<PAGE>
SUPPLEMENT DATED JANUARY 2, 1996
TO PROSPECTUS
DATED MAY 1, 1995
FOR
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
ISSUED BY
FARM BUREAU LIFE INSURANCE COMPANY
THE COMPANY, ACCOUNT AND FUND: FARM BUREAU LIFE INSURANCE COMPANY
In addition to the eight states listed at the bottom of page 7 of the
Prospectus, the Company is also admitted to do business in, and may offer
annuity contracts (including the Contract) in Idaho, Montana and Wyoming.
DESCRIPTION OF ANNUITY CONTRACT: PROCEEDS ON THE RETIREMENT DATE
The Non-Qualified Contracts issued on or after March 14, 1996 only permit a
retirement date no later than the annuitant's age 70 or 10 years after the
Contract date. Consequently, to change the retirement date for such Contracts,
the requested retirement date must be no later than the annuitant's 70th
birthday or any earlier date required by law. This information supplements the
disclosure in the first and third paragraphs on page 14 of the Prospectus.
DISTRIBUTION OF THE CONTRACTS
Distribution expenses of Contracts issued after January 2, 1996 may include
commission overrides of up to 30% of the sales representative's commissions paid
to managers of sales representatives. This information supplements the
disclosure in the first full paragraph on page 26 of the Prospectus.
<PAGE>
[LOGO]
VARIABLE ANNUITY
[LOGO]
May 1, 1995
Prospectuses for:
Flexible Premium Deferred Variable
Annuity Contracts
issued by
Farm Bureau Life
Insurance Company
-------------------------------------------
FBL Variable Insurance
Series Fund
managed by
FBL Investment
Advisory Services, Inc.
Call Toll-Free
1-800-247-4170
225-5846 (Des Moines)
<PAGE>
PROSPECTUS
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Farm Bureau Life Annuity Account
Individual Flexible Premium Deferred
Variable Annuity Contract
- --------------------------------------------------------------------------------
This Prospectus describes the individual flexible premium deferred variable
annuity contract (the "Contract") being offered by Farm Bureau Life Insurance
Company (the "Company"). The Contract may be sold to or in connection with
retirement plans, including those that qualify for special federal tax treatment
under the Internal Revenue Code.
Premiums and cash values are allocated, as designated by the owner, to one or
more of the Subaccounts of the Farm Bureau Life Annuity Account (the "Account"),
the Declared Interest Option, or both. The assets of each Subaccount will be
invested solely in a corresponding portfolio of FBL Variable Insurance Series
Fund (the "Fund"). The accompanying prospectus for the Fund describes its six
Portfolios--the Growth Common Stock Portfolio, the High Grade Bond Portfolio,
the High Yield Bond Portfolio, the Managed Portfolio, the Money Market Portfolio
and the Blue Chip Portfolio. The cash value of the Contracts prior to the
retirement date, except for amounts in the Declared Interest Option, will vary
according to the investment performance of the portfolios of the Fund in which
the selected Subaccounts are invested. THE OWNER BEARS THE ENTIRE INVESTMENT
RISK ON AMOUNTS ALLOCATED TO THE ACCOUNT.
This Prospectus sets forth basic information about the Contract and the Account
that a prospective investor ought to know before investing. Additional
information about the Contract and the Account is contained in the Statement of
Additional Information, which has been filed with the Securities and Exchange
Commission. The Statement of Additional Information is dated the same as this
Prospectus and is incorporated herein by reference. The table of contents for
the Statement of Additional Information is on page 27 of this prospectus. You
may obtain a copy of the Statement of Additional Information free of charge by
writing to or calling the Company at the address or phone number shown below.
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PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Issued By
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Telephone: 1-800-247-4170; 515-225-5846
THE DATE OF THIS PROSPECTUS IS
MAY 1, 1995
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
PAGE
<S> <C>
EXPENSE TABLES............................................................................................... 3
- ------------------------------------------------------------------------------------------------------------------------
DEFINITIONS.................................................................................................. 5
- ------------------------------------------------------------------------------------------------------------------------
SUMMARY...................................................................................................... 6
- ------------------------------------------------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION.............................................................................. 7
- ------------------------------------------------------------------------------------------------------------------------
THE COMPANY, ACCOUNT AND FUND................................................................................ 7
Farm Bureau Life Insurance Company........................................... 7
Iowa Farm Bureau Federation.................................................. 7
Farm Bureau Life Annuity Account............................................. 8
FBL Variable Insurance Series Fund........................................... 8
Addition, Deletion or Substitution of Investments............................ 10
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF ANNUITY CONTRACT.............................................................................. 10
Issuance of a Contract....................................................... 10
Premiums..................................................................... 10
Free-Look Period............................................................. 10
Allocation of Premiums....................................................... 11
Variable Cash Value.......................................................... 11
Transfer Privilege........................................................... 12
Partial Surrenders and Surrenders............................................ 12
Death Benefit Before the Retirement Date..................................... 13
Proceeds on the Retirement Date.............................................. 14
Payments..................................................................... 14
Modification................................................................. 14
Reports to Owners............................................................ 14
Inquiries.................................................................... 15
- ------------------------------------------------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION................................................................................. 15
Minimum Guaranteed and Current Interest Rates................................ 15
Transfers From Declared Interest Option...................................... 16
Payment Deferral............................................................. 16
- ------------------------------------------------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS....................................................................................... 16
Surrender Charge (Contingent Deferred Sales Charge).......................... 16
Annual Administrative Charge................................................. 17
Transfer Processing Fee...................................................... 17
Mortality and Expense Risk Charge............................................ 17
Fund Expenses................................................................ 17
Premium Taxes................................................................ 17
Other Taxes.................................................................. 17
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PAYMENT OPTIONS.............................................................................................. 18
Election of Options.......................................................... 18
Description of Options....................................................... 18
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YIELDS AND TOTAL RETURNS..................................................................................... 19
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FEDERAL TAX MATTERS.......................................................................................... 20
Introduction................................................................. 20
Tax Status of the Contract................................................... 21
Taxation of Annuities........................................................ 22
Transfers, Assignments or Exchanges of a Contract............................ 24
Withholding.................................................................. 24
Multiple Contracts........................................................... 24
Taxation of Qualified Plans.................................................. 24
Possible Charge for the Company's Taxes...................................... 25
Other Tax Consequences....................................................... 25
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DISTRIBUTION OF THE CONTRACTS................................................................................ 25
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LEGAL PROCEEDINGS............................................................................................ 26
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VOTING RIGHTS................................................................................................ 26
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FINANCIAL STATEMENTS......................................................................................... 26
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS........................................................ 27
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</TABLE>
2
<PAGE>
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EXPENSE TABLES
- --------------------------------------------------------------------------------
The following expense information assumes that the entire cash value is variable
cash value.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Premiums...................................................... None
Maximum Surrender Charge (contingent deferred sales charge) as a percentage of the
amount surrendered................................................................... 6%
Transfer Processing Fee............................................................... None*
ANNUAL ADMINISTRATIVE CHARGE............................................................ $ 30
ACCOUNT ANNUAL EXPENSES (as a percentage of average net assets)
Mortality and Expense Risk Charge..................................................... 1.25%
Other Account Expenses................................................................ None
Total Account Expenses.............................................................. 1.25%
ANNUAL FUND EXPENSES (as a percentage of average net assets)
<CAPTION>
GROWTH COMMON
STOCK PORTFOLIO
-----------------
<S> <C>
Management Fees (investment advisory fees)............................................. 0.50%
Other Expenses After Reimbursement.................................................... 0.05%
Total Annual Fund Expenses (after reimbursements)................................... 0.55%
<CAPTION>
HIGH GRADE
BOND PORTFOLIO
-----------------
<S> <C>
Management Fees (investment advisory fees)............................................. 0.30%
Other Expenses After Reimbursement.................................................... 0.25%
Total Annual Fund Expenses (after reimbursements)................................... 0.55%
<CAPTION>
HIGH YIELD
BOND PORTFOLIO
-----------------
<S> <C>
Management Fees (investment advisory fees)............................................. 0.50%
Other Expenses After Reimbursement.................................................... 0.05%
Total Annual Fund Expenses (after reimbursements)................................... 0.55%
<CAPTION>
MANAGED
PORTFOLIO
-----------------
<S> <C>
Management Fees (investment advisory fees)............................................. 0.55%
Other Expenses After Reimbursement.................................................... 0.00%
Total Annual Fund Expenses (after reimbursements)................................... 0.55%
<CAPTION>
MONEY MARKET
PORTFOLIO
-----------------
<S> <C>
Management Fees (investment advisory fees)............................................ 0.30%
Other Expenses After Reimbursement.................................................... 0.25%
Total Annual Fund Expenses (after reimbursements)................................... 0.55%
<CAPTION>
BLUE CHIP
PORTFOLIO
-----------------
<S> <C>
Management Fees (investment advisory fees)............................................ 0.20%
Other Expenses After Reimbursement.................................................... 0.35%
Total Annual Fund Expenses (after reimbursements)................................... 0.55%
</TABLE>
The above tables are intended to assist the owner of a contract in understanding
the costs and expenses that he or she will bear directly or indirectly. The
tables reflect the expenses for the Account based on the actual expenses for
each Portfolio of the Fund for the 1994 fiscal year. For a more complete
description of the various costs and expenses see "Charges and Deductions" and
the prospectus for the Fund which accompanies this prospectus.
The annual expenses listed for all of the Portfolios of the Fund are net of
certain reimbursements by the Fund's investment adviser. Operating expenses
(including the investment advisory fee but excluding brokerage, interest, taxes
and extraordinary expenses) of a Portfolio that exceed 1.50% of the Portfolio's
average daily net assets for any fiscal year are reimbursed by the Fund's
investment adviser up to the amount of the advisory fee. In addition, the
investment
* The Company reserves the right to charge a transfer fee in the future. See
"Charges and Deductions."
3
<PAGE>
adviser has voluntarily agreed to reimburse each Portfolio for expenses that
exceed .55% of the Portfolio's average daily net assets for the fiscal year
ending December 31, 1995. Although there can be no assurance that this
reimbursement will be continued, the Fund expects it to be renewed for the 1996
fiscal year. Absent the reimbursements, the Portfolio's total expenses for the
1994 fiscal year would have been: Growth Common Stock 0.77%, High Grade Bond
0.80%, High Yield Bond 0.84%, Managed 0.80%, Money Market 0.82% and Blue Chip
0.81%.
