compensation from an affiliate(s) of one or more of the Funds
based upon an annual percentage of the average assets we hold in the
Investment Options. These amounts are intended to compensate us for
administrative and other services we provide to the Funds and/or
affiliate(s).
Each Fund is registered with the Securities and Exchange Commission as an
open-end, diversified management investment company. Such registration does
not involve supervision of the management or investment practices or
policies of the 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 Cash Value in
the Variable Account without notice to and prior approval of the Securities
and Exchange Commission, to the extent required by the Investment Company
Act of 1940 or other applicable law. In the event of any such substitution
or change, we may, by appropriate endorsement, make such changes in these
and other policies as may be necessary or appropriate to reflect such
substitution or change. Nothing contained in this Prospectus shall prevent
the Variable Account from purchasing other securities for other series or
classes of policies, or from permitting a conversion between series or
classes of policies on the basis of requests made by Policyowners.
We also reserve the right to establish additional subaccounts of the
Variable Account, each of which would invest in shares of a new Investment
Option, with a specified investment objective. We may establish new
subaccounts when, in our sole discretion, marketing, tax or investment
conditions warrant, and we may make any new subaccounts available to
existing Policyowners on a basis we determine. Subject to obtaining any
approvals or consents required by applicable law, we may transfer the assets
of one or more Subaccounts to any other Subaccount(s), or one or more
Subaccounts may be eliminated or combined with any other Subaccount(s) if,
in our sole discretion, marketing, tax or investment conditions warrant.
If we deem it to be in the best interests of persons having voting rights
under the Policies, we may
- operate the Variable Account as a management company under the
Investment Company Act of 1940,
- deregister the Variable Account under that Act in the event such
registration is no longer required, or,
- subject to obtaining any approvals or consents required by
applicable law, combine the Variable Account with other Company
separate accounts.
To the extent permitted by applicable law, we may also transfer the Variable
Account's assets associated with the Policies to another separate account.
In addition, we may, when permitted by law, restrict or eliminate any voting
rights of Policyowners or other persons who have voting rights as to the
Variable Account. (See "ADDITIONAL INFORMATION--Voting Rights.")
- --------------------------------------------------------------------------------
THE POLICY
- --------------------------------------------------------------------------------
PURCHASING THE POLICY
In order to issue a Policy, we must receive a completed application,
including payment of the initial premium, at our Home Office. We ordinarily
will issue a Policy only for Insureds who are 0 to 80 years of age at their
last birthday and who supply satisfactory evidence of insurability to the
15
<PAGE>
Company. Acceptance is subject to our underwriting rules and we may, in our
sole discretion, reject any application or premium for any lawful reason.
The minimum Specified Amount for which we will issue a Policy is normally
$25,000, although we may, in our discretion, issue Policies with Specified
Amounts of less than $25,000.
The effective date of insurance coverage under the Policy will be the later
of:
- the Policy Date,
- the date the Insured signs the last of any amendments to the initial
application required by our underwriting rules, or
- the date when we receive the full initial premium at the Home
Office.
The Policy Date will be the later of (1) the date of the initial
application, or (2) the date we receive any additional information at the
Home Office if our underwriting rules require additional medical or other
information.
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 an
initial premium equal to the greater of $100, or an amount that, when
reduced by the premium expense charge, will be sufficient to pay the monthly
deduction for the first Policy Month (for Policies established through a
monthly premium payment mode), or an initial premium that, when reduced by
the premium expense charge, will be sufficient to pay the monthly deductions
for the first two Policy months (for Policies established through a
quarterly, semi-annual or annual premium payment mode). Thereafter, subject
to the minimum and maximum premium limitations described below, you may also
make unscheduled premium payments at any time prior to the Maturity Date.
The Company offers a conversion program for its term insurance or Executive
Term policies. Under this program, owners of one of our term policies can
elect to convert their term insurance policy to a permanent insurance
policy, including the Policy, provided the conversion is done prior to the
expiration of the conversion privilege stated in the term policy. Upon
conversion, we will credit to the initial premium for the Policy an amount
equal to the annual premium paid on the term policy, up to a limit of $5 per
$1,000 of the term insurance face amount. Custom Term II contains a Premium
Credit Benefit that allows the policyowner credit towards the purchase of a
Policy at any time between the first and sixth policy anniversaries on their
term policy. Upon exercise of this benefit, we will credit to the initial
premium for the Policy an amount equal to the annual premium paid on the
term policy, up to a limit of $5 per $1,000 of the term insurance face
amount. The existing Custom Term II policy need not be canceled to use this
benefit. We will treat these credits as a premium for purposes of Policy
provisions applicable to premiums, such as deduction of the premium expense
charge. Please see your registered representative for more information.
Registered representatives receive a commission upon a conversion.
PLANNED PERIODIC PREMIUMS. Each Policyowner will determine a planned
periodic premium schedule that provides for the payment of a level premium
over a specified period of time on a quarterly, semi-annual or annual basis.
We may, at our discretion, permit you to make planned periodic premium
payments on a monthly basis. We ordinarily will send periodic reminder
notices to the
16
<PAGE>
Policyowner for each planned periodic premium. Depending on the duration of
the planned periodic premium schedule, the timing of planned payments could
affect the tax status of the Policy. (See "FEDERAL TAX MATTERS.")
You are not required to pay premiums in accordance with the planned periodic
premium schedule. Furthermore, you have considerable flexibility to alter
the amount, frequency and the time period over which you pay planned
periodic premiums; however, we must consent to any planned periodic payment
less than $100. Changes in the planned premium schedule may have federal
income tax consequences. (See "FEDERAL TAX MATTERS.")
Paying a planned periodic premium will not guarantee that the Policy remains
in force. Instead, the duration of the Policy depends upon the Policy's Cash
Value. Thus, even if you do pay planned periodic premiums, the Policy will
nevertheless lapse if Net Cash Value is insufficient on a Monthly Deduction
Day to cover the monthly deduction (see "CHARGES AND DEDUCTIONS--Monthly
Deduction") and a Grace Period expires without a sufficient payment (see
"THE POLICY--Policy Lapse and Reinstatement--LAPSE").
UNSCHEDULED PREMIUMS. Each unscheduled premium payment must be at least
$100; however, we may, in our discretion, waive this minimum requirement. We
reserve the right to limit the number and amount of unscheduled premium
payments. An unscheduled premium payment may have federal income tax
consequences. (See "FEDERAL TAX MATTERS.")
PREMIUM LIMITATIONS. In no event may the total of all premiums paid, both
planned periodic and unscheduled, exceed the applicable maximum premium
limitation imposed by federal tax laws. Because the maximum premium
limitation is in part dependent upon the Specified Amount for each Policy,
changes in the Specified Amount may affect this limitation. If at any time
you pay a premium that would result in total premiums exceeding the
applicable maximum premium limitation, we will accept only that portion of
the premium which will make total premiums equal the maximum. We will return
any part of the premium in excess of that amount and we will not accept
further premiums until allowed by the applicable maximum premium limitation.
PAYMENT OF PREMIUMS. We will treat any payments you make first as payment of
any outstanding Policy Debt unless you indicate that the payment should be
treated otherwise. Where you make no indication, we will treat any portion
of a payment that exceeds the amount of any outstanding Policy Debt as a
premium payment.
NET PREMIUMS. The Net Premium is the amount available for investment. The
Net Premium equals the premium paid less the premium expense charge. (See
"CHARGES AND DEDUCTIONS--Premium Expense Charge.")
ALLOCATING NET PREMIUMS. In 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
Cash Value in the Declared Interest Option, without charge, among the
Subaccounts and Declared Interest Option in accordance with your allocation
instructions.
We allocate Net Premiums received on or after (1) or (2) above in accordance
with your instructions, to the Variable Account, the Declared Interest
Option, or both. You do not waive your cancellation privilege by sending us
the signed notice of receipt of the Policy (see "THE POLICY--Examination of
Policy (Cancellation Privilege)").
17
<PAGE>
The following additional rules apply to Net Premium allocations:
- You must allocate at least 10% of each premium to any subaccount of the
Variable Account or to the Declared Interest Option.
- Your allocation percentages must be in whole numbers (we do not permit
fractional percentages).
- You may change the allocation percentages for future Net Premiums
without charge, at any time while the Policy is in force, by providing
us with a written notice signed by you on a form we accept. The change
will take effect on the date we receive the written notice at the Home
Office and will have no effect on prior cash values.
- --------------------------------------------------------------------------------
EXAMINATION OF POLICY (CANCELLATION PRIVILEGE)
You may cancel the Policy by delivering or mailing written notice or sending
a telegram to us at the Home Office, and returning the Policy to us at the
Home Office before midnight of the 20th day you receive the Policy. (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 sum of:
- the Cash Value on the Business Day on or next following the date we
receive the Policy at the Home Office,
- any premium expense charges we deducted,
- monthly deductions made on the Policy Date and any Monthly Deduction
Day, and
- amounts approximating the daily mortality and expense risk charges
against the Variable Account.
(Owners in the state of Utah will receive the greater of (1) the Policy's
Cash Value plus an amount approximately equal to any charges we deducted
from premiums, Cash Value and the Variable Account, or (2) premiums paid.)
- --------------------------------------------------------------------------------
POLICY LAPSE AND REINSTATEMENT
LAPSE. Your Policy may lapse (terminate without value) if the Net Cash Value
is insufficient on a Monthly Deduction Day to cover the monthly deduction
(see "CHARGES AND DEDUCTIONS--Monthly Deduction") AND a Grace Period expires
without a sufficient payment. Insurance coverage will continue during the
Grace Period, but we will deem the Policy to have no Cash Value for purposes
of Policy Loans and surrenders during such Grace Period. The death proceeds
payable during the Grace Period will equal the amount of the death proceeds
payable immediately prior to the commencement of the Grace Period, reduced
by any due and unpaid monthly deductions.
A Grace Period of 61 days will commence on the date we send you a notice of
any insufficiency, at which time the Cash Value in each Subaccount will be
automatically transferred without charge to the Declared Interest Option.
To avoid lapse and termination of the Policy without value, we must receive
from you during the Grace Period a premium payment that, when reduced by the
premium expense charge (see "CHARGES AND DEDUCTIONS--Premium Expense
Charge"), will be at least equal to three times the monthly deduction due on
the Monthly Deduction Day immediately preceding the Grace Period (see
"CHARGES AND DEDUCTIONS--Monthly Deduction"). If your Policy enters a Grace
Period, the amount transferred to the Declared Interest Option will remain
there unless and until you provide us with allocation instructions.
18
<PAGE>
REINSTATEMENT. Prior to the Maturity Date, you may reinstate a lapsed Policy
at any time within five years of the Monthly Deduction Day immediately
preceding the Grace Period which expired without payment of the required
premium. You must submit the following items to us:
- A written application for reinstatement signed by the Policyowner
and the Insured;
- Evidence of insurability we deem satisfactory;
- A premium that, after the deduction of the premium expense charge,
is at least sufficient to keep the Policy in force for three months;
and
- An amount equal to the monthly cost of insurance for the two Policy
Months prior to lapse.
State law may limit the premium to be paid on reinstatement to an amount
less than that described. To the extent that we did not deduct the first
year monthly administrative charge for a total of twelve Policy Months prior
to lapse, we will continue to deduct such charge following reinstatement of
the Policy until we have assessed such charge, both before and after the
lapse, for a total of 12 Policy Months. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.") We will not reinstate a Policy surrendered
for its Cash Value. The lapse of a Policy with loans outstanding may have
adverse tax consequences (see "FEDERAL TAX MATTERS--Policy Proceeds.")
The effective date of the reinstated Policy will be the Monthly Deduction
Day coinciding with or next following the date we approve the application
for reinstatement. Upon reinstatement of your Policy, 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 life insurance
policy by requesting that we transfer all of the Cash Value in the Variable
Account to the Declared Interest Option. You may exercise this special
transfer privilege once each Policy Year. Once you exercise the special
transfer privilege, we automatically will credit all future premium payments
to the Declared Interest Option, until you request a change in allocation to
convert the Policy back to a flexible premium variable life insurance
policy. The Company will not impose any charge for transfers resulting from
the exercise of the special transfer privilege.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
The Company will permit the owner of a flexible premium fixed-benefit life
insurance policy ("fixed-benefit policy") issued by the Company, within
12 months of the policy date shown in such policy, to exchange his
fixed-benefit policy (forms #434-112 and #834-112 only) for a Policy on the
life of the Insured. After the first 12 months following the policy date
shown in these fixed-benefit policies (as well as certain other
fixed-benefit policies issued by the Company), we will permit the owner of
such policy to exchange his fixed-benefit policy for a Policy when the owner
applies for an increase of $25,000 or more in Specified Amount. The Policy
Date will be the date you sign the application for the Policy. Riders issued
on the original fixed-benefit policy which are not offered in the Policy
will not be available on the new Policy. Riders which are available may be
exchanged to the new Policy.
If an exchange occurs in the first 12 months from the fixed-benefit policy's
policy date:
- the Policy will have a Specified Amount equal to the specified
amount of the fixed-benefit policy,
- the Policy will require no evidence of insurability to exercise the
exchange privilege, and
- we will place the Insured in the premium class applicable to the
initial specified amount under the fixed-benefit policy, unless
there has been an underwritten increase in specified amount, in
which event we will place the Insured in the premium class
applicable to such increase in specified amount with respect to the
entire Specified Amount under the Policy.
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<PAGE>
If an exchange occurs after the first 12 months from the fixed benefit
policy's policy date:
- the Policy will have a Specified Amount equal to the specified
amount of the fixed-benefit policy plus the increase to purchase a
Policy,
- the increase in Specified Amount will require underwriting to
exercise the exchange privilege,
- we will place the Insured in the premium class applicable to the
initial specified amount under the fixed-benefit policy, unless
there has been an underwritten increase in specified amount, in
which event we will place the Insured in the premium class
applicable to such increase in specified amount with respect to the
entire amount exchanged,
- with regard to the increase in Specified Amount, we will place the
Insured in the premium class applicable to the increase,
- the incontestable and suicide provisions of the Policy will apply
only to the increased amount of coverage, except for any period
remaining on the fixed-benefit policy, and
- registered representatives will receive commissions on the increase
in Specified Amount only.
The Company will initially allocate the net cash value of the fixed-benefit
policy to the Declared Interest Option. When 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 Cash Value in the Declared Interest
Option, without charge, among the Subaccounts and the Declared Interest
Option pursuant to the allocation instructions set forth in the application
for the Policy.
The Company will waive the premium expense charge on the net cash value of
the fixed-benefit policy applied to the Policy pursuant to an exchange. In
addition, the Company will assess the First Year Monthly Administrative
Charge only to the extent that the Company has not assessed 12 monthly per
$1,000 charges under the fixed-benefit policy. We will assess the First Year
Monthly Administrative Charge on an increase in Specified Amount related to
a fixed-benefit policy exchanged after the first 12 months. Otherwise, we
will make charges and deductions in the manner and amounts described
elsewhere in the Prospectus. (See "CHARGES AND DEDUCTIONS")
We will not permit an exchanging owner to carry over an outstanding loan
under his fixed-benefit policy. Any outstanding loan and loan interest must
be repaid prior to the date of exchange. If not repaid prior to the date of
exchange, the Company will reflect the amount of the outstanding loan and
interest thereon in the net cash value of the fixed-benefit policy. To the
extent a fixed-benefit policy with an outstanding loan is exchanged for an
unencumbered Policy, the exchanging owner could recognize income at the time
of the exchange up to the amount of such loan (including any due and unpaid
interest on such loan). (See "FEDERAL TAX MATTERS--Tax Treatment of Policy
Benefits").
The Company believes that an exchange of a fixed-benefit policy for a Policy
generally should be treated as a nontaxable exchange within the meaning of
Section 1035 of the Internal Revenue Code of 1986, as amended. A Policy
purchased in exchange will generally be treated as a newly issued contract
as of the effective date of the Policy. If you surrender your fixed-benefit
policy in whole or in part, and after receipt of the proceeds you use the
surrender proceeds or partial surrender proceeds to purchase a Policy, it
will not be treated as a non-taxable exchange. The surrender proceeds will
generally be includible in income. (See "FEDERAL TAX MATTERS--Tax Treatment
of Policy Benefits.")
The Policy differs from a fixed-benefit policy in many significant respects.
Most importantly, the Cash Value under this Policy may consist, entirely on
in part, of Subaccount value which fluctuates in response to the net
investment return of the Variable Account. In contrast, the cash values
under a fixed-benefit policy always reflect interest credited by the
Company. While we guarantee a minimum rate of interest, we have previously
credited interest at higher rates. Accordingly, cash values under a
20
<PAGE>
fixed-benefit policy reflect changing current interest rates and do not vary
with the investment performance of a Variable Account.
Owners of a fixed-benefit policy should carefully consider whether it will
be advantageous to replace a fixed-benefit policy with a Policy (or to
surrender in full or in part a fixed-benefit policy and use the surrender or
partial surrender proceeds to purchase a Policy). Owners of a fixed-benefit
policy should consult their tax advisers before exchanging a fixed-benefit
policy for this Policy, or before surrendering in whole or in part their
fixed-benefit policy and using the proceeds to purchase a Policy.
- --------------------------------------------------------------------------------
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 Cash Value by completely or partially
surrendering the Policy. (See "POLICY BENEFITS--Cash Value
Benefits--SURRENDER 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
death of the Insured 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").
- --------------------------------------------------------------------------------
CASH VALUE BENEFITS
SURRENDER PRIVILEGES. At any time prior to the Maturity Date while the
Policy is in force, you may surrender the Policy in whole or in part by
sending a written request to the Company at our Home Office. A Surrender
Charge to cover the cost of processing the surrender will be payable upon
complete surrender and upon each partial surrender. The charge is equal to
the lesser of $25 or 2% of the amount requested. (See "CHARGES AND
DEDUCTIONS--Surrender Charge"). We ordinarily mail surrender proceeds to the
Policyowner within seven days after we receive a signed request for a
surrender at our Home Office, although we may postpone payments under
certain circumstances. (See "GENERAL PROVISIONS--Postponement of Payments.")
COMPLETE SURRENDERS. The amount payable on complete surrender of the Policy
is the Net Cash Value at the end of the Valuation Period when we receive the
request, less the Surrender Charge. We may pay this amount in a lump sum or
under one of the payment options specified in the Policy, as requested by
the Policyowner. (See "POLICY BENEFITS--Payment Options"). If you surrender
the entire Net Cash Value, all insurance in force will terminate. See
"FEDERAL TAX MATTERS" for a discussion of the tax consequences associated
with complete surrenders.
PARTIAL SURRENDERS. A Policyowner may obtain a portion of the Policy's Net
Cash Value upon partial surrender of the Policy.
- A partial surrender must be at least $500.
- A partial surrender cannot exceed the lesser of (1) the Net Cash
Value less $500 or (2) 90% of the Net Cash Value.
We deduct the Surrender Charge from the remaining Cash Value. You may
request that we pay the proceeds of a partial surrender in a lump sum or
under one of the payment options specified in the Policy. (See "POLICY
BENEFITS--Payment Options").
We will allocate a partial surrender (together with the Surrender Charge)
among the Subaccounts and the Declared Interest Option in accordance with
the Policyowner's written instructions. If we do not receive any such
instructions with the request for partial surrender, we will allocate the
partial surrender among the Subaccounts and the Declared Interest Option in
the same proportion that the Cash Value in each of the Subaccounts and the
Cash Value in the Declared Interest Option, reduced by any outstanding
Policy Debt, bears to the total Cash Value on the date we receive the
request at the Home Office.
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Partial surrenders will affect both the Policy's Cash Value and the death
proceeds payable under the Policy. (See "POLICY BENEFITS--Death Proceeds.")
- The Policy's Cash Value will be reduced by the amount of the partial
surrender.
- If the death benefit payable under either death benefit option both
before and after the partial surrender is equal to the Cash Value
multiplied by the specified amount factor set forth in the Policy, a
partial surrender will result in a reduction in death proceeds equal
to the amount of the partial surrender, multiplied by the specified
amount factor then in effect.
- If the death benefit is not so affected by the specified amount
factor, the reduction in death proceeds will be equal to the partial
surrender.
If Option B is in effect at the time of surrender, partial surrenders will
reduce the Policy's Specified Amount by the amount of Cash Value
surrendered. If Option A is in effect at the time of the surrender, there
will be no effect on Specified Amount. (See "POLICY BENEFITS--Death
Proceeds--DEATH BENEFIT OPTIONS.") The Specified Amount remaining in force
after a partial surrender may not be less than the minimum Specified Amount
for the Policy in effect on the date of the partial surrender, as published
by the Company. As a result, we will not process any partial surrender that
would reduce the Specified Amount below this minimum.
If increases in the Specified Amount previously have occurred, a partial
surrender will first reduce the Specified Amount of the most recent
increase, then the next most recent increases successively, then the
coverage under the original application. Thus, a partial surrender may
either increase or decrease the amount of the cost of insurance charge,
depending upon the particular circumstances. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction--COST OF INSURANCE.") For a discussion of the
tax consequences associated with partial surrenders, see "FEDERAL TAX
MATTERS."
NET CASH VALUE. Net Cash Value equals the Policy's Cash Value reduced by any
outstanding Policy Debt and increased by any unearned loan interest.
CALCULATING CASH VALUE. The Policy provides for the accumulation of Cash
Value. The Cash Value of the Policy is equal to the sum of the Cash Values
in each Subaccount, plus the Cash Value in the Declared Interest Option,
including amounts transferred to the Declared Interest Option to secure
outstanding Policy Debt. We determine Cash Value on each Business Day, and
there is no guaranteed minimum Cash Value.
- Cash Value will reflect a number of factors, including
- Net Premiums paid,
- partial surrenders,
- Policy Loans,
- charges assessed in connection with the Policy,
- interest earned on the Cash Value in the Declared Interest
Option, and
- investment performance of the Subaccounts to which the Cash
Value is allocated.
As of the Policy Date, the Cash Value equals the initial Net Premium less
the monthly deduction made on the Policy Date.
On the Business Day coinciding with or immediately following the date we
receive notice that the Policyowner has received the Policy, but no later
than 25 days after the Delivery Date, we will automatically transfer the
Cash Value (all of which is in the Declared Interest Option) among the
Subaccounts and the Declared Interest Option in accordance with your
percentage allocation instructions. At the end of each Valuation Period
thereafter, the Cash Value in a Subaccount will equal:
- The total Subaccount units represented by the Cash Value at the end
of the preceding Valuation Period, multiplied by the Subaccount's
unit value for the current Valuation Period; PLUS
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- Any Net Premiums received during the current Valuation Period which
are allocated to the Subaccount; PLUS
- All Cash Values transferred to the Subaccount from the Declared
Interest Option or from another Subaccount during the current
Valuation Period; MINUS
- All Cash Values transferred from the Subaccount to another
Subaccount or to the Declared Interest Option during the current
Valuation Period, including amounts transferred to the Declared
Interest Option to secure Policy Debt; MINUS
- All partial surrenders (and any portion of the Surrender Charge)
from the Subaccount during the current Valuation Period; MINUS
- The portion of any monthly deduction charged to the Subaccount
during the current Valuation Period to cover the Policy Month
following the Monthly Deduction Day.
The Policy's total Cash Value in the Variable Account equals the sum of the
Policy's Cash Value in each Subaccount.
UNIT VALUE. Each Subaccount has a Unit Value. When you allocate Net Premiums
or transfer other amounts into a Subaccount, we purchase a number of units
based on the Unit Value of the Subaccount as of the end of the Valuation
Period during which the allocation or transfer is made. Likewise, when
amounts are transferred out of a Subaccount, units are redeemed on the same
basis. On any day, a Policy's Cash Value in a Subaccount is equal to the
number of units held in such Subaccount, multiplied by the Unit Value of
such Subaccount on that date.
For each Subaccount, we initially set the Unit Value set at $10 when the
Subaccount first purchased shares of the designated Investment Option. We
calculate the Unit Value for each subsequent valuation period by dividing
(a) by (b) where:
(a) is (1) the Net Asset Value of the net assets of the Subaccount at
the end of the preceding Valuation Period, PLUS
(2) the investment income and capital gains, realized or
unrealized, credited to the net assets of that Subaccount
during the Valuation Period for which the Unit Value is being
determined, MINUS
(3) the capital losses, realized or unrealized, charged against
those assets during the Valuation Period, MINUS
(4) any amount charged against the Subaccount for taxes, or any
amount we set aside during the Valuation Period as a provision
for taxes attributable to the operation or maintenance of that
Subaccount, MINUS
(5) a charge no greater than 0.0024548% of the average daily net
assets of the Subaccount for each day in the Valuation Period.
This corresponds to an effective annual rate of .90% of the
average daily net assets of the Subaccount for mortality and
expense risks incurred in connection with the Policies.
(b) is the number of units outstanding at the end of the preceding
Valuation Period.
The Unit Value for a Valuation Period applies for each day in the period. We
value the assets in the Variable Account at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
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TRANSFERS
The following features apply to transfers under the Policy:
- You may transfer amounts among the Subaccounts an unlimited number
of times in a Policy Year; however, you may only make one transfer
per Policy Year between the Declared Interest Option and the
Variable Account.
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- 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 Cash Value in the Subaccount or in the Declared
Interest Option (reduced, in the case of the Declared Interest
Option, by any outstanding Policy Debt). The Company may, at its
discretion, waive the $100 minimum requirement.
- The transfer will be effective as of the end of the Valuation Period
during which we receive the request at the Home Office.
- The first transfer in each Policy Year is free. Each time you
subsequently transfer amounts in that Policy Year, we may assess a
transfer charge of $25. We will deduct the transfer charge from the
amount transferred unless you submit payment for the charge at the
time of your request. Once we issue a Policy, we will not increase
this charge. (See "CHARGES AND DEDUCTIONS--Transfer Charge.")
- For purposes of these limitations and charges, we consider all
transfers effected on the same day as a single transfer.
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LOAN BENEFITS
POLICY LOANS. So long as the Policy remains in force and has a positive Net
Cash Value, you may borrow money from the Company at any time using the
Policy as the sole security for the Policy Loan. A loan taken from, or
secured by, a Policy may have federal income tax consequences. (See "FEDERAL
TAX MATTERS.")
The maximum amount that you may borrow at any time is 90% of the Cash Value
as of the end of the Valuation Period during which we receive the request
for the Policy Loan at 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
Cash Value in the Declared Interest Option less Policy Debt outstanding is
less than the amount of such Policy Loan, we will transfer the difference
from the subaccounts of the Variable Account, which have Cash Value, in the
same proportions that the Policy's Cash Value in each Subaccount bears to
the Policy's total Cash Value in the Variable Account. We will determine
Cash Values as of the end of the Valuation Period during which we receive
the request for the Policy Loan at the Home Office.
We normally will mail loan proceeds to you within seven days after receipt
of a written request. Postponement of a Policy Loan may take place under
certain circumstances. (See "GENERAL PROVISIONS--Postponement of Payments.")
Amounts segregated within the Declared Interest Option as security for
Policy Debt will bear interest at an effective annual rate set by the
Company. (See "POLICY BENEFITS--Loan Benefits--EFFECT ON INVESTMENT
PERFORMANCE.")
LOAN INTEREST CHARGED. The interest rate charged on Policy Loans is not
fixed. Initially, it will be the rate shown in the Policy on the policy data
page. The Company may at any time elect to change the interest rate, subject
to the following conditions:
(1) the rate may not exceed 7.4% per year in advance (which is equal to
an effective rate of 8%);
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(2) any increase in the interest rate may not exceed 1% per calendar
year; and
(3) changes in the interest rate may not occur more often than once in
any twelve-month period. We will send you notice of any change in
rate. The new rate will take effect on the Policy Anniversary
coinciding with or next following the date we change the rate.
Interest is payable in advance at the time you make any Policy Loan (for the
remainder of the Policy Year) and on each Policy Anniversary thereafter (for
the entire Policy Year) so long as there is Policy Debt outstanding. We will
subtract interest payable at the time you make a Policy Loan from the loan
proceeds. Thereafter, we will add interest not paid when due to the existing
Policy Debt and it will bear interest at the same rate charged for Policy
Loans. We will segregate the amount equal to unpaid interest within the
Declared Interest Option in the same manner that amounts for Policy Loans
are segregated within the Declared Interest Option. (See "POLICY
BENEFITS--Loan Benefits--ALLOCATION OF POLICY LOAN.")
Because we charge interest in advance, we will add any interest that has not
been earned to the death benefit payable at the Insured's death and to the
Cash Value upon complete surrender, and we will credit it to the Cash Value
in the Declared Interest Option upon repayment of Policy Debt.