EXAMPLES: An owner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
1. If the Contract is surrendered or is annuitized at the end of the applicable
time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS
- ------------------------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Growth Common Stock....................................................................... $ 108 $ 189 $ 269
High Grade Bond........................................................................... 108 189 269
High Yield Bond........................................................................... 108 189 269
Managed................................................................................... 108 189 269
Money Market.............................................................................. 108 189 269
Blue Chip................................................................................. 108 189 269
<CAPTION>
SUBACCOUNT 10 YEARS
- ------------------------------------------------------------------------------------------ -----------
<S> <C>
Growth Common Stock....................................................................... $ 508
High Grade Bond........................................................................... 508
High Yield Bond........................................................................... 508
Managed................................................................................... 508
Money Market.............................................................................. 508
Blue Chip................................................................................. 508
</TABLE>
2. If the Contract is not surrendered or annuitized at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS
- ------------------------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Growth Common Stock....................................................................... $ 48 $ 146 $ 247
High Grade Bond........................................................................... 48 146 247
High Yield Bond........................................................................... 48 146 247
Managed................................................................................... 48 146 247
Money Market.............................................................................. 48 146 247
Blue Chip................................................................................. 48 146 247
<CAPTION>
SUBACCOUNT 10 YEARS
- ------------------------------------------------------------------------------------------ -----------
<S> <C>
Growth Common Stock....................................................................... $ 508
High Grade Bond........................................................................... 508
High Yield Bond........................................................................... 508
Managed................................................................................... 508
Money Market.............................................................................. 508
Blue Chip................................................................................. 508
</TABLE>
The examples provided above assume that no transfer charges or premium taxes
have been assessed. The examples also assume that the annual administrative
charge is $30 and that the cash value per contract is $10,000, which translates
the administrative charge into an assumed .30% charge for the purposes of the
examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE ASSUMED 5% ANNUAL RATE OF RETURN IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN THIS ASSUMED RATE.
4
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ACCOUNT...................... Farm Bureau Life Annuity Account.
ANNUITANT.................... The person whose life determines the annuity benefits payable under the
Contract and whose death determines the death benefit. The owner is always
the annuitant.
BENEFICIARY.................. The person to whom the proceeds payable on the death of the owner/annuitant
will be paid.
BUSINESS DAY................. Each day that the New York Stock Exchange is open for trading, except the
day after Thanksgiving, the day after Christmas and any day on which the
Home Office is closed because of a weather-related or comparable type of
emergency and is unable to segregate orders and redemption requests
received on that day.
CASH SURRENDER VALUE......... The cash value less any applicable surrender charge.
CASH VALUE................... The total amount invested under the Contract. It is the sum of the values
of the Contract in each subaccount of the Account plus the value of the
Contract in the Declared Interest Option.
THE CODE..................... The Internal Revenue Code of 1986, as amended.
CONTRACT ANNIVERSARY......... Same date in each Contract Year as the Contract Date.
CONTRACT DATE................ The date set forth on the data page of the Contract which is used to
determine Contract Years and Contract Anniversaries.
CONTRACT YEAR................ A twelve-month period beginning on the Contract Date or on a Contract
Anniversary.
DECLARED INTEREST OPTION..... An investment option under the Contract funded by the Company's general
account. It is not part of, nor dependent upon, the investment performance
of the Account.
DUE PROOF OF DEATH........... Proof of death satisfactory to the Company. Such proof may consist of the
following if acceptable to the Company:
(a) a certified copy of the death certificate;
(b) a certified copy of a court decree reciting a finding of death; or
(c) any other proof satisfactory to the Company.
GENERAL ACCOUNT.............. The assets of the Company other than those allocated to the Account or any
other separate account of the Company.
HOME OFFICE.................. The principal offices of the Company at 5400 University Avenue, West Des
Moines, Iowa 50266.
NON-QUALIFIED CONTRACT....... A Contract that is not a "Qualified Contract."
OWNER........................ The annuitant. Also the person who owns the Contract and who is entitled to
exercise all rights and privileges provided in the Contract.
QUALIFIED CONTRACT........... A Contract that is issued in connection with plans that qualify for special
federal income tax treatment under Sections 401, 403(b), or 408 of the
Code.
RETIREMENT DATE.............. The date when the cash value will be applied under a payment option, if the
annuitant is still living.
SEC.......................... U.S. Securities and Exchange Commission.
SUBACCOUNT................... A subdivision of the Account, the assets of which are invested in a
corresponding portfolio of the Fund.
VALUATION PERIOD............. The period that starts at 3:00 p.m. central time on one Business Day and
ends at 3:00 p.m. central time on the next succeeding Business Day.
WRITTEN NOTICE............... A written request or notice in a form satisfactory to the Company which is
signed by the owner and received at the Home Office.
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
THE CONTRACT
ISSUANCE OF A CONTRACT. Contracts may be sold in
connection with retirement plans which may or may not
qualify for special federal tax treatment under the Code.
There is no maximum age for owners on the Contract date.
(See "Issuance of a Contract.")
FREE-LOOK PERIOD. The owner has the right to return the
Contract within 10 days after he or she receives it. The
returned Contract will become void. The Company will
return to the owner an amount equal to the greater of the
premiums paid or the cash value on the date the returned
Contract is received at our Home Office plus
administrative charges and charges deducted from the
Account. (See "Free-Look Period.")
PREMIUMS. The minimum amount which the Company will
accept as an initial premium is $1,000. Subsequent
premiums of not less than $50 may be paid under the
Contract. (See "Premiums.")
ALLOCATION OF PREMIUMS. Premiums under a Contract will
be allocated, as designated by the owner, to one or more
Subaccounts, the Declared Interest Option, or both. The
initial premium will be allocated to the Money Market
Subaccount for a 10-day period following the Contract
date. At the end of that period, the amount in the Money
Market Subaccount will be allocated among the Subaccounts
and the Declared Interest Option in accordance with the
owner's percentage allocation in the application. The
assets of each Subaccount will be invested solely in a
corresponding Portfolio of the Fund. The cash value,
except for amounts in the Declared Interest Option, will
vary according to the investment performance of the
Portfolios of the Fund in which the selected Subaccounts
are invested. Interest will be credited to amounts in the
Declared Interest Option at a guaranteed minimum rate of
3% per year, or a higher current interest rate declared
by the Company. (See "Allocation of Premiums.")
TRANSFERS. On or before the retirement date, the owner
may transfer all or part of the amount in a Subaccount
or the Declared Interest Option to another Subaccount or
the Declared Interest Option subject to certain
restrictions.
The total amount transferred each time must be at least
$100 or the entire amount in the Subaccount, if less.
Only one transfer out of the Declared Interest Option is
allowed each Contract year and that transfer must be for
no more than 25% of the cash value in that option. No fee
is currently charged for transfers, but the Company
reserves the right to assess a transfer processing fee of
$25 for each transfer after the first transfer during a
Contract year. (See "Transfer Privilege.")
PARTIAL SURRENDER. Upon written notice at any time
before the retirement date, the owner may surrender part
of the cash surrender value subject to certain
limitations. (See "Partial Surrenders.")
SURRENDER. Upon written notice received on or before the
retirement date, the owner may surrender the Contract
and receive its cash surrender value. (See "Surrender.")
- --------------------------------------------------------------------------------
CHARGES AND
DEDUCTIONS
The following charges and deductions are assessed under
the Contract:
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). No
charge for sales expense is deducted from premiums at
the time premiums are paid. However, if a Contract has
not been in force for six full Contract years, upon
surrender, partial surrender or the application of the
cash value to certain payment options under certain
circumstances, a surrender charge is deducted from the
amount surrendered or from the remaining cash value.
For the first Contract year, the charge is 6% of the
amount surrendered. Thereafter, the surrender charge
decreases by 1% each subsequent Contract year. In no
event will the total surrender charge on any Contract
exceed 8 1/2% of the total premiums paid under the
Contract. (See "Charge for Partial Surrender or
Surrender.")
6
<PAGE>
Subject to certain restrictions, for the first partial
surrender or surrender in each Contract year after the
first Contract year, up to 10% of the cash value (as of
the date the surrender request is received at the Home
Office) may be surrendered without a surrender charge.
(See "Amounts Not Subject to Surrender Charge.") The
surrender charge may be waived as provided in the
Contracts. (See "Waiver of Surrender Charge.")
ANNUAL ADMINISTRATIVE CHARGE. On the Contract date and
on each Contract anniversary prior to the retirement
date, the Company deducts an annual administrative charge
of $30 from the cash value. (See "Annual Administrative
Charge.")
MORTALITY AND EXPENSE RISK CHARGE. The Company deducts a
daily mortality and expense risk charge to compensate it
for assuming certain mortality and expense risks. The
charge is deducted from the assets of the Account at an
annual rate of 1.25% (approximately 0.86% for mortality
risk and 0.39% for expense risks). (See "Mortality and
Expense Risk Charge.")
- --------------------------------------------------------------------------------
ANNUITY PROVISIONS
On the retirement date, the cash value (less any
applicable surrender charge) will be applied under a
payment option, unless the owner chooses to receive the
cash surrender value in a lump sum. Payments under these
options do not depend upon the Account's performance.
(See "Payment Options.")
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
Generally, a distribution (including a surrender, partial
surrender or death benefit payment) may result in taxable
income. In certain circumstances, a 10% penalty tax may
apply. For a further discussion of the federal income
status of variable annuity contracts, see "Federal Tax
Matters."
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The Account commenced operations on December 13, 1993,
however, no premiums were received until January 3, 1994.
The information presented below reflects the Accumulation
Unit information for the Subaccounts through December 31,
1994.
<TABLE>
<CAPTION>
ACCUMULATION UNIT ACCUMULATION
VALUE AT BEGINNING UNIT VALUE AT NUMBER OF UNITS AT
SUBACCOUNT OF YEAR END OF YEAR END OF YEAR
- ------------------------------------- ------------------ ------------- ------------------
<S> <C> <C> <C>
Growth Common Stock $ 10.000000 $ 9.444367 432,277.301991
High Grade Bond 10.000000 9.814168 76,901.476870
High Yield Bond 10.000000 9.694750 121,183.181173
Managed 10.000000 9.391586 399,444.197239
Money Market 10.000000 10.244543 34,710.804010
Blue Chip 10.000000 9.894181 79,759.631145
</TABLE>
- --------------------------------------------------------------------------------
THE COMPANY, ACCOUNT AND FUND
- --------------------------------------------------------------------------------
FARM BUREAU LIFE
INSURANCE COMPANY
The Company is a stock life insurance company
incorporated in the State of Iowa on October 30, 1944.