EFFECT ON INVESTMENT PERFORMANCE. Amounts transferred from the Variable
Account as security for Policy Debt will no longer participate in the
investment performance of the Variable Account. We will credit all amounts
held in the Declared Interest Option as security for Policy Debt with
interest on each Monthly Deduction Day at an effective annual rate of
between 4.5% and 6.0%, as determined and declared by the Company. We will
not credit additional interest to these amounts. The interest credited will
remain in the Declared Interest Option unless and until transferred by the
Policyowner to the Variable Account, but will not be segregated within the
Declared Interest Option as security for Policy Debt.
Even though you may repay Policy Debt in whole or in part at any time prior
to the Maturity Date if the Policy is still in force, Policy Loans will
affect the Cash Value of a Policy and may affect the death proceeds payable.
The effect could be favorable or unfavorable depending upon whether the
investment performance of the Subaccount(s) from which the Cash Value was
transferred is less than or greater than the interest rates actually
credited to the Cash Value segregated within the Declared Interest Option as
security for Policy Debt while Policy Debt is outstanding. In comparison to
a Policy under which no Policy Loan was made, Cash Value will be lower where
such interest rates credited were less than the investment performance of
the Subaccount(s), but will be higher where such interest rates were greater
than the performance of the Subaccount(s). In addition, death proceeds will
reflect a reduction of the death benefit by any outstanding Policy Debt.
POLICY DEBT. Policy Debt equals the sum of all unpaid Policy Loans and any
due and unpaid policy loan interest. Policy Debt is not included in Net Cash
Value, which is equal to Cash Value less Policy Debt. If Net Cash Value is
insufficient on a Monthly Deduction Day to cover the monthly deduction (see
"CHARGES AND DEDUCTIONS--Monthly Deduction"), 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 Insured's life and before the Maturity Date so long as the
Policy is in force. We subtract any Policy Debt not repaid from the death
benefit payable at the Insured's death, from Cash Value upon complete
surrender or from the maturity benefit. Any payments made by a Policyowner
will be treated first as the repayment of any outstanding Policy Debt,
unless the Policyowner indicates otherwise. Upon partial or full repayment
of Policy Debt, we will no longer segregate within the Declared Interest
Option the portion of the Cash Value securing the repaid portion of the
Policy
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Debt, but that amount will remain in the Declared Interest Option unless and
until transferred to the Variable Account by the Policyowner. We will notify
you when your Policy Debt is repaid in full.
For a discussion of the tax consequences associated with Policy Loans and
lapses, see "FEDERAL TAX MATTERS."
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DEATH PROCEEDS
So long as the Policy remains in force, the Policy provides for the payment
of death proceeds upon the death of the Insured.
- You may name one or more primary Beneficiaries or contingent
Beneficiaries and we will pay proceeds to the primary Beneficiary or
a contingent Beneficiary.
- If no Beneficiary survives the Insured, we will pay the death
proceeds to the Policyowner or his estate. We may pay death proceeds
in a lump sum or under a payment option. (See "POLICY
BENEFITS--Payment Options.")
To determine the death proceeds, we will reduce the death benefit by any
outstanding Policy Debt and increase it by any unearned loan interest and
any premiums paid after the date of death. We will ordinarily mail proceeds
within seven days after receipt by the Company of Due Proof of Death. We may
postpone payment, however, under certain circumstances. (See "GENERAL
PROVISIONS--Postponement of Payments.") We pay interest on those proceeds,
at an annual rate of no less than 3% or any rate required by law, from the
date of death to the date payment is made.
DEATH BENEFIT OPTIONS. Policyowners designate in the initial application one
of two death benefit options offered under the Policy. The amount of the
death benefit payable under a Policy will depend upon the option in effect
at the time of the Insured's death.
Under Option A, the death benefit will be equal to the greater of
(1) the sum of the current Specified Amount and the Cash Value, or
(2) the Cash Value multiplied by the specified amount factor.
We will determine Cash Value as of the end of the Business Day coinciding
with or immediately following the date of death. The specified amount factor
is 2.50 for an Insured Attained Age 40 or below on the date of death. For
Insureds with an Attained Age over 40 on the date of death, the factor
declines with age as shown in the Specified Amount Factor Table in
Appendix B. Accordingly, under Option A, the death proceeds will always vary
as the Cash Value varies (but will never be less than the Specified Amount).
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 Cash Value (determined as of the end of the Business Day
coinciding with or immediately following the date of death)
multiplied by the specified amount factor.
The specified amount factor is the same as under Option A. Accordingly,
under Option B the death benefit will remain level at the Specified Amount
unless the Cash Value multiplied by the specified amount factor exceeds the
current Specified Amount, in which case the amount of the death benefit will
vary as the Cash Value varies. 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 Cash Value, rather
than increased death benefits, Policyowners generally should select
Option B.
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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.")
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 Cash 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 Cash Value on the effective date
of the change. You may not make a change in the death benefit option if it
would result in a Specified Amount which is less than the minimum Specified
Amount in effect on the effective date of the change, or if after the change
the Policy would no longer qualify as life insurance under federal tax law.
We impose no charges in connection with a change in death benefit option;
however, a change in death benefit option will affect the cost of insurance
charges. (See "CHARGES AND DEDUCTIONS--Monthly Deduction--COST OF
INSURANCE.")
CHANGE IN EXISTING COVERAGE. After a Policy has been in force for one Policy
Year, you may adjust the existing insurance coverage by increasing or
decreasing the Specified Amount. To make a change, you must send us a
written request at our Home Office. Any change in the Specified Amount may
affect the cost of insurance rate and the net amount at risk, both of which
will affect 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.")
Any decrease in the Specified Amount will become effective on the Monthly
Deduction Day coinciding with or immediately following the date we approve
the request. The decrease will first reduce the Specified Amount provided by
the most recent increase, then the next most recent increases successively,
then the Specified Amount under the original application. The Specified
Amount following a decrease can never be less than the minimum Specified
Amount for the Policy in effect on the date of the decrease. A Specified
Amount decrease will not reduce the Surrender Charge.
To apply for an increase, you must provide us with evidence of insurability
we deem satisfactory. Any approved increase will become effective on the
Monthly Deduction Day coinciding with or immediately following the date we
approve the request. An increase will not become effective, however, if the
Policy's Cash Value on the effective date would not be sufficient to cover
the deduction for the increased cost of the insurance for the next Policy
Month.
CHANGES IN INSURANCE PROTECTION. You may increase or decrease the pure
insurance protection provided by a Policy--the difference between the death
benefit and the Cash Value--in one of several ways as insurance needs
change. These ways include increasing or decreasing the Specified Amount of
insurance, changing the level of premium payments and, to a lesser extent,
partially surrendering Cash Value.
Although the consequences of each of these methods will depend upon the
individual circumstances, they may be summarized as follows:
- A decrease in the Specified Amount will, subject to the applicable
specified amount factor limitations (see "POLICY BENEFITS--Death
Proceeds--DEATH BENEFIT OPTIONS"), decrease the pure insurance
protection and the cost of insurance charges under the Policy
without generally reducing the Cash Value.
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- An increase in the Specified Amount may increase the amount of pure
insurance protection, depending on the amount of Cash Value and the
resultant applicable specified amount factor. If the insurance
protection is increased, the cost of insurance charge generally will
increase as well.
- If you elect Option B, an increased level of premium payments will
increase the Cash Value and reduce the pure insurance protection,
until the Cash Value multiplied by the applicable specified amount
factor exceeds the Specified Amount. Increased premiums should also
increase the amount of funds available to keep the Policy in force.
- If you elect Option B, a reduced level of premium payments generally
will increase the amount of pure insurance protection, depending on
the applicable specified amount factor. It also will result in a
reduced amount of Cash Value and will increase the possibility that
the Policy will lapse.
- A partial surrender will reduce the death benefit. (See "POLICY
BENEFITS--Cash Value Benefits--SURRENDER PRIVILEGES.") However, it
only affects the amount of pure insurance protection if the death
benefit payable is based on the specified amount factor, because
otherwise the decrease in the benefit is offset by the amount of
Cash Value withdrawn. The primary use of a partial surrender is to
withdraw cash and reduce Cash Value.
In comparison, an increase in the death benefit due to the operation of the
specified amount factor occurs automatically and is intended to help assure
that the Policy remains qualified as life insurance under federal tax law.
The calculation of the death benefit based upon the specified amount factor
occurs only when the Cash Value of a Policy reaches a certain proportion of
the Specified Amount (which may or may not occur). Additional premium
payments, favorable investment performance and large initial premiums tend
to increase the likelihood of the specified amount factor becoming
operational after the first few Policy Years. Such increases will be
temporary, however, if the investment performance becomes unfavorable and/or
premium payments are stopped or decreased. A change in insurance protection
may have federal income tax consequences. (See "FEDERAL TAX MATTERS.")
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ACCELERATED PAYMENTS OF DEATH PROCEEDS
In the event that the Insured becomes terminally ill (as defined below), you
may (if residing in a state that has approved such an endorsement), by
written request and subject to the conditions stated below, have the Company
pay all or a portion of the accelerated death benefit immediately to you. If
not attached to the Policy beforehand, we will issue an accelerated death
benefit endorsement (the "Endorsement") providing for this right.
For this purpose, an Insured is terminally ill when a physician (as defined
by the Endorsement) certifies that he or she has a life expectancy of 12
months or less.
The accelerated death benefit is equal to the Policy's death benefit as
described on page 6, up to a maximum of $250,000 (the $250,000 maximum
applies in aggregate to all policies issued by the Company on the Insured),
less an amount representing a discount for 12 months at the interest rate
charged for loans under the Policy. The accelerated death benefit does not
include the amount of any death benefit payable under a rider that covers
the life of someone other than the Insured.
In the event that there is a loan outstanding under the Policy on the date
that the Policyowner requests a payment under the Endorsement, we reduce the
accelerated death benefit by a portion of the outstanding loan in the same
proportion that the requested payment under the Endorsement bears to the
total death benefit under the Policy. If the amount you request to be paid
under the Endorsement is less than the total death benefit under the Policy
and the Specified Amount of the Policy is equal to or greater than the
minimum Specified Amount, the Policy will remain in force with all values
and benefits under the Policy being reduced in the same proportion that the
new Policy benefit bears to the Policy benefit before exercise of the
Endorsement.
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There are several other restrictions associated with the Endorsement. These
are:
(1) the Endorsement is not valid if the Policy is within five years of
being matured,
(2) the consent of any irrevocable beneficiary or assignee is required
to exercise the Endorsement,
(3) we reserve the right, in our sole discretion, to require the
consent of the Insured or of any beneficiary, assignee, spouse or
other party of interest before permitting the exercise of the
Endorsement,
(4) we reserve the right to obtain the concurrence of a second medical
opinion as to whether any Insured is terminally ill, and
(5) the Endorsement is not effective where:
(a) you or the Insured would be otherwise required by law to use
the Endorsement to meet the claims of creditors, or
(b) the Insured would be otherwise required by any government
agency to exercise the Endorsement in order to apply for,
obtain or keep a government benefit or entitlement.
The Endorsement will terminate at the earlier of the end of the grace period
for which any premium is unpaid, upon receipt in our Home Office of your
written request to cancel the Endorsement or upon termination of the Policy.
The Company believes that for federal income tax purposes, an accelerated
death benefit payment received under an accelerated death benefit
endorsement should be fully excludable from the gross income of the
beneficiary, as long as the beneficiary is the insured under the Policy.
However, 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.
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BENEFITS AT MATURITY
If the Insured is alive and the Policy is in force on the Maturity Date, we
will pay to you the Policy's Cash Value as of the end of the Business Day
coinciding with or immediately following the Maturity Date, reduced by any
outstanding Policy Debt. (See "POLICY BENEFITS--Loan Benefits--REPAYMENT OF
POLICY DEBT.") We may pay benefits at maturity in a lump sum or under a
payment option. The Maturity Date is Attained Age 95.
Prior to the Maturity Date, your Policy may be exchanged for a universal
life policy to provide you continued coverage to age 115. The tax
consequences associated with continuing a Policy beyond age 100 are unclear.
Consult a tax adviser on this issue.
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PAYMENT OPTIONS
We may pay death proceeds and Cash Value due at maturity, or upon complete
or partial surrender of a Policy in whole or in part under a payment option.
There are currently five payment options available. We also may make
payments under any new payment option available at the time proceeds become
payable. In addition, we may pay proceeds in any manner acceptable to us.
You may designate an option in your application or notify us in writing at
our Home Office. During the life of the Insured, 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 Insured's 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.
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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 of the payment
contract, but is not obligated to declare that such additonal 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.
Payments under Options 2, 3, 4 or 5 will begin as of the date of the
Insured's death, on surrender or on the Maturity Date. Payments under Option
1 will begin at the end of the first interest period after the date proceeds
are otherwise payable.
OPTION 1--INTEREST INCOME. Periodic payments of interest earned from the
proceeds will be paid. Payments can be annual, semi-annual, quarterly or
monthly, as selected by the payee, and will begin at the end of the first
period chosen. Proceeds left under this plan will earn interest at a rate
determined by the Company, in no event less than 3% compounded yearly. The
payee may withdraw all or part of the proceeds at any time.
OPTION 2--INCOME FOR A FIXED PERIOD. Periodic payments will be made for a
fixed period not longer than 30 years. Payments can be annual, semi-annual,
quarterly or monthly. Guaranteed amounts payable under the plan will earn
interest at a rate determined by the Company, in no event less than 3%
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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<PAGE>
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CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
We deduct certain charges in connection with the Policy to compensate us for
(1) the services and benefits we provide; (2) the costs and expenses we
incur; and (3) the risks we assume, some of which are described below.
<TABLE>
<S> <C> <C>
SERVICES AND BENEFITS WE PROVIDE: - the death benefit, cash and loan benefits
under the Policy
- investment options, including premium
allocations
- administration of elective options
- the distribution of reports to Policyowners
COSTS AND EXPENSES WE INCUR: - costs associated with processing and
underwriting applications, issuing and
administering the Policy (including any
Policy riders)
- overhead and other expenses for providing
services and benefits
- sales and marketing expenses
- other costs of doing business, such as
collecting premiums, maintaining records,
processing claims, effecting transactions,
and paying Federal, state and local premium
and other taxes and fees
RISKS WE ASSUME: - that the cost of insurance charges we may
deduct are insufficient to meet our actual
claims because Insureds die sooner than we
estimate
- that the costs of providing the services
and benefits under the Policies exceed the
charges we deduct
</TABLE>
The nature and amount of these charges are described more fully below.