100% of the outstanding voting shares of the Company are
owned by Farm Bureau Multi-State Services, Inc. Iowa Farm
Bureau Federation owns 64.967% of the outstanding voting
stock of Farm Bureau Multi-State Services, Inc. The
Company is principally engaged in the offering of life
insurance policies, disability income and other health
insurance policies and annuity contracts and is admitted
to do business in eight states--Iowa, Kansas, Minnesota,
Nebraska, North Dakota, South Dakota, Utah and Wisconsin.
- --------------------------------------------------------------------------------
IOWA FARM BUREAU
FEDERATION
Iowa Farm Bureau Federation is an Iowa not-for-profit
corporation, the members of which are county Farm Bureau
organizations and their individual members. Iowa Farm
Bureau Federation is primarily engaged, through various
divisions and subsidiaries, in the formulation, analysis
and promotion of programs (at local, state, national and
international levels) that are designed to foster the
educational, social and economic advancement of its
members. The principal offices of Iowa Farm Bureau
Federation are at 5400 University Avenue, West Des
Moines, Iowa 50266.
7
<PAGE>
- --------------------------------------------------------------------------------
FARM BUREAU LIFE
ANNUITY ACCOUNT
The Account was established by the Company as a separate
account on July 26, 1993. The Account will receive and
invest premiums paid under the Contracts. In addition,
the Account may receive and invest premiums for any other
variable annuity contracts issued in the future by the
Company.
Although the assets in the Account are the property of
the Company, the assets in the Account attributable to
the Contracts are not chargeable with liabilities arising
out of any other business which the Company may conduct.
The assets of the Account are available to cover the
general liabilities of the Company only to the extent
that the Account's assets exceed its liabilities arising
under the Contracts and any other contracts supported by
the Account. The Company has the right to transfer to the
general account any assets of the Account which are in
excess of such reserves and other contract liabilities.
All obligations arising under the Contracts are general
corporate obligations of the Company.
The Account currently is divided into six Subaccounts but
may, in the future, include additional subaccounts. Each
Subaccount invests exclusively in shares of a single
corresponding Portfolio of the Fund. Income and realized
and unrealized gains or losses from the assets of each
Subaccount are credited to or charged against that
Subaccount without regard to income, gains or losses from
any other Subaccount.
The Account has been registered as a unit investment
trust under the Investment Company Act of 1940 (the "1940
Act") and meets the definition of a separate account
under the federal securities laws. Registration with the
Securities and Exchange Commission does not involve
supervision of the management or investment practices or
policies of the Account or the Company by the Commission.
The Account is also subject to the laws of the State of
Iowa which regulate the operations of insurance companies
domiciled in Iowa.
- --------------------------------------------------------------------------------
FBL VARIABLE
INSURANCE SERIES FUND
The Account invests in shares of the Fund, a management
investment company of the series type with six investment
Portfolios. The Fund currently has a Growth Common Stock
Portfolio, a High Grade Bond Portfolio, a High Yield Bond
Portfolio, a Managed Portfolio, a Money Market Portfolio
and a Blue Chip Portfolio. The Fund may, in the future,
provide for additional portfolios. Each Portfolio has its
own investment objectives and the income and losses for
each Portfolio of the Fund will be determined separately.
The investment objectives and policies of each Portfolio
are summarized below. There is no assurance that any
Portfolio will achieve its stated objectives. More
detailed information, including a description of risks
and expenses, may be found in the prospectus for the
Fund, which must accompany or precede this prospectus and
which should be read carefully and retained for future
reference.
GROWTH COMMON STOCK PORTFOLIO. This Portfolio seeks
long-term capital appreciation with current income as
a secondary objective. The Portfolio will pursue
these objectives by investing in common stocks which
appear to the Fund's investment adviser to possess
above-average potential for appreciation in market
value.
HIGH GRADE BOND PORTFOLIO. This Portfolio seeks as
high a level of current income as is consistent with
an investment in a high quality portfolio of debt
securities. The Portfolio will pursue this objective
by investing primarily in debt securities rated AAA,
AA or A by Standard & Poor's Corporation 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.
8
<PAGE>
HIGH YIELD BOND PORTFOLIO. This Portfolio seeks as a
primary objective as high a level of current income
as is consistent with investment in a portfolio of
fixed-income securities rated in the lower categories
of established rating services. As a secondary
objective, the Portfolio seeks capital appreciation
when consistent with its primary objective. The
Portfolio pursues these objectives by investing
primarily in fixed-income securities rated Baa or
lower by Moody's Investors Service, Inc. and/or BBB
or lower by Standards & Poor's Corporation, or in
unrated securities of comparable quality. AN
INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK. (See the Fund Prospectus
"Principal Risk Factors--Special Considerations--High
Yield Bonds.")
MANAGED PORTFOLIO. This Portfolio seeks the highest
total investment return of income and capital
appreciation. The Portfolio will pursue this
objective through a fully managed investment policy
consisting of investment in the following three
market sectors: (i) common stocks and other equity
securities of the type in which the Growth Common
Stock Portfolio may invest; (ii) high quality debt
securities and preferred stocks of the type in which
the High Grade Bond Portfolio may invest; and (iii)
high quality short-term money market instruments of
the type in which the Money Market Portfolio may
invest.
MONEY MARKET PORTFOLIO. This Portfolio seeks maximum
current income consistent with liquidity and
stability of principal. The Portfolio will pursue
this objective by investing in high quality
short-term money market instruments. AN INVESTMENT IN
THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U .S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
BLUE CHIP PORTFOLIO. This Portfolio seeks growth of
capital and income. The Portfolio pursues this
objective by investing primarily in common stocks of
well-capitalized, established companies. Because this
Portfolio may be invested heavily in particular
stocks or industries, an investment in this Portfolio
may entail relatively greater risk of loss.
The Fund currently sells shares only to the Account and a
separate account of the Company supporting variable life
insurance contracts. The Fund may in the future sell
shares to other separate accounts of the Company or its
life insurance company affiliates supporting other
variable products, or to variable life insurance and
annuity separate accounts of insurance companies not
affiliated with the Company. The Company currently does
not foresee any disadvantages to owners arising from the
sale of shares to support its variable life insurance
contracts or that would arise if the Fund were to offer
its shares to support products other than the Contracts
or such variable life insurance contracts. However, the
management of the Fund will monitor events in order to
identify any material irreconcilable conflicts that might
possibly arise if the Fund were to offer its shares to
support products other than the Contracts or such
variable life insurance contracts. In the event of such a
conflict, it would determine what action, if any, should
be taken in response to the conflict. In addition, if the
Company believes that the Fund's response to any such
conflicts insufficiently protects owners, it will take
appropriate action on its own, including withdrawing the
Account's investment in the Fund. (See the Fund
Prospectus for more detail.)
FBL Investment Advisory Services, Inc. (the "Adviser")
serves as investment adviser to the Fund and manages its
assets in accordance with policies, programs and
guidelines established by the Trustees of the Fund. The
Adviser is a wholly-owned, indirect subsidiary of the
Company.
The Fund is registered with the SEC as an open-end,
diversified management investment company. Such
registration does not involve supervision of the
management or investment practices or policies of the
Fund by the SEC.
9
<PAGE>
- --------------------------------------------------------------------------------
ADDITION, DELETION OR
SUBSTITUTION OF
INVESTMENTS
The Company reserves the right, subject to applicable
law, to make additions to, deletions from or
substitutions for the shares that are held in the Account
or that the Account may purchase. If the shares of a
Portfolio of the Fund are no longer available for
investment or if, in the Company's judgment, further
investment in any Portfolio should become inappropriate
in view of the purposes of the Account, the Company may
redeem the shares, if any, of that Portfolio and
substitute shares of another Portfolio of the Fund or of
another registered open-end management investment
company. The Company will not substitute any shares
attributable to a Contract's interest in a Subaccount
without notice and prior approval of the SEC and state
insurance authorities, to the extent required by the 1940
Act or other applicable law.
The Company also reserves the right to establish
additional subaccounts of the Account, each of which
would invest in shares corresponding to a portfolio of
the Fund or in shares of another investment company
having a specified investment objective. The Company may,
in its sole discretion, establish new subaccounts or
eliminate or combine one or more Subaccounts if marketing
needs, tax considerations or investment conditions
warrant. Any new subaccounts may be made available to
existing Contract owners on a basis to be determined by
the Company. Subject to obtaining any approvals or
consents required by applicable law, the assets of one or
more Subaccounts may be transferred to any other
Subaccount if, in the sole discretion of the Company,
marketing, tax or investment conditions warrant.
In the event of any such substitution or change, the
Company may, by appropriate endorsement, change the
Contract to reflect the substitution or change. If the
Company deems it to be in the best interest of Contract
owners and annuitants, and subject to any approvals that
may be required under applicable law, the Account may be
operated as a management investment company under the
1940 Act, it may be deregistered under that Act if
registration is no longer required, it may be combined
with other Company separate accounts or its assets may be
transferred to another separate account of the Company.
In addition, the Company may, when permitted by law,
restrict or eliminate any voting rights of owners or the
persons who have such rights under the Contracts.
- --------------------------------------------------------------------------------
DESCRIPTION OF ANNUITY CONTRACT
- --------------------------------------------------------------------------------
ISSUANCE OF A
CONTRACT
In order to purchase a Contract, application must be made
to the Company through a licensed representative of the
Company, who is also a registered representative of FBL
Marketing Services, Inc. ("FBL Marketing"), a
broker-dealer having a selling agreement with FBL
Marketing or a broker-dealer having a selling agreement
with such broker/dealer. Contracts may be sold to or in
connection with retirement plans that do not qualify for
special tax treatment as well as retirement plans that
qualify for special tax treatment under the Code. There
is no maximum age for owners on the Contract date.
- --------------------------------------------------------------------------------
PREMIUMS
The minimum initial premium which the Company will accept
is $1,000. Subsequent premium payments may be paid at any
time during the annuitant's lifetime and before the
retirement date and must be for at least $50.