- --------------------------------------------------------------------------------
PREMIUM EXPENSE CHARGE
Before allocating Net Premiums among the Subaccounts and the Declared
Interest Option, we reduce premiums paid by a premium expense charge
consisting of a sales charge and a charge for premium taxes. The premium
less the premium expense charge equals the Net Premium.
SALES CHARGE. We deduct a sales charge equal to 5% of the premium from each
premium to compensate us for expenses incurred in distributing the Policy.
The sales charge in any Policy Year is not necessarily related to actual
distribution expenses incurred in that year. Instead, we expect to incur the
majority of distribution expenses in the early Policy Years and to recover
any deficiency over the life of the Policy and from our general assets,
including amounts derived from the mortality and expense risk charge.
PREMIUM TAXES. Various states and subdivisions thereof impose a tax on
premiums received by insurance companies. Therefore, the premium expense
charge currently includes a deduction of 2% of every premium for these
taxes. Premium taxes vary from state to state. The deduction represents an
amount we consider necessary to pay all premium taxes imposed by the states
and any subdivisions thereof. We reserve the right to change the amount of
this premium tax charge.
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<PAGE>
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MONTHLY DEDUCTION
We deduct certain charges monthly from the Cash Value of each Policy
("monthly deduction") to compensate us for the cost of insurance coverage
and any additional benefits added by rider (See "GENERAL
PROVISIONS--Additional Insurance Benefits"), for underwriting and start-up
expenses in connection with issuing a Policy and for certain administrative
costs. We deduct the monthly deduction on the Policy Date and on each
Monthly Deduction Day. We deduct it from the Declared Interest Option and
each Subaccount in the same proportion that the Policy's Net Cash Value in
the Declared Interest Option and the Policy's Cash Value in each Subaccount
bear to the total Net Cash Value of the Policy. For purposes of making
deductions from the Declared Interest Option and the Subaccounts, we
determine Cash Values as of the end of the Business Day coinciding with or
immediately following the Monthly Deduction Day. Because portions of the
monthly deduction, such as the cost of insurance, can vary from month to
month, the monthly deduction itself will vary in amount from month to month.
During the first 12 Policy Months and during the 12 Policy Months
immediately following an increase in Specified Amount, the monthly deduction
will include a first year monthly administrative charge.
We make the monthly deduction on the Business Day coinciding with or
immediately following each Monthly Deduction Day and it will equal:
- the cost of insurance for the Policy; plus
- the cost of any optional insurance benefits added by rider; plus
- the monthly administrative charge.
COST OF INSURANCE. This charge is designed to compensate us for the
anticipated cost of paying death proceeds to Beneficiaries of those Insureds
who die prior to the Maturity Date. We determine the cost of insurance on a
monthly basis, and we determine it separately for the initial Specified
Amount and for any subsequent increases in Specified Amount. We will
determine the monthly cost of insurance charge by dividing the applicable
cost of insurance rate, or rates, by 1,000 and multiplying the result by the
net amount at risk for each Policy Month.
NET AMOUNT AT RISK. Under Option A the net amount at risk for a Policy Month
is equal to (a) divided by (b); and under Option B the net amount at risk
for a Policy Month is equal to (a) divided by (b), minus (c), where:
(a) is the Specified Amount;
(b) is 1.0036748(1); and
(c) is the Cash Value.
We determine the Specified Amount and the Cash Value as of the end of the
Business Day coinciding with or immediately following the Monthly Deduction
Day.
We determine the net amount at risk separately for the initial Specified
Amount and any increases in Specified Amount. In determining the net amount
at risk for each Specified Amount, we first consider the Cash Value a part
of the initial Specified Amount. If the Cash Value exceeds the initial
Specified Amount, we will consider it to be a part of any increase in the
Specified Amount in the same order as the increases occurred.
COST OF INSURANCE RATE. We base the cost of insurance rate for the initial
Specified Amount on the Insured's sex, premium class and Attained Age. For
any increase in Specified Amount, we base the cost of insurance rate on the
Insured's sex, premium class and age at last birthday on the effective date
of the increase. Actual cost of insurance rates may change and we will
determine the actual
- ------------------------
(1) Dividing by this number reduces the net amount at risk, solely for the
purposes of computing the cost of insurance, by taking into account
assumed monthly earnings at an annual rate of 4.5%.
32
<PAGE>
monthly cost of insurance rates by the Company based on its expectations as
to future mortality experience. However, the actual cost of insurance rates
will never be greater than the guaranteed maximum cost of insurance rates
set forth in the Policy. These guaranteed rates are based on the 1980
Commissioners' Standard Ordinary Non-Smoker and Smoker Mortality Table.
Current cost of insurance rates are generally less than the guaranteed
maximum rates. Any change in the cost of insurance rates will apply to all
persons of the same age, sex and premium class whose Policies have been in
force the same length of time.
The cost of insurance rates generally increase as the Insured's Attained Age
increases. The premium class of an Insured also will affect the cost of
insurance rate. The Company currently places Insureds into a standard
premium class or into premium classes involving a higher mortality risk. In
an otherwise identical Policy, Insureds in the standard premium class will
have a lower cost of insurance rate than those in premium classes involving
higher mortality risk. The standard premium class is also divided into two
categories: tobacco and non-tobacco. (The Company may offer preferred
classes in addition to the standard tobacco and non-tobacco classes.)
Non-tobacco-using Insureds will generally have a lower cost of insurance
rate than similarly situated Insureds who use tobacco.
We determine the cost of insurance rate separately for the initial Specified
Amount and for the amount of any increase in Specified Amount. In
calculating the cost of insurance charge, we apply the rate for the premium
class on the Policy Date to the net amount at risk for the initial Specified
Amount; for each increase in Specified Amount, we use the rate for the
premium class applicable to the increase. However, if we calculate the death
benefit as the Cash Value times the specified amount factor, we will use the
rate for the premium class for the most recent increase that required
evidence of insurability for the amount of death benefit in excess of the
total Specified Amount.
ADDITIONAL INSURANCE BENEFITS. The monthly deduction will include charges
for any additional benefits provided by rider. (See "GENERAL
PROVISIONS--Additional Insurance Benefits.")
MONTHLY ADMINISTRATIVE CHARGE. We have primary responsibility for the
administration of the Policy and the Variable Account. Administrative
expenses include premium billing and collection, recordkeeping, processing
death benefit claims, cash surrenders and Policy changes, and reporting and
overhead costs. As reimbursement for administrative expenses related to the
maintenance of each Policy and the Variable Account, we assess a $3 monthly
administrative charge against each Policy. Once we issue a Policy, we
guarantee the amount of this charge for the life of the Policy.
FIRST YEAR MONTHLY ADMINISTRATIVE CHARGE. We deduct monthly administrative
charges from Cash Value as part of the monthly deduction during the first
twelve Policy Months and during the twelve Policy Months immediately
following an increase in Specified Amount. The charge will compensate us for
first year underwriting, processing and start-up expenses incurred in
connection with the Policy and the Variable Account. These expenses include
the cost of processing applications, conducting medical examinations,
determining insurability and the Insured's premium class, and establishing
policy records. We base the charges deducted during the first 12 Policy
Months on the Insured's Attained Age. We base the charges deducted during
the 12 Policy Months following any increase in Specified Amount on the
Insured's age at last birthday on the effective date of the increase.
33
<PAGE>
The first year monthly administrative charge per $1,000 of Specified Amount
depends on the Specified Amount of the Policy and the age of the Insured, as
shown in the following table:
<TABLE>
<CAPTION>
$25,000 $50,000 $100,000
AGE TO $49,999 TO $99,999 TO $249,000 $250,000+
<S> <C> <C> <C> <C>
0-25 $0.20 $0.15 $0.10 $0.05
26 0.21 0.16 0.11 0.06
27 0.22 0.17 0.12 0.06
28 0.23 0.18 0.13 0.07
29 0.24 0.19 0.14 0.07
30 0.25 0.20 0.15 0.08
31 0.26 0.21 0.16 0.08
32 0.27 0.22 0.17 0.09
33 0.28 0.23 0.18 0.09
34 0.29 0.24 0.19 0.10
35 0.30 0.25 0.20 0.10
36 0.31 0.26 0.21 0.11
37 0.32 0.27 0.22 0.11
38 0.33 0.28 0.23 0.12
39 0.34 0.29 0.24 0.12
40 0.35 0.30 0.25 0.13
41 0.36 0.31 0.26 0.13
42 0.37 0.32 0.27 0.14
43 0.38 0.33 0.28 0.14
44 0.39 0.34 0.29 0.15
45 0.40 0.35 0.30 0.15
46 0.41 0.36 0.31 0.16
47 0.42 0.37 0.32 0.16
48 0.43 0.38 0.33 0.17
49 0.44 0.39 0.34 0.17
50 0.45 0.40 0.35 0.18
51 0.46 0.41 0.36 0.18
52 0.47 0.42 0.37 0.19
53 0.48 0.43 0.38 0.19
54 0.49 0.44 0.39 0.20
55 & up 0.50 0.45 0.40 0.20
</TABLE>
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TRANSFER CHARGE
We may impose a transfer charge of $25 for the second and each subsequent
transfer during a Policy Year to compensate us for the costs in making the
transfer.
- Unless paid in cash, we will deduct the transfer charge from the
amount transferred.
- Once we issue a Policy, we will not increase this charge for the
life of the Policy.
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<PAGE>
- We will not impose a transfer charge on transfers that occur as a
result of Policy Loans, the exercise of the special transfer
privilege or the initial allocation of Cash Value among the
Subaccounts and the Declared Interest Option following acceptance of
the Policy by the Policyowner.
Currently there is no charge for changing the net premium allocation
instructions.
- --------------------------------------------------------------------------------
SURRENDER CHARGE
Upon partial or complete surrender of a Policy, we assess a charge equal to
the lesser of $25 or 2% of the amount surrendered to compensate us for costs
incurred in accomplishing the surrender. We deduct the surrender charge from
the remaining Cash Value.
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE. We deduct a daily mortality and expense
risk charge from each Subaccount at an effective annual rate of .90% of the
average daily net assets of the Subaccounts. We guarantee not to increase
this charge for the duration of the Policy. We may realize a profit from
this charge and may use such profit for any lawful purpose, including
payment of our distribution expenses.
The mortality risk we assume is that Insureds may die sooner than
anticipated and therefore, we may pay an aggregate amount of life insurance
proceeds greater than anticipated. The expense risk assumed is that expenses
incurred in issuing and administering the Policies will exceed the amounts
realized from the administrative charges assessed against the Policies.
FEDERAL TAXES. Currently no charge is made to the Variable Account for
federal income taxes that may be attributable to the Variable Account. We
may, however, make such a charge in the future. Charges for other taxes, if
any, attributable to the Account may also be made. (See "FEDERAL TAX
MATTERS--Taxation of the Company.")
INVESTMENT OPTION EXPENSES. The value of net assets of the Variable Account
will reflect the investment advisory fee and other expenses incurred by each
Investment Option. The investment advisory fee and other expenses applicable
to each Investment Option are listed in the "SUMMARY OF THE POLICY" and
described in the prospectus for each Fund's Investment Option.
- --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
You may allocate Net Premiums and transfer Cash Value to the Declared
Interest Option. Because of exemptive and exclusionary provisions, we have
not registered interests in the Declared Interest Option under the
Securities Act of 1933 and we have not registered the Declared Interest
Option as an investment company under the Investment Company Act of 1940.
Accordingly, neither the Declared Interest Option nor any interests therein
are subject to the provisions of these Acts and, as a result, the staff of
the Securities and Exchange Commission has not reviewed the disclosures in
this Prospectus relating to the Declared Interest Option. Disclosures
regarding the Declared Interest Option may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to
the accuracy and completeness of statements made in prospectuses. Please
refer to the Policy for complete details regarding the Declared Interest
Option.
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION
Our General Account supports the Declared Interest Option. The General
Account consists of all assets we own other than those in the Variable
Account and other separate accounts. Subject to applicable law, we have sole
discretion over the investment of the General Account's assets.
35
<PAGE>
You may elect to allocate Net Premiums to the Declared Interest Option, the
Variable Account, or both. You may also transfer Cash Value from the
Subaccounts to the Declared Interest Option, or from the Declared Interest
Option to the Subaccounts. Allocating or transferring funds to the Declared
Interest Option does not entitle you to share in the investment experience
of the General Account. Instead, we guarantee that Cash Value in the
Declared Interest Option will accrue interest at an effective annual rate of
at least 4.5%, independent of the actual investment experience of the
General Account.
- --------------------------------------------------------------------------------
DECLARED INTEREST OPTION CASH VALUE
Net premiums allocated to the Declared Interest Option are credited to the
Policy. The Company bears the full investment risk for these amounts. We
guarantee that interest credited to each Policyowner's Cash Value in the
Declared Interest Option will not be less than an effective annual rate of
4.5%. The Company may, in its sole discretion, credit a higher rate of
interest, although it is not obligated to credit interest in excess of 4.5%
per year, and might not do so. Any interest credited on the Policy's Cash
Value in the Declared Interest Option in excess of the guaranteed rate of
4.5% per year will be determined in the sole discretion of the Company and
may be changed at any time by us, in its sole discretion. The Policyowner
assumes the risk that the interest credited may not exceed the guaranteed
minimum rate of 4.5% per year. The interest credited to the Policy's Cash
Value in the Declared Interest Option that equals Policy Debt may be greater
than 4.5%, but will in no event be greater than 6%. The Cash Value in the
Declared Interest Option will be calculated no less frequently than each
Monthly Deduction Day.
The Company guarantees that, at any time prior to the Maturity Date, the
Cash Value in the Declared Interest Option will not be less than the amount
of the Net Premiums allocated or Cash Value transferred to the Declared
Interest Option, plus interest at the rate of 4.5% per year, plus any excess
interest which 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
Cash Value in the Declared Interest Option may be transferred from the
Declared Interest Option unless the balance in the Declared Interest Option
immediately after the transfer will be less than $1,000. If the balance in
the Declared Interest Option after a transfer would be less than $1,000, you
may transfer the full Net Cash Value in the Declared Interest Option. A
Policyowner may also make surrenders and obtain Policy Loans from the
Declared Interest Option at any time prior to the Policy's Maturity Date.