At the time of application, a premium reminder notice
schedule may be selected based on an annual, semi-annual
or quarterly payment. The owner will receive a premium
reminder notice at the specified interval. The owner may
change the amount and schedule of the premium reminder
notice. Also, under the Automatic Payment Plan, the owner
can select a monthly payment schedule pursuant to which
premium payments will be automatically deducted from a
bank account or other source rather than being "billed."
The Contract will not necessarily lapse even if premiums
are not paid.
- --------------------------------------------------------------------------------
FREE-LOOK PERIOD
The Contract provides for an initial "free-look" period.
The owner has the right to return the Contract within 10
days of receiving it. When the Company receives the
returned Contract at its Home Office, it will cancel the
Contract and refund to the
10
<PAGE>
owner an amount equal to the greater of the premiums paid
under the Contract or the sum of the cash value as of the
date the returned Contract is received by the Company at
its Home Office plus the amount of the annual
administration charge and any charges deducted from the
Account.
- --------------------------------------------------------------------------------
ALLOCATION OF
PREMIUMS
If the application for a Contract is properly completed
and is accompanied by all the information necessary to
process it, including payment of the initial premium, the
initial premium will be allocated to the Money Market
Subaccount within two business days of receipt of such
premium by the Company at its Home Office. If the
application is not properly completed, the Company
reserves the right to retain the premium for up to five
business days while it attempts to complete the
application. If the application is not complete at the
end of the 5-day period, the Company will inform the
applicant of the reason for the delay and the initial
premium will be returned immediately, unless the
applicant specifically consents to the Company retaining
the premium until the application is complete. Once the
application is complete, the initial premium will be
allocated to the Money Market Subaccount within two
business days.
At the time of application, the owner selects how the
initial premium is to be allocated among the Subaccounts
and the Declared Interest Option. Any allocation must be
for at least 10% of a premium payment and be in whole
percentages.
The initial premium will be allocated to the Money Market
Subaccount for a 10-day period following the Contract
date. After the expiration of the 10-day period, the
amount in the Money Market Subaccount will be allocated
among the Subaccounts and the Declared Interest Option in
accordance with the owner's percentage allocation in the
application. Any subsequent premiums will be allocated at
the end of the valuation period in which the subsequent
premium is received by the Company in the same manner,
unless the allocation percentages are changed. Subsequent
premiums will be allocated in accordance with the
allocation schedule in effect at the time the premium
payment is received. However, owners may direct
individual payments to a specific Subaccount or the
Declared Interest Option (or any combination thereof)
without changing the existing allocation schedule.
The allocation schedule may be changed by the owner at
any time by written notice. Changing the allocation
schedule will not change the allocation of existing cash
value among the Subaccounts or the Declared Interest
Option.
The cash values allocated to a Subaccount will vary with
that Subaccount's investment experience, and the owner
bears the entire investment risk. Owners should
periodically review their premium allocation schedule in
light of market conditions and their overall financial
objectives.
- --------------------------------------------------------------------------------
VARIABLE CASH VALUE
The variable cash value will reflect the investment
experience of the selected Subaccounts, any premiums
paid, any surrenders or partial surrenders, any transfers
and any charges assessed in connection with the Contract.
There is no guaranteed minimum variable cash value, and,
because a Contract's variable cash value on any future
date depends upon a number of variables, it cannot be
predetermined.
CALCULATION OF VARIABLE CASH VALUE. The variable cash
value is determined at the end of each valuation period.
The value will be the aggregate of the values
attributable to the Contract in each of the Subaccounts,
determined for each Subaccount by multiplying that
Subaccount's unit value for the relevant valuation period
by the number of Subaccount units allocated to the
Contract.
DETERMINATION OF NUMBER OF UNITS. Any amounts allocated
to the Subaccounts will be converted into Subaccount
units. The number of units to be credited to a Contract
is determined by dividing the dollar amount being
allocated to a Subaccount by the unit value for that
Subaccount at the end of the valuation period during
which the amount was allocated. The number of units in
any Subaccount will be increased at the end of the
valuation period by any premiums allocated to the
Subaccount during the current valuation period and by any
amounts transferred to the Subaccount from another
11
<PAGE>
Subaccount or the Declared Interest Option during the
current valuation period. The number of units in any
Subaccount will be decreased at the end of the valuation
period by any amounts transferred from that Subaccount to
another Subaccount or the Declared Interest Option, any
amounts surrendered during the current valuation period,
any surrender charge assessed upon a partial or full
surrender and the annual administrative charge, if
assessed during the current valuation period.
DETERMINATION OF UNIT VALUE. The unit value for each
Subaccount's first valuation period is set at $10. The
unit value for a Subaccount is calculated for each
subsequent valuation period by dividing (a) by (b) where:
(a)is the net result of:
1. the value of the net assets in the Subaccount
at the end of the preceding valuation period;
plus
2. the investment income, dividends, and capital
gains, realized or unrealized, credited to the
Subaccount during the current valuation
period; minus
3. the capital losses, realized or unrealized,
charged against the Subaccount during the
current valuation period; minus
4. any amount charged for taxes or any amount set
aside during the valuation period as a
provision for taxes attributable to the
Subaccount; minus
5. the daily amount charged for mortality and
expense risks for each day of the current
valuation period; and
(b)the number units outstanding at the end of the
preceding valuation period.
- --------------------------------------------------------------------------------
TRANSFER PRIVILEGE
Before the retirement date, an owner may transfer all or
part of an amount in a Subaccount to another Subaccount
or the Declared Interest Option at any time, or transfer
up to 25% of an amount in the Declared Interest Option to
one or more Subaccounts. However, if a transfer request
would reduce the amount in the Declared Interest Option
below $1,000, the owner may transfer the entire amount
from the Declared Interest Option. The minimum transfer
amount must be the lesser of $100 or the entire amount in
that Subaccount or the Declared Interest Option.
The transfer will be made as of the business day on or
next following the day written notice requesting such
transfer is received at the Home Office. There is no
limit on the number of transfers that can be made among
or between Subaccounts or the Declared Interest Option.
However, only one transfer may be made from the Declared
Interest Option each Contract year (See "Transfers from
Declared Interest Option.")
Currently, there is no charge for transfers. The Company
reserves the right, however to charge $25 for each
transfer after the first transfer in any Contract year.
For the purpose of assessing the transfer fee, all
transfer requests received together in a valuation period
would be considered to be one transfer, regardless of the
Subaccounts or the Declared Interest Option affected. The
processing fee would be deducted from the amount being
transferred.
Transfers may be made based upon instructions given by
telephone, provided the appropriate election has been
made at the time of application or proper authorization
is provided to the Company. The Company reserves the
right to suspend telephone transfer privileges at any
time, for any class of Contracts, for any reason.
- --------------------------------------------------------------------------------
PARTIAL SURRENDERS
AND SURRENDERS
PARTIAL SURRENDERS. At any time before the retirement
date, an owner may make a partial surrender of the cash
surrender value. The minimum amount which may be
surrendered is $500; the maximum amount is that which
would leave the remaining cash value equal to or less
than $2,000. A partial surrender request that would
reduce the cash value to $2,000 or less will be treated
as a full surrender of the Contract. The Company will
withdraw the amount requested from the cash value as of
the Business Day on or next following the day written
notice requesting the partial surrender is
12
<PAGE>
received at the Home Office. Any applicable surrender
charge will, at the election of the owner, be deducted
from the remaining cash value or be deducted from the
amount withdrawn. (See "Surrender Charge.")
The owner may specify the amount of the partial surrender
to be made from certain Subaccounts or the Declared
Interest Option. If the owner does not so specify, or if
the amount in the designated Subaccount(s) or Declared
Interest Option is inadequate to comply with the request,
the partial surrender will be made from each Subaccount
and the Declared Interest Option based on the proportion
that the value in such Subaccount bears to the total cash
value immediately prior to the partial surrender.
A partial surrender may have adverse federal income tax
consequences, including a penalty tax. (See "Taxation of
Annuities.")
SURRENDER. At any time before the retirement date, the
owner may request a surrender of the contract for its
cash surrender value. The cash surrender value will be
determined as of the Business Day on or next following
the date written notice requesting surrender and the
Contract are received at the Home Office. The cash
surrender value will be paid in a lump sum unless the
owner requests payment under a payment option. A
surrender may have adverse federal income tax
consequences. (See "Taxation of Annuities.")
SURRENDER AND PARTIAL SURRENDER RESTRICTIONS. The
owner's right to make surrenders and partial surrenders
is subject to any restrictions imposed by applicable law
or employee benefit plan.
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF
CONTRACTS. There are certain restrictions on surrenders
and partial surrenders of Contracts used as funding
vehicles for Code Section 403(b) retirement plans.
Section 403(b)(11) of the Code restricts the distribution
under Section 403(b) annuity contracts of: (i) elective
contributions made in years beginning after December 31,
1988; (ii) earnings on those contributions; and (iii)
earnings in such years on amounts held as of the last
year beginning before January 1, 1989. Distributions of
those amounts may only occur upon the death of the
employee, attainment of age 59 1/2, separation from
service, disability or financial hardship. In addition,
income attributable to elective contributions may not be
distributed in the case of hardship.
- --------------------------------------------------------------------------------
DEATH BENEFIT BEFORE
THE RETIREMENT DATE
If the annuitant (who is always the owner) dies before
the retirement date, the Company will pay the death
benefit under the Contract to the beneficiary. The death
benefit is equal to the greater of the sum of the
premiums paid less any partial surrenders (including
applicable surrender charges), or the cash value on the
date the Company receives due proof of the annuitant's
death. There is no death benefit payable if the annuitant
dies after the retirement date. The death benefit will be
paid to the beneficiary in a lump sum unless the owner or
beneficiary elects a payment option.
If the annuitant (who is always the owner) dies before
the retirement date, federal tax law applicable to a
Non-Qualified Contract requires that the cash value be
distributed to the beneficiary within five years after
the date of the owner's death. These distribution
requirements will be considered satisfied as to any
portion of the proceeds payable to, or for the benefit
of, a designated beneficiary, and which is distributed
over the life (or a period not exceeding the life
expectancy) of that beneficiary, provided that such
distributions begin within one year of the owner's death.
However, if the owner's spouse is the designated
beneficiary, the Contract may be continued with such
surviving spouse as the new owner.