We may delay transfers and surrenders from, and payments of Policy Loans
allocated to, the Declared Interest Option for up to six months.
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT
We issue the Policy in consideration of the statements in the application
and the payment of the initial premium. The Policy, the application, and any
supplemental applications and endorsements make up the entire contract. In
the absence of fraud, we will treat the statements made in an
36
<PAGE>
application or supplemental application as representations and not as
warranties. We will not use any statement to void the Policy or in defense
of a claim unless the statement is contained in the application or any
supplemental application.
- --------------------------------------------------------------------------------
INCONTESTABILITY
The Policy is incontestable, except for fraudulent statements made in the
application or supplemental applications, after it has been in force during
the lifetime of the Insured for two years from the Policy Date or date of
reinstatement. Any increase in Specified Amount will be incontestable only
after it has been in force during the lifetime of the Insured for two years
from the effective date of the increase. 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.
- --------------------------------------------------------------------------------
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 the Insured's age or sex was misstated in the application, we will adjust
each benefit and any amount to be paid under the Policy to reflect the
correct age and sex.
- --------------------------------------------------------------------------------
SUICIDE EXCLUSION
If the Policy is in force and the Insured commits suicide, while sane or
insane, within one year from the Policy Date, we will limit life insurance
proceeds payable under the Policy to all premiums paid, reduced by any
outstanding Policy Debt and any partial surrenders, and increased by any
unearned loan interest. If the Policy is in force and the Insured commits
suicide, while sane or insane, within one year from the effective date of
any increase in Specified Amount, we will not pay any increase in the death
benefit resulting from the requested increase in Specified Amount. Instead,
we will refund to the Policyowner an amount equal to the total cost of
insurance applied to the increase. 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 Cash Value in each Subaccount and in the Declared Interest
Option,
- outstanding Policy Debt, and
- premiums paid, partial surrenders made and charges assessed since
the last report.
The report will also include any other information required by state law or
regulation. Further, the Company will send the Policyowner the reports
required by the Investment Company Act of 1940.
37
<PAGE>
- --------------------------------------------------------------------------------
NON-PARTICIPATION
The Policy does not participate in the Company's profits or surplus
earnings. No dividends are payable.
- --------------------------------------------------------------------------------
OWNERSHIP OF ASSETS
The Company shall have the exclusive and absolute ownership and control over
assets, including the assets of the Variable Account.
- --------------------------------------------------------------------------------
WRITTEN NOTICE
You should send any written notice to the Company at our Home Office. The
notice should include the policy number and the Insured's full name. Any
notice we send to a Policyowner will be sent to the address shown in the
application unless you filed an appropriate address change form with the
Company.
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
The Company will usually mail the proceeds of complete surrenders, partial
surrenders and Policy Loans within seven days after we receive the
Policyowner's signed request at the Home Office. The Company will usually
mail death proceeds within seven days after receipt of Due Proof of Death
and maturity benefits within seven days of the Maturity Date. However, we
may postpone payment of any amount upon complete or partial surrender,
payment of any Policy Loan, and payment of death proceeds or benefits at
maturity whenever:
- the New York Stock Exchange is closed other than customary weekend
and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission;
- the Securities and Exchange Commission by order permits postponement
for the protection of Policyowners; or
- an emergency exists, as determined by the Securities and Exchange
Commission, as a result of which disposal of the securities is not
reasonably practicable or it is not reasonably practicable to
determine the value of the net assets of the Variable Account.
We also may postpone transfers under these circumstances.
Payments under the Policy which are derived from any amount paid to the
Company by check or draft may be postponed until such time as the Company is
satisfied that the check or draft has cleared the bank upon which it is
drawn.
- --------------------------------------------------------------------------------
CONTINUANCE OF INSURANCE
The insurance under a Policy will continue until the earlier of:
- the end of the Grace Period following the Monthly Deduction Day on
which the Net Cash Value is less than the monthly deduction for the
following Policy Month;
- the date the Policyowner surrenders the Policy for its entire Net
Cash Value;
- the death of the Insured; or
- the Maturity Date.
Any rider to a Policy will terminate on the date specified in the rider.
38
<PAGE>
- --------------------------------------------------------------------------------
OWNERSHIP
The Policy belongs to the Policyowner. The original Policyowner is the
person named as owner in the application. Ownership of the Policy may change
according to the ownership option selected as part of the original
application or by a subsequent endorsement to the Policy. During the
Insured's lifetime, all rights granted by the Policy belong to the
Policyowner, except as otherwise provided for in the Policy.
Special ownership rules may apply if the Insured is under legal age (as
defined by state law in the state in which the Policy is delivered) on the
Policy Date.
The Policyowner may assign the Policy as collateral security. The Company
assumes no responsibility for the validity or effect of any collateral
assignment of the Policy. No assignment will bind us unless in writing and
until we receive notice of the assignment at the Home Office. The assignment
is subject to any payment or action we may have taken before we received
notice of the assignment at the Home Office. Assigning the Policy may have
federal income tax consequences. [See "FEDERAL TAX MATTERS."]
- --------------------------------------------------------------------------------
THE BENEFICIARY
The Policyowner designates the primary Beneficiaries and contingent
Beneficiaries in the application. If changed, the primary Beneficiary or
contingent Beneficiary is as shown in the latest change filed with the
Company. One or more primary or contingent Beneficiaries may be named in the
application. In such case, the proceeds will be paid in equal shares to the
survivors in the appropriate beneficiary class, unless requested otherwise
by the Policyowner.
Unless a payment option is chosen, we will pay the proceeds payable at the
Insured's death in a lump sum to the primary Beneficiary. If the primary
Beneficiary dies before the Insured, we will pay the proceeds to the
contingent Beneficiary. If no Beneficiary survives the Insured, we will pay
the proceeds to the Policyowner or the Policyowner's estate.
- --------------------------------------------------------------------------------
CHANGING THE POLICYOWNER OR BENEFICIARY
During the Insured's life, the Policyowner and the Beneficiary may be
changed. To make a change, you must send a written request to 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:
- Universal Cost of Living Increase;
- Universal Waiver of Charges;
- Universal Adult Term Insurance;
- Universal Children's Term Insurance; and
- Universal Guaranteed Insurability Option.
We will deduct the cost of any additional insurance benefits as part of the
monthly deduction. (See "CHARGES AND DEDUCTIONS--Monthly Deduction.") You
may obtain detailed information concerning available riders from the agent
selling the Policy.
39
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
- --------------------------------------------------------------------------------
The Policies will be sold by individuals who in addition to being licensed
as life insurance agents for the Company, are also registered
representatives of the principal underwriter of the Policies, EquiTrust
Marketing Services, LLC ("EquiTrust Marketing"). EquiTrust Marketing, a
corporation organized on May 7, 1970, under the laws of the State of
Delaware, is registered with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 as a broker-dealer and is a member of
the National Association of Securities Dealers, Inc. ("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 planned periodic premiums and 4% of unscheduled premiums
paid after the first Policy Year. Additional commissions at a rate not
exceeding 50% of the increase in planned periodic premiums may be paid
during the first year following an increase in Specified Amount.
These commissions (and other distribution expenses, such as production
incentive bonuses, agent's insurance and pensions benefits, agency
management compensation and bonuses and expense allowances) are paid by the
Company. They do not result in any additional charges against the Policy
that are not described above under "CHARGES AND DEDUCTIONS."
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.
- --------------------------------------------------------------------------------
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a life insurance policy must satisfy
certain requirements which are set forth in the Internal Revenue Code.
Guidance as to how these requirements are to be applied is limited.
Nevertheless, we believe that a Policy issued on the basis of a standard
rate class should satisfy the applicable requirements. There is less
guidance, however, with respect to a Policy issued on a substandard basis
(I.E., a premium class involving higher than standard mortality risk) and it
is not clear whether such a policy will in all cases satisfy the applicable
requirements, particularly if you pay the full amount of premiums permitted
under the Policy. If it is subsequently determined that a policy does not
satisfy the applicable requirements, we
40
<PAGE>
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 the 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 Cash Values, have not been explicitly addressed in
published rulings. While we believe that the Policy does not give the
Policyowner investment control over Variable Account assets, we reserve the
right to modify the Policy as necessary to prevent the Policyowner from
being treated as the owner of the Variable Account assets supporting the
Policy.
In addition, the Code requires that the investments of the Subaccounts be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal income tax purposes. It is intended that the
Subaccounts, through the funds, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
- --------------------------------------------------------------------------------
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. The Company believes that the death benefit under a Policy
should be excludible from the gross income of the beneficiary. Federal,
state and local estate, inheritance, transfer, and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
Policyowner or beneficiary. A tax adviser should be consulted on these
consequences.
Generally, a Policyowner will not be deemed to be in constructive receipt of
the Cash Value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the
tax consequences depend on whether the Policy is classified as a "modified
endowment contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life
insurance contracts are classified as "modified endowment contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policy as to premium payments and benefits, the
individual circumstances of each Policy will determine whether it is
classified as a modified endowment contract. The rules are too complex to be
summarized here, but generally depend on the amount of premium payments made
during the first seven Policy years. Certain changes in a Policy after it is
issued could also cause it to be classified as a modified endowment
contract. You should consult with a competent tax adviser to determine
whether a Policy transaction will cause the Policy to be classified as a
modified contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS. Policies classified as modified endowment contracts are subject
to the following tax rules:
(1) All distributions other than death benefits from a modified
endowment contract, including distributions upon surrender and
withdrawals, will be treated first as distributions of gain taxable
as ordinary income and as tax-free recovery of the Policyowner's
investment in the Policy only after all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a modified
endowment contract are treated as distributions and taxed
accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject
to tax except where the distribution or loan is made when the
Policyowner has attained age 59 1/2 or is disabled, or where the
distribution is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Policyowner or
the joint lives (or joint life expectancies) of the Policyowner and
the Policyowner's beneficiary or designated beneficiary.
41
<PAGE>
(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 complete and partial surrenders,
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 a loan taken out of a Policy with a loan spread of 0% is
unclear. You should consult your tax adviser about any such 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 policy
issued by the Company for a Policy as provided under "THE POLICY--Exchange
Privilege" generally should be treated as a non-taxable exchange of life
insurance policies within the meaning of section 1035 of the Code. However,
in certain circumstances, the exchanging owner may receive a cash
distribution that might have to be recognized as income to the extent there
was gain in the fixed-benefit policy. Moreover, to the extent a
fixed-benefit policy with an outstanding loan is exchanged for an
unencumbered Policy, the exchanging owner could recognize income at the time
of the exchange up to an amount of such loan (including any due and unpaid
interest on such loan). An exchanging Policyowner should consult a tax
adviser as to whether an exchange of a fixed-benefit policy for the Policy
will have adverse tax consequences.
OTHER POLICYOWNER TAX MATTERS. Businesses can use the Policy in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, tax
exempt and nonexempt welfare benefit plans, retiree medical benefit plans
42
<PAGE>
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
EMPLOYMENT-RELATED BENEFIT PLANS
The Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employer's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary
between men and women on the basis of sex. In addition, legislative,
regulatory or decisional authority of some states may prohibit use of
sex-distinct mortality tables under certain circumstances. The Policy
described in this Prospectus contains guaranteed cost of insurance rates and
guaranteed purchase rates for certain payment options that distinguish
between men and women. Accordingly, employers and employee organizations
should consider, in consultation with legal counsel, the impact of Norris,
and Title VII generally, on any employment-related insurance or benefit
program for which a Policy may be purchased.
- --------------------------------------------------------------------------------
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 Cash Value in a Subaccount by the net asset
43
<PAGE>
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
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.
- --------------------------------------------------------------------------------
STATE REGULATION OF THE COMPANY
The Company, a stock life insurance company organized under the laws of
Iowa, is subject to regulation by the Iowa Insurance Department. An annual
statement is filed with the Iowa Insurance Department on or before
March lst of each year covering the operations and reporting on the
financial condition of the Company as of December 31st of the preceding
year. Periodically, the Iowa Insurance Department examines the liabilities
and reserves of the Company and the Variable Account and certifies their
adequacy, and a full examination of operations is conducted periodically by
the National Association of Insurance Commissioners.
In addition, the Company is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the insurance department of any other state applies the laws of
the state of domicile in determining permissible investments.
44
<PAGE>
- --------------------------------------------------------------------------------
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.
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
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
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 Farm Bureau 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 other affiliates of the foregoing
and Blue Cross/Blue Shield of Nebraska
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 affiliates 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
affiliates of the foregoing.
William J. Oddy Chief Executive Officer and Management Director, FBL Financial
Chief Executive Officer Group, Inc.
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, 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
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
JoAnn 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
Vice President - Associate Group, Inc.
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,
Vice President - Investment Inc.
Administration
Paul Grinvalds Vice President - Life Administration Appointed Actuary, FBL
Vice President - Life Financial Group, Inc.
Administration
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
Jim Streck Vice President - Life Underwriting and Issue, FBL Financial
Vice President - Life Group, Inc.
Underwriting and Issue
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
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>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
48
<PAGE>
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 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.
49
<PAGE>
(This page has been left blank intentionally.)
50
<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.
/s/ Ernst & Young LLP
Des Moines, Iowa
March 10, 2000
51
<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>
52
<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.
53
<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>
54
<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>
55
<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.
56
<PAGE>
(This page has been left blank intentionally.)
57
<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>
58
<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>
59
<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>
60
<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>
61
<PAGE>
<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.
62
<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
63
<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.
64
<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>
65
<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>
66
<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
67
<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>
68
<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.
69
<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.
70
<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.
71
<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>
72
<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.
73
<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
74
<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.
75
<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%.
76
<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
77
<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.
78
<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."
79
<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>
80
<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
81
<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.
82
<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>
83
<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>
84
<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
85
<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.
86
<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.
87
<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.
88
<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.
89
<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.
90
<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>
91
<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.
92
<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
93
<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.
94
<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.
95
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES
The following tables illustrate how the death benefits, Cash Values and
Surrender Values of a Policy may vary over an extended period of time at
certain ages, assuming hypothetical gross rates of investment return for the
Investment Options equivalent to constant gross annual rates of 0%, 4%, 8%
and 12%. The hypothetical rates of investment return are for purposes of
illustration only and should not be deemed a representation of past or
future rates of investment return. Actual rates of return for a particular
Policy may be more or less than the hypothetical investment rates of return
and will depend on a number of factors including the investment allocations
made by a Policyowner. Also, values would be different from those shown if
the gross annual investment returns averaged 0%, 4%, 8% and 12% over a
period of years but fluctuated above and below those averages for individual
Policy Years.