If the owner dies on or after the retirement date, any
remaining payments must be distributed at least as
rapidly as under the payment option in effect on the date
of such owner's death.
Other rules may apply to a Qualified Contract.
13
<PAGE>
- --------------------------------------------------------------------------------
PROCEEDS ON THE
RETIREMENT DATE
The retirement date is selected by the owner. For
Non-Qualified Contracts, the retirement date may not be
after the later of the annuitant's age 90 or 10 years
after the Contract date. For Qualified Contracts, the
retirement date must be no later than the annuitant's age
70 1/2 or such other date as meets the requirements of
the Code.
On the retirement date, the proceeds will be applied
under the life income annuity payment option with ten
years guaranteed, unless the owner chooses to have the
proceeds paid under another payment option or in a lump
sum. (See "Payment Options.") If a payment option is
elected, the amount that will be applied is the cash
value less any applicable surrender charge. If a lump sum
payment is chosen, the amount paid will be the cash
surrender value on the retirement date.
The retirement date may be changed subject to these
limitations: the owner's written notice must be received
at the Home Office at least 30 days before the current
retirement date; the requested retirement date must be a
date that is at least 30 days after receipt of the
written notice; and the requested retirement date must be
no later than the annuitant's 90th birthday or any
earlier date required by law.
- --------------------------------------------------------------------------------
PAYMENTS
Any surrender, partial surrender or death benefit will
usually be paid within seven days of receipt of a written
request, any information or documentation reasonably
necessary to process the request and, in the case of a
death benefit, receipt and filing of due proof of death.
However, payments may be postponed if:
1. the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or trading
on the exchange is restricted as determined by the
SEC; or
2. the SEC permits by an order the postponement for
the protection of owners; or
3. the SEC determines that an emergency exists that
would make the disposal of securities held in the
Account or the determination of the value of the
Account's net assets not reasonably practicable.
If a recent check or draft has been submitted, the
Company has the right to delay payment until it has
assured itself that the check or draft has been honored.
The Company has the right to defer payment of any
surrender, partial surrender or transfer from the
Declared Interest Option for up to six months from the
date of receipt of written notice for such a surrender or
transfer. If payment is not made within 30 days after
receipt of documentation necessary to complete the
transaction, or such shorter period as required by a
particular jurisdiction, interest will be added to the
amount paid from the date of receipt of documentation at
3% or such higher rate required for a particular state.
- --------------------------------------------------------------------------------
MODIFICATION
Upon notice to the owner, the Company may modify the
Contract if:
1. necessary to make the Contract or the Account
comply with any law or regulation issued by a
governmental agency to which the Company is
subject; or
2. necessary to assure continued qualification of the
Contract under the Internal Revenue Code or other
federal or state laws relating to retirement
annuities or variable annuity contracts; or
3. necessary to reflect a change in the operation of
the Account; or
4. the modification provides additional Account
and/or fixed accumulation options.
In the event of most such modifications, the Company will
make appropriate endorsement to the Contract.
- --------------------------------------------------------------------------------
REPORTS TO OWNERS
At least annually, the Company will mail to each owner,
at such owner's last known address of record, a report
containing the cash value (including the cash value in
each
14
<PAGE>
Subaccount and the Declared Interest Option) of the
Contract, premiums paid and charges deducted since the
last report, partial surrenders made since the last
report and any further information required by any
applicable law or regulation.
- --------------------------------------------------------------------------------
INQUIRIES
Inquiries regarding a Contract may be made by writing to
the Company at its Home Office.
- --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
An owner may allocate some or all of the premiums and
transfer some or all of the cash value to the Declared
Interest Option, which is part of the general account and
pays interest at declared rates guaranteed for each
Contract year (subject to a minimum guaranteed interest
rate of 3%). The principal, after deductions, is also
guaranteed. The Company's general account supports its
insurance and annuity obligations.
The Declared Interest Option has not been, and is not
required to be, registered with the SEC under the
Securities Act of 1933, and neither the Declared Interest
Option nor the Company's general account has been
registered as an investment company under the 1940 Act.
Therefore, neither the Company's general account, the
Declared Interest Option, nor any interests therein are
generally subject to regulation under the 1933 Act or the
1940 Act. The disclosures relating to these accounts
which are included in this prospectus are for the owner's
information and have not been reviewed by the SEC.
However, such disclosures may be subject to certain
generally applicable provisions of Federal securities
laws relating to the accuracy and completeness of
statements made in prospectuses.
The portion of the cash value allocated to the Declared
Interest Option (the "Declared Interest Option cash
value") will be credited with rates of interest, as
described below. Since the Declared Interest Option is
part of the general account, the Company assumes the risk
of investment gain or loss on this amount. All assets in
the general account are subject to the Company's general
liabilities from business operations.
- --------------------------------------------------------------------------------
MINIMUM GUARANTEED
AND CURRENT INTEREST
RATES
The Declared Interest Option cash value is guaranteed to
accumulate at a minimum effective annual interest rate of
3%. The Company intends to credit the Declared Interest
Option cash value with current rates in excess of the
minimum guarantee but is not obligated to do so. These
current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market
interest rates. Any interest credited on the amounts in
the Declared Interest Option in excess of the minimum
guaranteed rate of 3% per year will be determined in the
sole discretion of the Company. The owner, therefore,
assumes the risk that interest credited may not exceed
the guaranteed rate.
From time to time, the Company establishes new current
interest rates for the Declared Interest Option under the
Contracts. The rate applicable for a particular Contract
is the rate in effect on the most recent Contract
anniversary. This rate remains unchanged for that
Contract until the next Contract anniversary (I.E., for
the entire Contract year). During each Contract year, the
entire Declared Interest Option cash value (including
amounts allocated or transferred to the Declared Interest
Option during that year) is credited with the interest
rate in effect for that Contract year. Once credited,
interest becomes part of the Declared Interest Option
cash value.
The Company reserves the right to change the method of
crediting interest from time to time, provided that such
changes do not have the effect of reducing the guaranteed
rate of interest below 3% per annum or shorten the period
for which the current interest rate applies to less than
a Contract year (except for the year in which such amount
is received or transferred).
CALCULATION OF DECLARED INTEREST OPTION CASH VALUE. The
Declared Interest Option cash value at any time is equal
to amounts allocated and transferred to it, plus interest
credited less amounts deducted, transferred or withdrawn.
15
<PAGE>
- --------------------------------------------------------------------------------
TRANSFERS FROM
DECLARED INTEREST
OPTION
One transfer is allowed from the Declared Interest Option
to any or all of the Subaccounts in each Contract year.
The amount transferred from the Declared Interest Option
may not exceed 25% of the Declared Interest Option cash
value on the date of transfer, unless the balance after
the transfer would be less than $1,000, in which case the
entire amount may be transferred.
- --------------------------------------------------------------------------------
PAYMENT DEFERRAL
The Company has the right to defer payment of any
surrender, partial surrender or transfer from the
Declared Interest Option up to six months from the date
of receipt of the written notice for surrender or
transfer.
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
SURRENDER CHARGE
(CONTINGENT DEFERRED
SALES CHARGE)
GENERAL. No charge for sales expenses is deducted from
premiums at the time premiums are paid. However, within
certain time limits described below, a surrender charge
(contingent deferred sales charge) is deducted from the
cash value if a partial surrender or surrender is made
before the retirement date. Also, as described below, a
surrender charge may be deducted from amounts applied to
certain payment options.
In the event surrender charges are not sufficient to
cover sales expenses, the loss will be borne by the
Company; conversely, if the amount of such charges proves
more than enough, the excess will be retained by the
Company. The Company does not currently believe that the
surrender charges imposed will cover the expected costs
of distributing the Contracts. Any shortfall will be made
up from the Company's general assets which may include
amounts derived from the mortality and expense risk
charge.
CHARGE FOR PARTIAL SURRENDER OR SURRENDER. During the
first six Contract years, if a partial surrender or
surrender is made, the applicable surrender charge will
be as follows:
<TABLE>
<CAPTION>
CONTRACT YEAR IN CHARGE AS PERCENTAGE OF
WHICH SURRENDER OCCURS AMOUNT SURRENDERED
- -------------------------------------- -----------------------
<S> <C>
1..................................... 6%
2..................................... 5
3..................................... 4
4..................................... 3
5..................................... 2
6..................................... 1
7 and after........................... 0
</TABLE>
No surrender charge is deducted if the partial surrender
or surrender occurs after six full Contract years.
In no event will the total surrender charges assessed
under a Contract exceed 8 1/2% of the total premiums paid
under that Contract.
If the Contract is being surrendered, the surrender
charge is deducted from the cash value in determining the
cash surrender value. For a partial surrender, the
surrender charge may, at the election of the owner, be
deducted from the cash value remaining after the amount
requested is withdrawn or be deducted from the amount of
the withdrawal requested.
AMOUNTS NOT SUBJECT TO SURRENDER CHARGE. For the first
partial surrender or surrender in each Contract year
after the first Contract year, up to 10% of the cash
value (as of the date the surrender request is received
at the Home Office) may be surrendered without a
surrender charge.
Any amounts surrendered in excess of 10% or subsequent to
the first partial surrender will be assessed a surrender
charge. This right is not cumulative from Contract year
to Contract year.
16
<PAGE>
SURRENDER CHARGE AT THE RETIREMENT DATE. If any payment
option is selected at the retirement date other than
options 2-5 described below (see "Payment Options"), the
surrender charge is assessed against the cash value
applied to that option. If payment options 3 or 5 are
selected, no surrender charge is assessed and if payment
options 2 or 4 are selected, the surrender charge is
applied by adding the fixed number of years for which
payments will be made under the option to the number of
Contract years since the Contract date and using this sum
in the surrender charge table.
WAIVER OF SURRENDER CHARGE. Upon written notice from the
owner before the retirement date, the surrender charge
will be waived on any partial or full surrender if he or
she is, as defined in the Contract, confined to a nursing
home, becomes totally disabled or becomes terminally ill.
- --------------------------------------------------------------------------------
ANNUAL ADMINISTRATIVE
CHARGE
On the Contract date and on each Contract anniversary
prior to the retirement date, the Company deducts from
the cash value an annual administrative charge of $30 to
reimburse it for administrative expenses relating to the
Contract. The charge will be deducted from each
Subaccount and the Declared Interest Option based on the
proportion that the value in each such Subaccount bears
to the total cash value. The Company does not expect to
make a profit on this charge. No annual administrative
charge is payable during the annuity payment period.
- --------------------------------------------------------------------------------
TRANSFER PROCESSING
FEE
Currently, there is no charge for transfers. The Company
reserves the right, however, to charge $25 for each
transfer after the first transfer in any Contract year.
For the purpose of assessing the fee, all transfer
requests received together in a given valuation period
would be considered to be one transfer, regardless of the
Subaccounts or the Declared Interest Option affected. The
fee would be deducted from the amount being transferred.
The Company does not expect a profit from this charge in
the event that it is taken.
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE
RISK CHARGE
To compensate the Company for assuming mortality and
expense risks, the Company deducts a daily mortality and
expense risk charge from the assets of the Account. The
charge is at an annual rate of 1.25% (daily rate of
0.0034035%) (approximately 0.86% for mortality risk and
0.39% for expense risk).
The mortality risk the Company assumes is that annuitants
may live for a longer period of time than estimated when
the guarantees in the Contract were established. Because
of these guarantees, each payee is assured that longevity
will not have an adverse effect on the annuity payments
received. The mortality risk that the Company assumes
also includes a guarantee to pay a death benefit if the
owner/annuitant dies before the retirement date. The
expense risk that the Company assumes is the risk that
the administrative fees and transfer fees may be
insufficient to cover actual future expenses.
If the mortality and expense risk charge is insufficient
to cover the actual cost of the mortality and expense
risks undertaken by the Company, the Company will bear
the shortfall. Conversely, if the charge proves more than
sufficient, the excess will be profit to the Company and
will be available for any proper corporate purpose
including, among other things, payment of sales expenses.
- --------------------------------------------------------------------------------
FUND EXPENSES
Because the Account purchases shares of the Fund, the net
assets of the Account will reflect the investment
advisory fees and other operating expenses incurred by
the Fund. (See the accompanying Fund Prospectus.)
- --------------------------------------------------------------------------------
PREMIUM TAXES
Currently, no charge or deduction is made under the
Contracts for premium taxes. The Company reserves the
right, however, to deduct such taxes from cash value.
Various states and other governmental entities levy a
premium tax, currently ranging up to 3.5%, on annuity
contracts issued by insurance companies. Premium tax
rates are subject to change, from time to time, by
legislative and other governmental action.
- --------------------------------------------------------------------------------
OTHER TAXES
Currently, no charge is made against the Account for any
federal, state or local taxes that the Company incurs or
that may be attributable to the Account or the Contracts.
17
<PAGE>
The Company may, however, make such a charge in the
future for any such tax or economic burden on the Company
resulting from the application of the tax laws that it
determines to be properly attributable to the Account or
Contracts.
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PAYMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract ends on the retirement date, at which time
the cash value (or, under certain options, the cash
surrender value) will be applied under a payment option,
unless the owner elects to receive the cash surrender
value in a single sum. If an election of a payment option
has not been filed at the Home Office on the retirement
date, the proceeds will be paid as a life income annuity
with payments for ten years guaranteed. Prior to the
retirement date, the owner can have the entire cash
surrender value applied under a payment option, or a
beneficiary can have the death benefit applied under a
payment option. The Contract must be surrendered so that
the applicable amount can be paid in a lump sum or a
supplemental contract for the applicable payment option
can be issued.
The payment options available are described below. The
term "payee" means a person who is entitled to receive
payment under that option. The payment options are fixed,
which means that each option has a fixed and guaranteed
amount to be paid during the annuity payment period that
is not in any way dependent upon the investment
experience of the Account.
- --------------------------------------------------------------------------------
ELECTION OF OPTIONS
An option may be elected, revoked or changed at any time
before the retirement date while the annuitant is living.
If an election is not in effect at the annuitant's death
or if payment is to be made in one sum under an existing
election, the beneficiary may elect one of the options
after the death of the owner/annuitant.
An election of payment options and any revocation or
change must be made by written notice and signed by the
owner or beneficiary, as appropriate.
The Company reserves the right to refuse the election of
a payment option other than paying the proceeds in a lump
sum if: 1) the total payments together would be less than
$2,000; 2) each payment would be less than $20; or 3) the
payee is an assignee, estate, trustee, partnership,
corporation or association.
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DESCRIPTION OF
OPTIONS
OPTION 1--INTEREST INCOME. To have the proceeds left
with the Company to earn interest at a rate to be
determined by the Company. Interest will be paid every
month or every 3, 6 or 12 months as the payee selects.
Under this option, the payee may withdraw part or all of
the proceeds at any time.
OPTION 2--INCOME FOR A FIXED TERM. To have the proceeds
paid out in equal installments for a fixed number of
years.
OPTION 3--LIFE INCOME OPTION WITH SPECIFIED NUMBER OF
YEARS GUARANTEED. To have the proceeds paid in equal
amounts (at intervals elected by the payee) during the
Payee's lifetime with the guarantee that payments will be
made for a period of not less than the specified number
of years. Under this option, at the death of a payee
having no beneficiary (or where the beneficiary died
prior to the payee), the present value of the current
dollar amount on the date of death of any remaining
guaranteed payments will be paid in one sum to the
executors or administrators of the payee's estate. Also
under this option, if any Beneficiary dies while
receiving payment, the present value of the current
dollar amount on the date of death of any remaining
guaranteed payments will be paid in one sum to the
executors or administrators of the beneficiary's estate.
Calculation of such present value shall be no less than
3%.
OPTION 4--INCOME OF A FIXED AMOUNT. To have the proceeds
paid out in equal installments (at intervals elected by
the payee) of a specific amount. The payments will
continue until all the proceeds plus interest have been
paid out.
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<PAGE>
OPTION 5--JOINT AND TWO-THIRDS TO SURVIVOR MONTHLY LIFE
INCOME. To have proceeds paid out in equal installments
for as long as two joint payees live. When one payee
dies, installments of two-thirds of the first installment
will be paid to the surviving payee until he or she dies.
The amount of each payment will be determined from the
tables in the Contract which apply to the particular
option using the payee's age and sex. Age will be
determined from the nearest birthday at the due date of
the first payment.
ALTERNATE PAYMENT OPTION. In lieu of one of the above
options, the cash value, cash surrender value or death
benefit, as applicable, may be settled under any other
payment option made available by the Company or requested
and agreed to by the Company.
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YIELDS AND TOTAL RETURNS
- --------------------------------------------------------------------------------
From time to time, the Company may advertise or include
in sales literature yields, effective yields and total
returns for the Subaccounts. THESE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND DO NOT INDICATE OR PROJECT
FUTURE PERFORMANCE. Each Subaccount may, from time to
time, advertise or include in sales literature
performance relative to certain performance rankings and
indices compiled by independent organizations. More
detailed information as to the calculation of
performance, as well as comparisons with unmanaged market
indices, appears in the Statement of Additional
Information.
Effective yields and total returns for the Subaccounts
are based on the investment performance of the
corresponding portfolios of the Fund. The Fund's
performance in part reflects the Fund's expenses. (See
the Fund Prospectus.)
The yield of the Money Market Subaccount refers to the
annualized income generated by an investment in the
Subaccount over a specified seven-day period. The yield
is calculated by assuming that the income generated for
that seven-day period is generated each seven-day period
over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly
but, when annualized, the income earned by an investment
in the Subaccount is assumed to be reinvested. The
effective yield will be slightly higher than the yield
because of the compounding effect of this assumed
reinvestment.
The yield of a Subaccount (except the Money Market
Subaccount) refers to the annualized income generated by
an investment in the Subaccount over a specified 30-day
or one-month period. The yield is calculated by assuming
that the income generated by the investment during that
30-day or one-month period is generated each period over
a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount refers to return
quotations assuming an investment under a Contract has
been held in the Subaccount for various periods of time.
When a Subaccount has been in operation for one, five and
ten years, respectively, the total return for these
periods will be provided. For periods prior to the date
the Account commenced operations, performance information
will be calculated based on the performance of the Fund's
portfolios and the assumption that the Subaccounts were
in existence for the same periods as those indicated for
the Fund's portfolios, with the level of Contract charges
that were in effect at the inception of the Subaccounts
for the Contracts.
The average annual total return quotations represent the
average annual compounded rates of return that would
equate an initial investment of $1,000 under a Contract
to the redemption value of that investment as of the last
day of each of the periods for which total return
quotations are provided. Average annual total return
information shows the average percentage change in the
value of an investment in the Subaccount from the
beginning date of the measuring period to the end of that
period. This standardized version of average annual total
return reflects all historical investment results less
all charges and deductions applied against the Subaccount
19
<PAGE>
(including any surrender charge that would apply if an
owner terminated the Contract at the end of each period
indicated, but excluding any deductions for premium
taxes).
In addition to the standard version described above,
total return performance information computed on two
different non-standard bases may be used in
advertisements or sales literature. Average annual total
return information may be presented, computed on the same
basis as described above, except deductions will not
include the surrender charge. In addition, the Company
may, from time to time, disclose cumulative total return
for Contracts funded by Subaccounts.
From time to time, yields, standard average annual total
returns and non-standard total returns for the Fund's
portfolios may be disclosed, including such disclosures
for periods prior to the date the Account commenced
operations.
Non-standard performance data will only be disclosed if
the standard performance data for the required periods is
also disclosed. For additional information regarding the
calculation of other performance data, please refer to
the Statement of Additional Information.
In advertising and sales literature, the performance of
each Subaccount may be compared to the performance of
other variable annuity issuers in general or to the
performance of particular types of variable annuities
investing in mutual funds, or investment portfolios of
mutual funds with investment objectives similar to each
of the Subaccounts. Lipper Analytical Services, Inc.
("Lipper") and the Variable Annuity Research Data Service
("VARDS") are independent services which monitor and rank
the performance of variable annuity issuers in each of
the major categories of investment objectives on an
industry-wide basis.
Lipper's rankings include variable life insurance issuers
as well as variable annuity issuers. VARDS rankings
compare only variable annuity issuers. The performance
analyses prepared by Lipper and VARDS each rank such
issuers on the basis of total return, assuming
reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at
the separate account level into consideration. In
addition, VARDS prepares risk rankings, which consider
the effects of market risk on total return performance.
This type of ranking provides data as to which funds
provide the highest total return within various
categories of funds defined by the degree of risk
inherent in their investment objectives.