The amounts shown are as of the end of each Policy Year. The tables assume
that the assets in the Investment Options are subject to an annual expense
ratio of 0.65% of the average daily net assets. This annual expense ratio is
based on the average of the expense ratios of each of the Investment Options
available under the Policy for the last fiscal year and takes into account
current expense reimbursement arrangements. The fees and expenses of each
Investment Option vary, and in 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 expenses charge, the first-year monthly administrative charge, the
first-year monthly expense charge, the daily charge for the Company's
assumption of mortality and expense risks, and cost of insurance charges for
the hypothetical Insured. The surrender values illustrated in the tables
also reflect deduction of applicable surrender charges. The charges the
Company may assess are reflected in separate tables on each of the following
pages.
Applying the charges and the average Investment Option fees and expenses of
0.65% of average net assets, the gross annual rates of investment return of
0%, 4%, 8% and 12% would produce net annual rates of return of -1.55%,
2.45%, 6.45% and 10.45%, respectively. 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 Cash Values illustrated.
(See "FEDERAL TAX MATTERS--Taxation of the Company.")
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid as indicated,
if all Net Premiums are allocated to the Variable Account and if no Policy
Loans have been made. The tables are also based on the assumptions that the
Policyowner has not requested an increase or decrease in Specified Amount,
and that no partial surrenders or transfers have been made.
For comparative purposes, the second column of each table shows the amount
to which the premiums would accumulate if an amount equal to those premiums
were invested to earn interest at 5% compounded annually.
* * *
Upon request, the Company will provide a comparable illustration based upon
the proposed insured's age, sex and premium class, the Specified Amount or
premium requested, and the proposed frequency of premium payments.
A-1
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $516
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED 12% ASSUMED
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED -------------------- -------------------- -------------------- --------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --------------------- ----------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1............... $ 541.80 $ 54 $100,054 $ 64 $100,064 $ 74 $100,074 $ 84 $100,084
2............... 1,110.69 355 100,355 363 100,363 391 100,391 421 100,421
3............... 1,708.02 602 100,602 658 100,658 718 100,718 781 100,781
4............... 2,335.23 852 100,852 949 100,949 1,053 101,053 1,166 101,166
5............... 2,993.79 1,085 101,085 1,232 101,232 1,396 101,396 1,577 101,577
6............... 3,685.28 1,300 101,300 1,508 101,508 1,745 101,745 2,015 102,015
7............... 4,411.34 1,493 101,493 1,772 101,772 2,098 102,098 2,480 102,480
8............... 5,173.71 1,665 101,665 2,024 102,024 2,455 102,455 2,974 102,974
9............... 5,974.19 1,817 101,817 2,264 102,264 2,817 102,817 3,502 103,502
10............... 6,814.70 1,949 101,949 2,492 102,492 3,184 103,184 4,065 104,065
15............... 11,691.27 2,274 102,274 3,391 103,391 5,052 105,052 7,520 107,520
20............... 17,915.13 1,869 101,869 3,630 103,630 6,754 106,754 12,266 112,266
25............... 25,858.54 464 100,464 2,763 102,763 7,827 107,827 18,684 118,684
30............... 35,996.57 * * 132 100,132 7,487 107,487 27,259 127,259
35............... 48,935.54 * * * * 3,383 103,383 37,358 137,358
Age 65............... 35,996.57 * * * * 7,046 107,046 29,173 129,173
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.55%, 2.45%, 6.45% AND 10.45%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-2
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $1,566
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED 12% ASSUMED
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED -------------------- -------------------- -------------------- --------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --------------------- ----------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1............... $ 1,644.30 $ 316 $100,316 $ 350 $100,350 $ 384 $100,384 $ 419 $100,419
2............... 3,370.82 1,058 101,058 1,149 101,149 1,242 101,242 1,339 101,339
3............... 5,183.66 1,743 101,743 1,920 101,920 2,108 102,108 2,308 102,308
4............... 7,087.14 2,373 102,373 2,666 102,666 2,985 102,985 3,331 103,331
5............... 9,085.80 2,948 102,948 3,383 103,383 3,870 103,870 4,412 104,412
6............... 11,184.39 3,459 103,459 4,062 104,062 4,754 104,754 5,548 105,548
7............... 13,387.90 3,898 103,898 4,692 104,692 5,629 105,629 6,734 106,734
8............... 15,701.60 4,249 104,249 5,254 105,254 6,476 106,476 7,958 107,958
9............... 18,130.98 4,492 104,492 5,726 105,726 7,270 107,270 9,201 109,201
10............... 20,681.83 4,611 104,611 6,085 106,085 7,990 107,990 10,445 110,445
15............... 35,481.63 3,136 103,136 5,822 105,822 9,983 109,983 16,364 116,364
20............... 54,370.35 * * 182 100,182 6,863 106,863 19,705 119,705
25............... 78,477.67 * * * * * * 11,769 111,769
30............... 109,245.40 * * * * * * * *
35............... 148,513.68 * * * * * * * *
Age 65............... 20,681.83 4,598 104,598 6,321 106,321 8,621 108,621 11,680 111,680
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.55%, 2.45%, 6.45% AND 10.45%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-3
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $516
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED 12% ASSUMED
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED -------------------- -------------------- -------------------- --------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --------------------- ----------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1............... $ 541.80 $ 54 $100,000 $ 64 $100,000 $ 74 $100,000 $ 84 $100,000
2............... 1,110.69 336 100,000 364 100,000 393 100,000 422 100,000
3............... 1,708.02 604 100,000 661 100,000 721 100,000 784 100,000
4............... 2,335.23 856 100,000 953 100,000 1,058 100,000 1,172 100,000
5............... 2,993.79 1,091 100,000 1,240 100,000 1,404 100,000 1,587 100,000
6............... 3,685.28 1,309 100,000 1,518 100,000 1,758 100,000 2,030 100,000
7............... 4,411.34 1,506 100,000 1,787 100,000 2,117 100,000 2,503 100,000
8............... 5,173.71 1,682 100,000 2,045 100,000 2,482 100,000 3,007 100,000
9............... 5,974.19 1,839 100,000 2,292 100,000 2,853 100,000 3,547 100,000
10............... 6,814.70 1,977 100,000 2,528 100,000 3,232 100,000 4,128 100,000
15............... 11,691.27 2,341 100,000 3,492 100,000 5,206 100,000 7,755 100,000
20............... 17,915.13 1,989 100,000 3,848 100,000 7,150 100,000 12,978 100,000
25............... 25,858.54 630 100,000 3,153 100,000 8,706 100,000 20,606 100,000
30............... 35,996.57 * * 700 100,000 9,245 100,000 32,117 100,000
35............... 48,935.54 * * * * 6,603 100,000 49,572 100,000
Age 65............... 35,996.57 * * * * 9,049 100,000 35,020 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.55%, 2.45%, 6.45% AND 10.45%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-4
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $1,566
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED 12% ASSUMED
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED -------------------- -------------------- -------------------- --------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --------------------- ----------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1............... $ 1,644.30 $ 322 $100,000 $ 356 $100,000 $ 390 $100,000 $ 425 $100,000
2............... 3,370.82 1,073 100,000 1,165 100,000 1,260 100,000 1,358 100,000
3............... 5,183.66 1,773 100,000 1,953 100,000 2,145 100,000 2,348 100,000
4............... 7,087.14 2,424 100,000 2,724 100,000 3,050 100,000 3,404 100,000
5............... 9,085.80 3,026 100,000 3,473 100,000 3,974 100,000 4,532 100,000
6............... 11,184.39 3,570 100,000 4,194 100,000 4,911 100,000 5,734 100,000
7............... 13,387.90 4,048 100,000 4,876 100,000 5,854 100,000 7,008 100,000
8............... 15,701.60 4,447 100,000 5,503 100,000 6,788 100,000 8,349 100,000
9............... 18,130.98 4,746 100,000 6,054 100,000 7,694 100,000 9,746 100,000
10............... 20,681.83 4,929 100,000 6,509 100,000 8,554 100,000 11,193 100,000
15............... 35,481.63 3,860 100,000 6,982 100,000 11,822 100,000 19,253 100,000
20............... 54,370.35 * * 2,335 100,000 11,374 100,000 28,628 100,000
25............... 78,477.67 * * * * * * 36,655 100,000
30............... 109,245.40 * * * * * * 37,834 100,000
35............... 148,513.68 * * * * * * 5,656 100,000
Age 65............... 20,681.83 4,988 100,000 6,858 100,000 9,357 100,000 12,687 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.55%, 2.45%, 6.45% AND 10.45%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-5
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $667
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED 12% ASSUMED
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED -------------------- -------------------- -------------------- --------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --------------------- ----------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1............... $ 700.35 $ 170 $100,170 $ 185 $100,185 $ 201 $100,201 $ 216 $100,216
2............... 1,435.72 568 100,568 610 100,610 654 100,654 699 100,699
3............... 2,207.85 948 100,948 1,034 101,034 1,126 101,126 1,222 101,222
4............... 3,018.60 1,311 101,311 1,457 101,457 1,615 101,615 1,786 101,786
5............... 3,869.88 1,654 101,654 1,875 101,875 2,122 102,122 2,395 102,395
6............... 4,763.72 1,977 101,977 2,289 102,289 2,645 102,645 3,051 103,051
7............... 5,702.26 2,277 102,277 2,695 102,695 3,184 103,184 3,758 103,758
8............... 6,687.72 2,555 102,555 3,092 103,092 3,740 103,740 4,519 104,519
9............... 7,722.45 2,814 102,814 3,484 103,484 4,315 104,315 5,343 105,343
10............... 8,808.93 3,042 103,042 3,859 103,859 4,900 104,900 6,226 106,226
15............... 15,112.55 3,726 103,726 5,438 105,438 7,974 107,974 11,728 111,728
20............... 23,157.74 3,384 103,384 6,153 106,153 11,006 111,006 19,490 119,490
25............... 33,425.67 1,319 101,319 5,039 105,039 13,041 113,041 29,936 129,936
30............... 46,530.45 * * 579 100,579 12,312 112,312 43,259 143,259
35............... 63,255.83 * * * * 5,227 105,227 58,473 158,473
Age 65............... 46,530.45 * * * * 11,529 111,529 46,181 146,181
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.55%, 2.45%, 6.45% AND 10.45%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-6
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $2,183
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED 12% ASSUMED
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED -------------------- -------------------- -------------------- --------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --------------------- ----------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1............... $ 2,292.15 $ 714 $100,714 $ 767 $100,767 $ 821 $100,821 $ 874 $100,874
2............... 4,698.91 1,813 101,813 1,958 101,958 2,107 102,107 2,262 102,262
3............... 7,226.00 2,809 102,809 3,090 103,090 3,388 103,388 3,703 103,703
4............... 9,879.45 3,698 103,698 4,157 104,157 4,655 104,655 5,198 105,198
5............... 12,665.58 4,470 104,470 5,143 105,143 5,896 105,896 6,738 106,738
6............... 15,591.00 5,114 105,114 6,035 106,035 7,096 107,096 8,315 108,315
7............... 18,662.70 5,619 105,619 6,817 106,817 8,239 108,239 9,920 109,920
8............... 21,887.99 5,969 105,969 7,469 107,469 9,303 109,303 11,537 111,537
9............... 25,274.54 6,147 106,147 7,966 107,966 10,260 110,260 13,145 113,145
10............... 28,830.42 6,132 106,132 8,281 108,281 11,082 111,082 14,719 114,719
15............... 49,461.30 2,627 102,627 6,281 106,281 12,083 112,083 21,154 121,154
20............... 75,792.13 * * * * 3,451 103,451 20,775 120,775
25............... 109,397.67 * * * * * * 1,697 101,697
30............... 152,287.80 * * * * * * * *
35............... 207,027.69 * * * * * * * *
Age 65............... 28,830.42 5,891 105,891 8,373 108,373 11,720 111,720 16,216 116,216
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.55%, 2.45%, 6.45% AND 10.45%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-7
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $667
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED 12% ASSUMED
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED -------------------- -------------------- -------------------- --------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --------------------- ----------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1............... $ 700.35 $ 171 $100,000 $ 186 $100,000 $ 201 $100,000 $ 217 $100,000
2............... 1,435.72 569 100,000 612 100,000 656 100,000 702 100,000
3............... 2,207.85 952 100,000 1,039 100,000 1,130 100,000 1,227 100,000
4............... 3,018.60 1,317 100,000 1,464 100,000 1,623 100,000 1,796 100,000
5............... 3,869.88 1,664 100,000 1,887 100,000 2,135 100,000 2,411 100,000
6............... 4,763.72 1,992 100,000 2,307 100,000 2,667 100,000 3,076 100,000
7............... 5,702.26 2,298 100,000 2,720 100,000 3,215 100,000 3,795 100,000
8............... 6,687.72 2,583 100,000 3,127 100,000 3,783 100,000 4,572 100,000
9............... 7,722.45 2,850 100,000 3,530 100,000 4,374 100,000 5,418 100,000
10............... 8,808.93 3,087 100,000 3,918 100,000 4,979 100,000 6,329 100,000
15............... 15,112.55 3,841 100,000 5,613 100,000 8,239 100,000 12,129 100,000
20............... 23,157.74 3,610 100,000 6,555 100,000 11,724 100,000 20,771 100,000
25............... 33,425.67 1,669 100,000 5,832 100,000 14,784 100,000 33,689 100,000
30............... 46,530.45 * * 1,844 100,000 16,153 100,000 53,724 100,000
35............... 63,255.83 * * * * 12,812 100,000 87,157 101,102
Age 65............... 46,530.45 * * 366 100,000 15,980 100,000 59,011 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.55%, 2.45%, 6.45% AND 10.45%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-8
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $2,183
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED 12% ASSUMED
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED -------------------- -------------------- -------------------- ---------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --------------------- ----------- -------- --------- -------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1............... $ 2,292.15 $ 725 $100,000 $ 779 $100,000 $ 833 $100,000 $ 887 $100,000
2............... 4,698.91 1,844 100,000 1,991 100,000 2,143 100,000 2,300 100,000
3............... 7,226.00 2,782 100,000 3,159 100,000 3,464 100,000 3,786 100,000
4............... 9,879.45 3,806 100,000 4,278 100,000 4,792 100,000 5,351 100,000
5............... 12,665.58 4,635 100,000 5,335 100,000 6,119 100,000 6,995 100,000
6............... 15,591.00 5,353 100,000 6,320 100,000 7,435 100,000 8,718 100,000
7............... 18,662.70 5,947 100,000 7,221 100,000 8,732 100,000 10,522 100,000
8............... 21,887.99 6,403 100,000 8,018 100,000 9,994 100,000 12,405 100,000
9............... 25,274.54 6,704 100,000 8,692 100,000 11,203 100,000 14,364 100,000
10............... 28,830.42 6,830 100,000 9,219 100,000 12,339 100,000 16,395 100,000
15............... 49,461.30 4,151 100,000 8,804 100,000 16,185 100,000 27,724 100,000
20............... 75,792.13 * * * * 13,278 100,000 41,359 100,000
25............... 109,397.67 * * * * * * 58,845 100,000
30............... 152,287.80 * * * * * * 91,107 100,000
35............... 207,027.69 * * * * * * 156,309 164,124
Age 65............... 28,830.42 6,745 100,000 9,560 100,000 13,366 100,000 18,483 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.55%, 2.45%, 6.45% AND 10.45%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-9
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
DEATH BENEFIT OPTIONS
OPTION A EXAMPLE. For purposes of this example, assume that the
Insured's Attained Age is between 0 and 40 and that there is no outstanding
Policy Debt. Under Option A, a Policy with a Specified Amount of $50,000
will generally provide a death benefit of $50,000 plus Cash Value. Thus, for
example, a Policy with a Cash Value of $5,000 will have a death benefit of
$55,000 ($50,000 + $5,000); a Cash Value of $10,000 will provide a death
benefit of $60,000 ($50,000 + $10,000). The death benefit, however, must be
at least 2.50 multiplied by the Cash Value. As a result, if the Cash Value
of the Policy exceeds $33,333, the death benefit will be greater than the
Specified Amount plus Cash Value. Each additional dollar of Cash Value above
$33,333 will increase the death benefit by $2.50. A Policy with a Specified
Amount of $50,000 and a Cash Value of $40,000 will provide a death benefit
of $100,000 ($40,000 x 2.50); a Cash Value of $60,000 will provide a death
benefit of $150,000 ($60,000 x 2.50).
Similarly, any time Cash Value exceeds $33,333, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If, for example, the Cash
Value is reduced from $40,000 to $35,000 because of partial surrenders,
charges, or negative investment performance, the death benefit will be
reduced from $100,000 to $87,500. If at any time, however, Cash Value
multiplied by the specified amount factor is less than the Specified Amount
plus the Cash Value, then the death benefit will be the current Specified
Amount plus Cash Value of the Policy.
The specified amount factor becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than under 40), the specified amount factor would be
1.85. The amount of the death benefit would be the sum of the Cash Value
plus $50,000 unless the Cash Value exceeded $58,824 (rather than $33,333),
and each dollar then added to or taken from the Cash Value would change the
death benefit by $1.85 (rather than $2.50).
OPTION B EXAMPLE. For purposes of this example, assume that the
Insured's Attained Age is between 0 and 40 and that there is no outstanding
Policy Debt. Under Option B, a Policy with a $50,000 Specified Amount will
generally pay $50,000 in death benefits. However, because the death benefit
must be equal to or be greater than 2.50 multiplied by the Cash Value, any
time the Cash Value of the Policy exceeds $20,000, the death benefit will
exceed the $50,000 Specified Amount. Each additional dollar added to Cash
Value above $20,000 will increase the death benefit by $2.50. A Policy with
a $50,000 Specified Amount and a Cash Value of $30,000 will provide death
proceeds of $75,000 ($30,000 x 2.50); a Cash Value of $40,000 will provide a
death benefit of $100,000 ($40,000 x 2.50); a Cash Value of $50,000 will
provide a death benefit of $125,000 ($50,000 x 2.50).
Similarly, so long as Cash Value exceeds $20,000, each dollar taken out of
Cash Value will reduce the death benefit by $2.50. If, for example, the Cash
Value is reduced from $25,000 to $20,000 because of partial surrenders,
charges, or negative investment performance, the death benefit will be
reduced from $62,500 to $50,000. If at any time, however, the Cash Value
multiplied by the specified amount factor is less than the Specified Amount,
the death benefit will equal the current Specified Amount of the Policy.
The specified amount factor becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the example above were, for
example, 50 (rather than between 0 and 40), the specified amount factor
would be 1.85. The death proceeds would not exceed the $50,000 Specified
Amount unless the Cash Value exceeded approximately $27,028 (rather than
$20,000), and each
B-1
<PAGE>
dollar then added to or taken from the Cash Value would change the life
insurance proceeds by $1.85 (rather than $2.50).
<TABLE>
<CAPTION>
ATTAINED AGE SPECIFIED AMOUNT FACTOR
<S> <C>
40 or younger 2.50
41 2.43
42 2.36
43 2.29
44 2.22
45 2.15
46 2.09
47 2.03
48 1.97
49 1.91
50 1.85
51 1.78
52 1.71
53 1.64
54 1.57
55 1.50
56 1.46
57 1.42
58 1.38
59 1.34
60 1.30
61 1.28
62 1.26
63 1.24
64 1.22
65 1.20
66 1.19
67 1.18
68 1.17
69 1.16
70 1.15
71 1.13
72 1.11
73 1.09
74 1.07
75 to 90 1.05
91 1.04
92 1.03
93 1.02
94 1.01
95 or older 1.00
</TABLE>
B-2
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore, or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
Article XII of the Company's By-Laws provides for the indemnification by the
Company of any person who is a party or who is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Article XII also provides for the indemnification by the Company of any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Company to procure
a judgment in its factor by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, offer, employee or agent of another corporation, partnership, joint
venture, trust or another enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification will be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Company
unless and only to the extent that the court in which such action or suit was
brought determines upon application that, despite the adjudication of liability
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
The Company represents that the aggregate charges under the Contracts are
reasonable in relation to the services rendered, the expenses to be incurred and
the risks assumed by the Company.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of information shown in the Prospectus with the
items of Form N-8B-2.
The Prospectus consisting of 106 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> <C>
1.A. 1. Certified Resolution of the Board of Directors of the Company
establishing the Variable Account.(5)
2. None.
3. * (a) Underwriting Agreement.
(b) Forms of Career Agent's Contract.(5)
(c) Commission schedules. (See Exhibit 3(b)(I) above.)(5)
4. None.
5. (a) Form of Policy.(1)
(b) State variation of Form of Policy.(1)
(c) Form of Application.(1)
(d) Revised Policy Form.(2)
(e) 1995 Revised Policy Form.(3)
(f) Accelerated Death Benefit Rider.(3)
(g) 1996 Revised Policy Form(4)
(h) 1996 Revised Application Form(4)
6. (a) Certificate of Incorporation of the Company.(5)
(b) By-Laws of the Company.(5)
7. None.
8. None.
9. Form of Participation Agreement.(5)
10. Form of Application (see Exhibit 1.A.(5)(b) above.)
2. *Opinion and Consent of Stephen M. Morain, Esquire.
3. *Financial Statement Schedules.
4. None.
5. Not applicable.
6. *Opinion and Consent of Christopher G. Daniels, FSA, MSAA, Life Product
Development and Pricing Vice President.
7. (a) *Consent of Ernst & Young LLP
(b) *Consent of Messrs. Sutherland Asbill & Brennan LLP
8. Memorandum describing the Company's conversion procedure (included in
Exhibit 9 hereto).
9. Memorandum describing the Company's issuance, transfer and redemption
procedures for the Policy.(5)
10. Powers of Attorney.(5)
</TABLE>
*Attached as an exhibit.
<PAGE>
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on September 4, 1987.
(2) Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on April 6, 1993.
(3) Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on May 1, 1995.
(4) Incorporated herein by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on May 1, 1997.
(5) Incorporated herein by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on May 1, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, Farm
Bureau Life Variable Account, certifies that it meets all of the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized in the City of
West Des Moines, State of Iowa, on the 25th day of April, 2000.
<TABLE>
<S> <C> <C>
FARM BUREAU LIFE INSURANCE COMPANY
FARM BUREAU LIFE VARIABLE ACCOUNT
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------------
Edward M. Wiederstein
PRESIDENT
Farm Bureau Life Insurance Company
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the dates set forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EDWARD M. WIEDERSTEIN President and Director
- ------------------------------ [Principal Executive April 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
Lindsey D. Larsen
*
- ------------------------------ Director April 25, 2000
Craig A. Lang
*
- ------------------------------ 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>
UNDERWRITING AGREEMENT
UNDERWRITING AGREEMENT made this [ ] day of [ ], 2000, by and between Farm
Bureau Life Insurance Company ("Farm Bureau"), an Iowa corporation, on its own
behalf and on behalf of Farm Bureau Life Variable Account ("Variable Account")
and EquiTrust Marketing Services, LLC ("EquiTrust Marketing"), a Delaware
limited liability company.
WITNESSETH
WHEREAS, Farm Bureau has established and maintains the Variable Account,
a segregated investment account, pursuant to the laws of the State of Iowa
for the purpose of selling flexible premium deferred variable universal life
insurance policies (the "Policies"), to commence after the effectiveness of
the registration statement for the Policies as filed with Securities and
Exchange Commission (the "SEC") on Form S-6 pursuant to the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Variable Account is registered as a unit investment trust
under the Investment Company Act of 1940, as amended (the "1940 Act:"); and
WHEREAS, EquiTrust Marketing is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member of the National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the parties desire to have EquiTrust Marketing act as principal
underwriter for the Account and assume such supervisory responsibility as is
required by federal and state securities law and applicable requirements of the
NASD for the securities activities of any "person associated" (as that term is
defined in Section 3(a)(18) of the 1934 Act) with EquiTrust Marketing, including
Farm Bureau personnel, and engaged directly or indirectly in Farm Bureau's
variable life operations (the "associated persons"); and
WHEREAS, Farm Bureau and the Variable Account desire to have the Policies
sold and distributed through EquiTrust Marketing, and EquiTrust Marketing is
willing to sell and distribute such Policies, under the terms stated herein.
NOW THEREFORE, the parties hereto agree as follows:
1. DISTRIBUTOR AND PRINCIPAL UNDERWRITER
Farm Bureau grants to EquiTrust Marketing the right to be, and EquiTrust
Marketing agrees to serve as, distributor and principal underwriter of the
Policies during the term of this Agreement. EquiTrust Marketing agrees to use
its best efforts to solicit applications for the Policies, and to undertake to
provide sales services relative to the Policies and otherwise to
1
<PAGE>
perform all duties and functions which are necessary and proper for the
distribution of the Policies.
2. PREMIUM PAYMENTS
All premium payments or other monies payable for the Policies shall be paid or
remitted in full by or on behalf of Policy owners directly to Farm Bureau or its
designated servicing agent together with such applications, forms and other
documentation as may be required by Farm Bureau. Checks or money orders in
payment of premiums or other monies payable shall be drawn to the order of "Farm
Bureau Life Insurance Company." Farm Bureau will retain all such payments except
to the extent such payments are allocated to the Variable Account.
3. SALES IN ACCORDANCE WITH CURRENT PROSPECTUS
EquiTrust Marketing agrees to offer the Policies for sale in accordance with the
current prospectus therefor. EquiTrust Marketing is not authorized to give any
information or to make any representations concerning the Policies other than
those contained in the current prospectus therefor filed with the SEC or in such
sales literature as may be developed and authorized by Farm Bureau.
4. PROSPECTUSES AND PROMOTIONAL MATERIALS
On behalf of the Variable Account, Farm Bureau shall furnish EquiTrust Marketing
with copies of all prospectuses, financial statements, and other documents which
EquiTrust Marketing reasonably requests for use in connection with the
distribution of the Policies. Farm Bureau shall have responsibility for
preparing, filing and printing all required prospectuses and/or registration
statements in connection with the Policies and the payment of all related
expenses. EquiTrust Marketing and Farm Bureau shall cooperate fully in the
design, draft, and review of sales promotion materials and the preparation of
individual sales proposals related to the sale of the Policies. EquiTrust
Marketing shall not use any such materials not provided or approved by Farm
Bureau.
5. COMPLIANCE WITH APPLICABLE LAWS
EquiTrust Marketing represents that it is duly registered as a broker-dealer
under the 1934 Act and is a member in good standing of the NASD and, to the
extent necessary to offer the Policies, shall be duly registered or otherwise
qualified under the securities laws of any state or other jurisdiction.
EquiTrust Marketing shall be responsible for carrying out its sales and
underwriting obligation hereunder in continued compliance with the NASD Rules of
Fair Practice and federal and state securities laws and regulations. Without
limiting the generality of the foregoing, EquiTrust Marketing agrees that it
shall be fully responsible for:
2
<PAGE>
(a) ensuring that no person shall offer or sell the Policies on its behalf
until such person is duly registered as a representative of EquiTrust
Marketing, duly licensed and appointed by Farm Bureau under applicable
state insurance law, and appropriately licensed, registered or otherwise
qualified to offer and sell such Policies under the federal securities laws
and any applicable securities laws of each state or other jurisdiction in
which such Policies may be lawfully sold, in which Farm Bureau is licensed
to sell the Policies and in which such persons shall offer or sell the
Policies; and
(b) training, supervision, and control of all such persons for purposes of
complying on a continuous basis with the NASD Rules of Fair Practice and
with federal and state securities laws requirements applicable in
connection with the offering and sale of the Policies. In this connection
EquiTrust Marketing shall:
(i) conduct such training (including the preparation and utilization of
training materials) as in the opinion of EquiTrust Marketing is
necessary to accomplish the purposes of this Agreement;
(ii) establish and implement reasonable written procedures for supervision
of sales practices of associated persons or brokers selling the
Policies;
(iii) establish branch offices and offices of supervisory jurisdiction, as
necessary or appropriate; and
(iv) take reasonable steps to ensure that the various sales representatives
associated with it shall not make recommendations to an applicant to
purchase a Policy in the absence of reasonable grounds to believe that
the purchase of the Policy is suitable for such applicant. While not
limited to the following, a determination of suitability shall be
based on information furnished to a sales representative after
reasonable inquiry of such applicant concerning the applicant's
insurance and investment objectives, financial situation and needs,
and the likelihood of whether the applicant will persist with the
Policy for such a period of time that Farm Bureau's acquisition costs
are amortized over a reasonable period of time.