Advertising and sales literature may also compare the
performance of each Subaccount to the Standard & Poor's
Index of 500 Common Stocks, a widely used measure of
stock performance. This unmanaged index assumes the
reinvestment of dividends but does not reflect any
"deduction" for the expense of operating or managing an
investment portfolio. Other independent ranking services
and indices may also be used as a source of performance
comparison.
The Company may also report other information including
the effect of tax-deferred compounding on a Subaccount's
investment returns, or returns in general, which may be
illustrated by tables, graphs or charts. All income and
capital gains derived from Subaccount investments are
reinvested and can lead to substantial long-term
accumulation of assets, provided that the underlying
Portfolio's investment experience is positive.
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED
AS TAX ADVICE
- --------------------------------------------------------------------------------
INTRODUCTION
This discussion is not intended to address the tax
consequences resulting from all of the situations in
which a person may be entitled to or may receive a
distribution under the annuity contract issued by the
Company. Any person concerned about these tax
implications should consult a competent tax adviser
before initiating any transaction. This discussion is
based upon the Company's understanding of the present
Federal income tax laws, as they are currently
interpreted by the Internal Revenue Service. No
20
<PAGE>
representation is made as to the likelihood of the
continuation of the present federal income tax laws or of
the current interpretation by the Internal Revenue
Service. Moreover, no attempt has been made to consider
any applicable state or other tax laws.
The Contract may be purchased on a non-qualified basis
("Non-Qualified Contract") or purchased and used in
connection with plans qualifying for favorable tax
treatment ("Qualified Contract"). The Qualified Contract
is designed for use by individuals whose premium payments
are comprised solely of proceeds from and/or
contributions under retirement plans which are intended
to qualify as plans entitled to special income tax
treatment under Sections 401(a), 403(b), or 408 of the
Internal Revenue Code of 1986, as amended (the "Code").
The ultimate effect of federal income taxes on the
amounts held under a Contract, or annuity payments, and
on the economic benefit to the owner, the annuitant or
the beneficiary depends on the type of retirement plan,
on the tax and employment status of the individual
concerned, and on the Company's tax status. In addition,
certain requirements must be satisfied in purchasing a
Qualified Contract with proceeds from a tax-qualified
plan and receiving distributions from a Qualified
Contract in order to continue receiving favorable tax
treatment. Therefore, purchasers of Qualified Contracts
should seek competent legal and tax advice regarding the
suitability of a Contract for their situation, the
applicable requirements and the tax treatment of the
rights and benefits of a Contract. The following
discussion assumes that Qualified Contracts are purchased
with proceeds from and/or contributions under retirement
plans that qualify for the intended special federal
income tax treatment.
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TAX STATUS OF THE
CONTRACT
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code
provides that separate account investments underlying a
contract must be "adequately diversified" in accordance
with Treasury regulations in order for the contract to
qualify as an annuity contract under Section 72 of the
Code. The Account, through each Portfolio of the Fund,
intends to comply with the diversification requirements
prescribed in regulations under Section 817(h) of the
Code, which affect how the assets in the various
Subaccounts may be invested. Although the Company does
not have control over the Fund in which the Account
invests, we believe that each Portfolio in which the
Account owns shares will meet the diversification
requirements, and therefore, the Contract will be treated
as an annuity contract under the Code.
In certain circumstances, owners of variable annuity
contracts may be considered the owners, for federal
income tax purposes, of the assets of the separate
account used to support their contracts. In those
circumstances, income and gains from the separate account
assets would be includible in the variable annuity
contract owner's gross income. Several years ago, the IRS
stated in published rulings that a variable contract
owner will be considered the owner of separate account
assets if the contract owner possesses incident of
ownership in those assets, such as the ability to
exercise investment control over the assets. More
recently, the Treasury Department announced, in
connection with the issuance of regulations concerning
investment diversification, that those regulations "do
not provide guidance concerning the circumstances in
which investor control of the investments of a segregated
asset account may cause the investor (I.E., the contract
owner), rather than the insurance company, to be treated
as the owner of the assets in the account." This
announcement also states that guidance would be issued by
way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular
subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Contracts are similar to,
but different in certain respects from, those described
by the Service in rulings in which it was determined that
contract owners were not owners of separate account
assets. For example, the owner of a Contract has the
choice of one or more Subaccounts in which to allocate
premiums and Contract values, and may be able to transfer
among Subaccounts more frequently than in such rulings.
These differences could result in the contract owner
being treated as the owner of the assets of the Account.
In addition, the Company
21
<PAGE>
does not know what standards will be set forth, if any,
in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company
therefore reserves the right to modify the Contract as
necessary to attempt to prevent the contract owner from
being considered the owner of the assets of the Account.
REQUIRED DISTRIBUTIONS. In order to be treated as an
annuity contract for federal income tax purposes,
Section 72(s) of the Code requires any Non-Qualified
Contract to provide that: (a) if any owner dies on or
after the retirement date but prior to the time the
entire interest in the contract has been distributed, the
remaining portion of such interest will be distributed at
least as rapidly as under the method of distribution
being used as of the date of that owner's death; and (b)
if any owner dies prior to the annuity commencement date,
the entire interest in the Contract will be distributed
within five years after the date of the owner's death.
These requirements will be considered satisfied as to any
portion of the owner's interest which is payable to or
for the benefit of a "designated beneficiary" and which
is distributed over the life of such beneficiary or over
a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin
within one year of that owner's death. The owner's
"designated beneficiary" is the person designated by such
owner as a beneficiary and to whom ownership of the
contract passes by reason of death and must be a natural
person. However, if the owner's "designated beneficiary"
is the surviving spouse of the owner, the Contract may be
continued with the surviving spouse as the new owner.
The Non-Qualified Contracts contain provisions which are
intended to comply with the requirements of Section 72(s)
of the Code, although no regulations interpreting these
requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to
assure that they comply with the requirements of Code
Section 72(s) when clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will
qualify as annuity contracts for federal income tax
purposes.
- --------------------------------------------------------------------------------
TAXATION OF ANNUITIES
IN GENERAL. Section 72 of the Code governs taxation of
annuities in general. The Company believes that an owner
who is a natural person is not taxed on increases in the
value of a Contract until distribution occurs by
withdrawing all or part of the cash value (e.g., partial
surrenders and surrenders) or as annuity payments under
the payment option elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any
portion of the cash value (and in the case of a Qualified
Contract, any portion of an interest in the qualified
plan) generally will be treated as a distribution. The
taxable portion of a distribution (in the form of a
single sum payment or payment option) is taxable as
ordinary income.
The owner of any annuity contract who is not a natural
person generally must include in income any increase in
the excess of the cash value over the "investment in the
contract" during the taxable year. There are some
exceptions to this rule, and a prospective owner that is
not a natural person may wish to discuss these with a
competent tax adviser.
The following discussion generally applies to Contracts
owned by natural persons.
PARTIAL SURRENDERS. In the case of a partial surrender
from a Qualified Contract, under Section 72(e) of the
Code, a ratable portion of the amount received is
taxable, generally based on the ratio of the "investment
in the contract" to the participant's total accrued
benefit or balance under the retirement plan. The
"investment in the contract" generally equals the
portion, if any, of any premium payments paid by or on
behalf of the individual under a Contract which was not
excluded from the individual's gross income. For
Contracts issued in connection with qualified plans, the
"investment in the contract" can be zero. Special tax
rules may be available for certain distributions from
Qualified Contracts.
22
<PAGE>
In the case of a partial surrender from a Non-Qualified
Contract, under Section 72(e) amounts received are
generally first treated as taxable income to the extent
that the cash value immediately before the partial
surrender exceeds the "investment in the contract" at
that time. Any additional amount withdrawn is not
taxable.
In the case of a full surrender under a Qualified or
Non-Qualified Contract, the amount received generally
will be taxable only to the extent it exceeds the
"investment in the contract."
Section 1035 of the Code provides that no gain or loss
shall be recognized on the exchange of one annuity
contract for another. If the surrendered contract was
issued prior to August 14, 1982, the tax rules formerly
provided that the surrender was taxable only to the
extent the amount received exceeds the owner's investment
in the contract will continue to apply to amounts
allocable to investments in that contract prior to August
14, 1982. In contrast, contracts issued after January 19,
1985 in a Code Section 1035 exchange are treated as new
contracts for purposes of the penalty and
distribution-at-death rules. Special rules and procedures
apply to Section 1035 transactions. Prospective owners
wishing to take advantage of Section 1035 should consult
their tax adviser.
ANNUITY PAYMENTS. Although tax consequences may vary
depending on the payment option elected under an annuity
contract, under Code Section 72(b), generally (prior to
recovery of the investment in the contract) gross income
does not include that part of any amount received as an
annuity under an annuity contract that bears the same
ratio to such amount as the investment in the contract
bears to the expected return at the annuity starting
date. Stated differently, prior to recovery of the
investment in the contract, generally, there is no tax on
the amount of each payment which represents the same
ratio that the "investment in the contract" bears to the
total expected value of the annuity payments for the term
of the payment; however, the remainder of each income
payment is taxable. After the "investment in the
contract" is recovered, the full amount of any additional
annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be
distributed from a Contract because of the death of the
owner/ annuitant. Generally, such amounts are includible
in the income of the recipient as follows: (i) if
distributed in a lump sum, they are taxed in the same
manner as a full surrender of the contract or (ii) if
distributed under a payment option, they are taxed in the
same way as annuity payments.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a
distribution pursuant to a Non-Qualified Contract, there
may be imposed a federal penalty tax equal to 10% of the
amount treated as taxable income. In general, however,
there is no penalty on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of the holder (or if
the holder is not an individual, the death of the
primary annuitant);
3. attributable to the taxpayer becoming disabled;
4. as part of a series of substantially equal
periodic payments (not less frequently than
annually) for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and his or her
designated beneficiary;
5. made under certain annuities issued in connection
with structured settlement agreements;
6. made under an annuity contract that is purchased
with a single premium when the retirement date is
no later than a year from purchase of the annuity
and substantially equal periodic payments are
made, not less frequently than annually, during
the annuity payment period; and
23
<PAGE>
7. any payment allocable to an investment (including
earnings thereon) made before August 14, 1982 in a
contract issued before that date.
Other tax penalties may apply to certain distributions
under a Qualified Contract.
POSSIBLE CHANGES IN TAXATION. In past years, legislation
has been proposed that would have adversely modified the
federal taxation of certain annuities. For example, one
such proposal would have changed the tax treatment of
non-qualified annuities that did not have "substantial
life contingencies" by taxing income as it is credited to
the annuity. Although as of the date of this prospectus
Congress is not considering any legislation regarding
taxation of annuities, there is always the possibility
that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations,
revenue rulings, judicial decisions, etc.). Moreover, it
is also possible that any change could be retroactive
(that is, effective prior to the date of the change).
- --------------------------------------------------------------------------------
TRANSFERS,
ASSIGNMENTS OR
EXCHANGES OF A
CONTRACT
A transfer of ownership of a Contract, the designation of
an annuitant, Payee or other Beneficiary who is not also
the owner, the selection of certain retirement dates or
the exchange of a Contract may result in certain tax
consequences to the owner that are not discussed herein.
An owner contemplating any such transfer, assignment or
exchange of a Contract should contact a competent tax
adviser with respect to the potential tax effects of such
a transaction.
- --------------------------------------------------------------------------------
WITHHOLDING
Pension and annuity distributions generally are subject
to withholding for the recipient's federal income tax
liability at rates that vary according to the type of
distribution and the recipient's tax status. Recipients,
however, generally are provided the opportunity to elect
not to have tax withheld from distributions. Effective
January 1, 1993, distributions from certain qualified
plans are generally subject to mandatory withholding.
Certain states also require withholding of state income
tax whenever federal income tax is withheld.
- --------------------------------------------------------------------------------
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts entered into
after October 21, 1988 that are issued by the Company (or
its affiliates) to the same owner during any calendar
year are treated as one annuity Contract for purposes of
determining the amount includible in gross income under
Section 72(e). This rule could affect the time when
income is taxable and the amount that might be subject to
the 10% penalty tax described above. In addition, the
Treasury Department has specific authority to issue
regulations that prevent the avoidance of Section 72(e)
through the serial purchase of annuity contracts or
otherwise. There may also be other situations in which
the Treasury may conclude that it would be appropriate to
aggregate two or more annuity contracts purchased by the
same owner. Accordingly, a Contract owner should consult
a competent tax adviser before purchasing more than one
annuity contract.
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TAXATION OF QUALIFIED
PLANS
The Contracts are designed for use with several types of
qualified plans. The tax rules applicable to participants
in these qualified plans vary according to the type of
plan and the terms and conditions of the plan itself.
Special favorable tax treatment may be available for
certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do
not conform to specified commencement and minimum
distribution rules; aggregate distributions in excess of
a specified annual amount; and in other specified
circumstances. Therefore, no attempt is made to provide
more than general information about the use of the
Contracts with the various types of qualified retirement
plans. Contract owners, the annuitants, and beneficiaries
are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be
subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the
Contract, but the Company shall not be bound by the terms
and conditions of such plans to the extent such terms
contradict the Contract, unless the Company consents.
Some retirement plans are subject to distribution and
other requirements that are not incorporated into our
Contract administration procedures. Owners, participants
and beneficiaries are responsible for determining that
contributions, distributions and other transactions with
respect to the Contracts
24
<PAGE>
comply with applicable law. Brief descriptions follow of
the various types of qualified retirement plans available
in connection with a Contract. The Company will amend the
Contract as necessary to conform it to the requirements
of the Code.
CORPORATE PENSION AND PROFIT SHARING PLANS AND H.R. 10
PLANS. Section 401(a) of the Code permits corporate
employers to establish various types of retirement plans
for employees, and permits self-employed individuals to
establish these plans for themselves and their employees.
These retirement plans may permit the purchase of the
Contracts to accumulate retirement savings under the
plans. Adverse tax or other legal consequences to the
plan, to the participant or both may result if this
Contract is assigned or transferred to any individual as
a means to provide benefit payments, unless the plan
complies with all legal requirements applicable to such
benefits prior to transfer of the Contract. Employers
intending to use the Contract with such plans should seek
competent advice.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code
permits eligible individuals to contribute to an
individual retirement program known as an "Individual
Retirement Annuity" or "IRA". These IRAs are subject to
limits on the amount that may be contributed, the persons
who may be eligible and on the time when distributions
may commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over"
on a tax-deferred basis into an IRA. Sales of the
Contract for use with IRAs may be subject to special
requirements of the Internal Revenue Service. Employers
may establish Simplified Employee Pension (SEP) Plans to
provide IRA contributions on behalf of their employees.
TAX SHELTERED ANNUITIES. Section 403(b) of the Code
allows employees of certain Section 501(c)(3)
organizations and public schools to exclude from their
gross income the premiums paid, within certain limits, on
a Contract that will provide an annuity for the
employee's retirement. These premiums may be subject to
FICA (social security) tax.
- --------------------------------------------------------------------------------
POSSIBLE CHARGE FOR
THE COMPANY'S TAXES
At the present time, the Company makes no charge to the
Subaccounts for any Federal, state or local taxes that
the Company incurs which may be attributable to such
Subaccounts or the Contracts. The Company, however,
reserves the right in the future to make a charge for any
such tax or other economic burden resulting from the
application of the tax laws that it determines to be
properly attributable to the Subaccounts or to the
Contracts.
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OTHER TAX
CONSEQUENCES
As noted above, the foregoing comments about the Federal
tax consequences under these Contracts are not
exhaustive, and special rules are provided with respect
to other tax situations not discussed in the Prospectus.
Further, the Federal income tax consequences discussed
herein reflect the Company's understanding of current law
and the law may change. Federal estate and state and
local estate, inheritance and other tax consequences of
ownership or receipt of distributions under a Contract
depend on the individual circumstances of each owner or
recipient of the distribution. A competent tax adviser
should be consulted for further information.
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
The Contracts will be offered to the public on a
continuous basis. The Company does not anticipate
discontinuing the offering of the Contracts, but reserves
the right to discontinue the offering. Applications for
Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell the
Company's variable annuity contracts and who are also
registered representatives of FBL Marketing,
broker/dealers having selling agreements with FBL
Marketing or broker/dealers having selling agreements
with such broker/dealers. FBL Marketing is an indirect
wholly-owned subsidiary of the Company and is registered
with the SEC under the Securities Exchange Act of 1934 as
a broker-dealer and is a member of the National
Association of Securities Dealers, Inc.
FBL Marketing acts as the Principal Underwriter, as
defined in the 1940 Act, of the Contracts for the Account
pursuant to an Underwriting Agreement between the
25
<PAGE>
Company and FBL Marketing. FBL Marketing is not obligated
to sell any specific number of Contracts. FBL Marketing's
principal business address is the same as that of the
Company.
The Company may pay sales representatives commissions up
to an amount equal to 4% of the premiums paid under a
Contract during the first six Contract years and 1% of
the premiums paid in the seventh and subsequent Contract
years. Managers of sales representatives and general
agencies employing such representatives may also receive
commission overrides of up to 1/2 of 1% premiums. The
Company also may pay other distribution expenses such as
production incentive bonuses, agent's insurance and
pension benefits, and agency expense allowances. These
distribution expenses do not result in any additional
charges against the Contracts that are not described
under "Charges and Deductions."
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings to which the Account is a
party or the assets of the Account are subject. The
Company is not involved in any litigation that is of
material importance in relation to its total assets or
that relates to the Account.
- --------------------------------------------------------------------------------
VOTING RIGHTS
- --------------------------------------------------------------------------------
In accordance with its view of current applicable law,
the Company will vote the Fund shares held in the Account
at regular and special shareholder meetings of the Fund
in accordance with instructions received from persons
having voting interests in the corresponding Subaccounts.
If, however, the 1940 Act or any regulation thereunder
should be amended, or if the present interpretation
thereof should change, or the Company otherwise
determines that it is allowed to vote the shares in its
own right, it may elect to do so.
The number of votes that an owner has the right to
instruct will be calculated separately for each
Subaccount, and may include fractional votes. An owner
holds a voting interest in each Subaccount to which the
cash value is allocated. The owner only has voting
interest prior to the retirement date. For each owner,
the number of votes attributable to a Subaccount will be
determined by dividing the cash value attributable to
that owner's Contract in that Subaccount by the net asset
value per share of the Fund portfolio in which that
Subaccount invests.
The number of votes of a Portfolio which are available to
the owner will be determined as of the date coincident
with the date established by the Portfolio for
determining shareholders eligible to vote at the relevant
meeting of the Fund. Voting instructions will be
solicited by written communication prior to such meeting
in accordance with procedures established by the Fund.
Each owner having a voting interest in a Subaccount will
receive proxy materials and reports relating to any
meeting of shareholders of the Portfolio in which that
Subaccount invests.
Fund shares as to which no timely instructions are
received and shares held by the Company in a Subaccount
as to which no owner has a beneficial interest will be
voted in proportion to the voting instructions which are
received with respect to all Contracts participating in
that Subaccount. Voting instructions to abstain on any
item to be voted upon will be applied to reduce the total
number of votes eligible to be cast on a matter.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited balance sheets for the Company as of December
31, 1994 and 1993 and the related statutory-basis
statements of operations, changes in net worth and cash
flows for each of the three years ended December 31, 1994
as well as the Report of Independent Auditors are
contained in the Statement of Additional Information.
Likewise, the audited statement of net assets for the
Account as of December 31, 1994 and the related
statements of operations and changes in net assets for
the year then ended as well as the Report of Independent
Auditors are contained in the Statement of Additional
Information.
26
<PAGE>
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
PAGE
<S> <C>
ADDITIONAL CONTRACT PROVISIONS.................................................................... 1
The Contract......................................................... 1
Incontestability..................................................... 1
Misstatement of Age or Sex........................................... 1
Non-Participation.................................................... 1
- ------------------------------------------------------------------------------------------------------------------------
CALCULATION OF YIELDS AND TOTAL RETURNS........................................................... 1
Money Market Subaccount Yields....................................... 1
Other Subaccount Yields.............................................. 3
Average Annual Total Returns......................................... 4
Other Total Returns.................................................. 6
Effect of the Administrative Charge on Performance Data.............. 6
- ------------------------------------------------------------------------------------------------------------------------
LEGAL MATTERS..................................................................................... 6
- ------------------------------------------------------------------------------------------------------------------------
EXPERTS........................................................................................... 7
- ------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION................................................................................. 7
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS.............................................................................. 7
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