6. SALES AGREEMENTS
EquiTrust Marketing is hereby authorized to enter into separate written
agreements, on such terms and conditions as EquiTrust Marketing may determine
not inconsistent with this Agreement, with broker-dealers which agree to
participate in the distribution of the Policies and to use their best efforts to
solicit applications for the Policies. All such sales agreements shall provide
that each independent broker-dealer will assume full responsibility for
continued compliance by itself and its representatives with applicable federal
and state securities laws. Such broker-dealers and their agents or
representatives soliciting applications for the Policies shall be duly and
appropriately licensed, registered or otherwise qualified for the sale of such
Policies under the federal securities laws, the state insurance laws and any
applicable state securities laws of each state or other jurisdiction in which
such Policies may be lawfully sold and in which Farm Bureau is licensed to sell
the Policies.
3
<PAGE>
Each such organization shall be both registered as a broker-dealer under the
1934 Act and a member of the NASD.
Applications for the Policies solicited by such organizations through their
representatives shall be forwarded to Farm Bureau. All payments for the Policies
shall be made by check payable to "Farm Bureau Life Insurance Company" and
remitted promptly by such organizations to Farm Bureau as agent for EquiTrust
Marketing. All broker-dealers who agree to participate in the distribution of
the Policies shall act as independent contractors and nothing herein contained
shall constitute such broker-dealers or their agents or employees as employees
of Farm Bureau in connection with the sale of the Policies.
7. INSURANCE LICENSES
Farm Bureau shall apply for the proper insurance licenses in the appropriate
states or jurisdictions for the designated persons associated with EquiTrust
Marketing or with other independent broker-dealers which have entered into
agreements with EquiTrust Marketing for the sale of the Policies, provided that
Farm Bureau reserves the right to refuse to appoint any proposed registered
representatives as an agent or broker, and to terminate an agent or broker once
appointed.
8. MAINTENANCE OF BOOKS, RECORDS AND ACCOUNTS
Farm Bureau and EquiTrust Marketing shall cause to be maintained and preserved,
for the periods prescribed, such accounts, books and other documents as are
required of them by the 1940 Act, the 1934 Act and any other applicable laws and
regulations. The books, accounts and records of Farm Bureau, the Variable
Account, and EquiTrust Marketing as to all transactions hereunder shall be
maintained so as to disclose clearly and accurately the nature and details of
the transactions.
As agent for and on behalf of EquiTrust Marketing, Farm Bureau shall maintain
such books and records of EquiTrust Marketing pertaining to the sale of the
Policies and required by the 1934 Act as may be mutually agreed upon from time
to time by Farm Bureau and EquiTrust Marketing; provided that such books and
records shall be the property of EquiTrust Marketing and shall at all times be
subject to such reasonable periodic, special or other examination by the SEC and
all other regulatory bodies having jurisdiction. In addition, Farm Bureau will
maintain records of all sales commissions paid to associated persons of
EquiTrust Marketing in connection with the sale of the Policies. Farm Bureau, as
agent for EquiTrust Marketing, shall be responsible for sending all required
confirmations on customer transactions in compliance with applicable
regulations, as modified by an exemption or other relief obtained by Farm Bureau
and EquiTrust Marketing.
4
<PAGE>
EquiTrust Marketing shall have the responsibility for maintaining the records of
associated persons of EquiTrust Marketing who are licensed, registered, and
otherwise qualified to sell the Policies, and for furnishing periodic reports
thereto to Farm Bureau. EquiTrust Marketing shall cause Farm Bureau to be
furnished with such other reports as Farm Bureau may reasonably request for the
purpose of meeting its reporting and recordkeeping requirements under the
insurance laws of the State of Iowa and any other applicable states or
jurisdictions.
9. COSTS AND EXPENSES BORNE BY EQUITRUST MARKETING
EquiTrust Marketing shall bear the costs and expenses of: (a) services,
materials, and supplies required to be supplied by EquiTrust Marketing pursuant
to the terms of this Agreement; (b) registration, licensing or other
qualification of associated persons of EquiTrust Marketing under federal and
state securities laws and with the NASD; and (c) training and supervision of
associated persons.
10. COMPENSATION FOR EQUITRUST MARKETING'S SERVICES
As compensation for EquiTrust Marketing's assumption of the costs and expenses
set forth in Section 9 hereof, the sales services rendered by EquiTrust
Marketing and the associated persons of EquiTrust Marketing, and the continuing
obligations herein, Farm Bureau shall pay: (a) an annual fee, payable monthly,
at a rate equal to $100 multiplied by the number of associated persons of
EquiTrust Marketing; (b) all commissions or other fees or amounts which are due
or otherwise payable to associated persons of EquiTrust Marketing in accordance
with the compensation schedules attached to the associated persons agreements
for the sale of the Policies as may be revised from time to time by EquiTrust
Marketing; and (c) such compensation as is due under dealer sales agreements
that EquiTrust Marketing and Farm Bureau enter into with other broker-dealers
pursuant to Section 6 hereof.
11. PAYMASTER ARRANGEMENT
In accordance with the terms of the Letter of Instruction dated the same date as
this Agreement and attached hereto as Exhibit A, as it may be amended from time
to time, from EquiTrust Marketing to Farm Bureau, Farm Bureau will pay
commissions payable to designated associated persons of EquiTrust Marketing as
paying agent on behalf of EquiTrust Marketing and will maintain the books and
records reflecting such payments in accordance with the requirements of the 1934
Act on behalf of EquiTrust Marketing. Farm Bureau acknowledges and agrees that
its services in this regard are purely ministerial and clerical in nature and
shall not interfere with the control and supervision exercised by EquiTrust
Marketing over its associated persons with regard to the Policies. Farm Bureau
further acknowledges and agrees that EquiTrust Marketing shall not be liable to
any party for commissions payable hereunder. Farm Bureau may delegate its
responsibility to pay compensation or commissions pursuant to this Section 11 to
any other insurer affiliated with Farm Bureau, in its discretion, provided such
insurer agrees to comply with the provisions hereof applicable to the payment of
such compensation or commissions.
5
<PAGE>
Farm Bureau shall have no right to compensation for the performance of any
activities pursuant to this Section 11. Associated persons of EquiTrust
Marketing shall have no interest in this Agreement or right to any compensation
to be paid by or on behalf of EquiTrust Marketing hereunder prior to their
receipt thereof.
12. INDEMNIFICATION
Farm Bureau agrees to indemnify EquiTrust Marketing for any losses incurred as a
result of any action taken or omitted by EquiTrust Marketing or any of its
officers, agents, or employees in performing their responsibilities under this
Agreement in good faith and without willful misfeasance, gross negligence, or
reckless disregard of such obligations.
13. INVESTIGATIONS AND PROCEEDINGS
EquiTrust Marketing and Farm Bureau agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Policies distributed under this Agreement. EquiTrust
Marketing and Farm Bureau further agree to cooperate fully in any securities
regulatory inspection, inquiry, investigation or proceeding or any judicial
proceeding with respect to Farm Bureau, EquiTrust Marketing, their affiliates,
or the associated persons to the extent that such inspection, inquiry,
investigation or proceeding is in connection with the Policies distributed under
this Agreement. Without limiting the foregoing:
(a) EquiTrust Marketing will be notified promptly of any customer
complaint or notice of any regulatory inspection, inquiry,
investigation or proceeding or judicial proceeding received by Farm
Bureau with respect to EquiTrust Marketing or any associated person or
which may affect Farm Bureau's issuance of any Policy marketed under
this Agreement; and
(b) EquiTrust Marketing will promptly notify Farm Bureau of any customer
complaint or notice of any regulatory inspection, inquiry,
investigation or proceeding received by EquiTrust Marketing or its
affiliates with respect to EquiTrust Marketing or any associated
person in connection with any Policy distributed under this Agreement
or any activity in connection with any such Policy. In the case of a
customer complaint, EquiTrust Marketing and Farm Bureau will cooperate
in investigating such complaint and arrive at a mutually satisfactory
response.
6
<PAGE>
14. TERMINATION
This Agreement may be terminated by either party hereto upon 60 days' written
notice to the other party without the payment of any penalty. This Agreement may
be terminated upon written notice of one party to the other party hereto in the
event of bankruptcy or insolvency of such party to which notice is given. This
Agreement may be terminated at any time upon the mutual written consent of the
parties hereto. This Agreement shall terminate automatically if it shall be
assigned.
Upon termination of this Agreement, all authorizations, rights and obligations
hereunder shall cease except (a) the obligation to settle accounts hereunder,
including commissions on premiums subsequently received for Policies in effect
at the time of termination or issued pursuant to applications received by Farm
Bureau prior to termination, and (b) the agreements contained in 12 hereof.
15. EXCLUSIVITY
The services of EquiTrust Marketing hereunder are not to be deemed exclusive and
EquiTrust Marketing shall be free to render similar services to others so long
as its services hereunder are not impaired or interfered with hereby.
16. REGULATION
This Agreement shall be subject to the provisions of the 1940 Act and the 1934
Act and the rules, regulations, and rulings thereunder and of the NASD, from
time to time in effect, including such exemptions from the 1940 Act as the SEC
may grant and the terms hereof shall be interpreted and construed in accordance
therewith.
EquiTrust Marketing shall submit to all regulatory and administrative bodies
having jurisdiction over the operations of Farm Bureau or the Variable Account,
present or future, and will provide any information, reports or other material
which any such body by reason of this Agreement may request or require pursuant
to applicable laws or regulations. Without limiting the generality of the
foregoing, EquiTrust Marketing shall furnish the Iowa Department of Insurance
with any information or reports which the Department may request in order to
ascertain whether the variable life operations of Farm Bureau are being
conducted in a manner consistent with the Department's variable life insurance
regulations and any other applicable law or regulations.
17. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
7
<PAGE>
18. APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and governed
by the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized as of the day and year
first above written.
Attest:
FARM BUREAU LIFE INSURANCE COMPANY
William J. Oddy,
Chief Executive Officer
Attest:
EQUITRUST MARKETING SERVICES, LLC
Dennis M. Marker,
Vice President - Investment Administration
EXHIBIT A
[EquiTrust Marketing Services, LLC Letterhead]
[Letter of Instruction from EquiTrust Marketing to Farm Bureau]
Farm Bureau Insurance Company
To Whom it May Concern:
With reference to the agreement (the "Agreement") between you and the
undersigned regarding the payment of commissions for securities transactions to
our associated persons ("Reps"), you are hereby directed to follow these
instructions:
8
<PAGE>
- You shall pay commissions to Reps for the sale of securities effected
on behalf of EquiTrust Marketing in accordance with the compensation
schedules attached as Attachment A hereto.
- You will be furnished information regarding compensation payable to
each Rep for each processing period through [ ], which information may
include instructions with regard to the payment of advances on
commissions payable.
- Funds will be transferred to you by [describe monetary transfer
procedures].
- Payments made to Reps may be aggregated with other compensation
payable for other products and services for which you act as payor.
- You must furnish a statement to each Rep detailing the compensation
paid on behalf of EquiTrust Marketing and indicating that such portion
is paid on behalf of EquiTrust Marketing.
- You may make deductions from commissions that have been authorized by
EquiTrust Marketing or by the Rep.
- [In the case of a Rep who is your common law employee, you are
authorized to include securities compensation in the base of
compensation payable to the Rep, and to make deductions for fringe
benefits from such base so long there is no differential in the
proportionate amount of securities compensation earned by the Rep that
is allocated to fringe benefits as compared with the amount of
non-securities compensation earned by the Rep that is allocated to the
same fringe benefits.]
- You are authorized to make any deductions from compensation payable to
a Rep for wage garnishments ordered by a court of competent
jurisdiction against such Rep.
- You will furnish us on a monthly basis with a report concerning
compensation paid by you during the month pursuant to the Agreement.
[Signed: EquiTrust Marketing Services, LCC]
Attachment
9
<PAGE>
ATTACHMENT A
EQUITRUST MARKETING COMPENSATION SCHEDULE
[TO BE ATTACHED TO LETTER FROM EQUITRUST MARKETING TO FARM BUREAU]
<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 variable universal
life insurance policies, I have examined such documents and such law as I
considered necessary and appropriate, and on the basis of such examinations, it
is my opinion that:
(1) Company is duly organized and validly existing under the laws of the State
of Iowa.
(2) The variable universal life policies, when issued as contemplated by the
said Form S-6 Registration Statement will constitute legal, validly issued
and binding obligations of Farm Bureau Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to the said Form
S-6 Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Prospectus contained in the said Registration Statement.
In giving this consent, I am not admitting that I am in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Stephen M. Morain
Stephen M. Morain
Senior Vice President
& General Counsel
<PAGE>
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 variable life insurance policy
("Policy") under the Securities Act of 1933, as amended. The prospectus included
in Post-Effective Amendment No. 15 to the Registration Statement on Form S-6
(File No. 33-12789) describes the Policy. I have provided actuarial advice
concerning the preparation of the policy form described in the Registration
Statement, and I am familiar with the Registration Statement and exhibits
thereto.
It is my professional opinion that:
(1) The illustrations of death benefits and cash values included in Appendix A
of the Prospectus, based on the assumptions stated in the illustrations,
are consistent with the provisions of the Policy. The rate structure of the
Policy has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear more favorable
for policyowners at the ages illustrated than for policyowners at other
ages.
(2) The information contained in the examples set forth in Appendix B of the
Prospectus, based on the assumptions stated in the examples, is consistent
with the provisions of the Policy.
(3) The fees and charges deducted under the Policy, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to
be incurred and the risks assumed by the insurance company.
I hereby consent to the use of this opinion as an exhibit to Post-Effective
Amendment No. 15 to the Registration Statement and to the reference to my name
under the heading "Experts" in the Prospectus.
Sincerely,
/s/ Christopher G. Daniels
Christopher G. Daniels, FSA, MSAA
Life Product Development and Pricing Vice
President
Farm Bureau Life Insurance Company
<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 Farm Bureau Life Variable Account and February 14, 2000 with respect
to the financial statements and schedules of Farm Bureau Life Insurance Company,
in Post-Effective Amendment No. 15 to the Registration Statement (Form S-6 No.
33-12789) 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
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Re: Farm Bureau Life Variable Account (File No. 33-12789)
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of Post-Effective Amendment Number 15
to the registration statement on Form S-6 for Farm Bureau Life Variable Account
(File No. 33-12789). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ STEPHEN E. ROTH
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Stephen E. Roth, Esq.
