<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
FILE NO. 33-67538
FILE NO. 811-7974
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. _____ / /
POST-EFFECTIVE AMENDMENT NO. 5 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 6 /X/
------------------------
FARM BUREAU LIFE ANNUITY ACCOUNT
(Exact Name of Registrant)
FARM BUREAU LIFE INSURANCE COMPANY
(Name of Depositor)
5400 University Avenue
West Des Moines, Iowa 50266
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: 1-800-247-4170
------------------------
STEPHEN M. MORAIN, ESQUIRE
5400 University Avenue
West Des Moines, Iowa 50266
(Name and Address of Agent for Service of Process)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQUIRE
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
------------------------
Approximate date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
It is proposed that this filing become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b) of
Rule 485;
/X/ on May 1, 1998 pursuant to paragraph (b) of Rule 485;
/ / 60 days after filing pursuant to paragraph (a)(1) of
Rule 485; or
/ / on (date) pursuant to paragraph (a)(1) of Rule 485.
Title of Securities Being Registered: Flexible Premium Deferred Variable
Annuity Contracts
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULES 481(A) AND 495(A)
Showing location in Part A (prospectus) and Part B (statement of additional
information) of registration statement of information required by Form N-4
<TABLE>
<CAPTION>
PART A
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ---------------------------------------------------- --------------------------------------------------
<C> <S> <C> <C> <C>
1. Cover Page..................................... Cover Page
2. Definitions.................................... Definitions
3. Synopsis....................................... Expense Tables; Summary
4. Condensed Financial Information................ Condensed Financial Information; Yields and Total
Returns
5. General
(a) Depositor................................. Farm Bureau Life Insurance Company; FBL Financial
Group, Inc.
(b) Registrant................................ Farm Bureau Life Annuity Account
(c) Portfolio Company......................... EquiTrust Variable Insurance Series Fund
(d) Fund Prospectus........................... EquiTrust Variable Insurance Series Fund
(e) Voting Rights............................. Voting Rights
(f) Administrators............................ N/A
6. Deductions and Expenses
(a) General................................... Charges and Deductions; Summary
(b) Sales Load %.............................. Charges and Deductions; Summary
(c) Special Purchase Plan..................... N/A
(d) Commissions............................... Distribution of the Contracts
(e) Expenses -- Registrant.................... Charges and Deductions; Summary
(f) Fund Expenses............................. EquiTrust Variable Insurance Series Fund; Charges
and Deductions
(g) Organizational Expenses................... N/A
7. Contracts
(a) Persons with Rights....................... Summary; Addition, Deletion or Substitution of
Investments; Description of Annuity Contract;
Payment Options; Voting Rights
(b) (i) Allocation of Purchase Payments.... Summary; Premiums; Free-Look Period; Allocation of
Premiums
(ii) Transfers.......................... Summary; Transfer Privilege
(iii) Exchanges.......................... Transfers, Assignments or Exchange of a Contract
(c) Changes................................... Additions, Deletions or Substitutions of
Investments; Description of Annuity Contract;
Modification;
(d) Inquiries................................. Cover page; Inquiries
8. Annuity Period................................. Summary; Payment Options
9. Death Benefit.................................. Death Benefit Before the Retirement Date
10. Purchases and Contract Value
(a) Purchases................................. Summary; Issuance of a Contract; Premiums; Free
Look Period; Allocation of Premiums; Variable Cash
Value;
(b) Valuation................................. Definitions; Variable Cash Value;
(c) Daily Calculation......................... Definitions; Variable Cash Value;
(d) Underwriter............................... Issuance of a Contract; Distribution of the
Contracts
11. Redemptions
(a) -- By Owners.......................... Summary; Transfer Privilege; Surrenders and
Partial Surrenders; Proceeds on the Retirement
Date; Payments; Payment Options; Federal Tax
Matters
-- By Annuitant....................... Summary; Transfer Privilege; Surrenders and
Partial Surrenders; Proceeds on the Retirement
Date; Payments; Payment Options; Federal Tax
Matters
(b) Taxes ORP................................. N/A
(c) Check Delay............................... Payments
(d) Lapse..................................... N/A
(e) Free Look................................. Summary; Free Look Period
12. Taxes.......................................... Summary; Federal Tax Matters
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART A
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ---------------------------------------------------- --------------------------------------------------
<C> <S> <C> <C> <C>
13. Legal Proceedings.............................. Legal Proceedings
14. Table of Contents for the Statement of
Additional Information........................ Statement of Additional Information
Table of Contents
</TABLE>
<TABLE>
<CAPTION>
PART B
ITEM OF FORM N-4 PART B CAPTION
- ---------------------------------------------------- --------------------------------------------------
<C> <S> <C> <C> <C>
15. Cover Page..................................... Cover Page
16. Table of Contents.............................. Table of Contents
17. General Information and History................ N/A
18. Services
(a) Fees and Expenses of Registrant........... N/A
(b) Management Contracts...................... N/A
(c) Custodian................................. N/A
Independent Public Accountant............. Experts
(d) Assets of Registrant...................... N/A
(e) Affiliated Persons........................ N/A
(f) Principal Underwriter..................... Distribution of the Contracts (prospectus)
19. Purchase of Securities Being Offered........... Distribution of the Contracts (prospectus)
Offering Sales Load............................ N/A
20. Underwriters................................... Distribution of the Contracts (prospectus)
21. Calculation of Performance Data................ Calculation of Yields and Total Returns; Yields
and Total Returns (prospectus)
22. Annuity Payments............................... Payment Options (prospectus)
23. Financial Statements........................... Financial Statements
<CAPTION>
PART C -- OTHER INFORMATION
ITEM OF FORM N-4 PART C CAPTION
- ---------------------------------------------------- --------------------------------------------------
<C> <S> <C> <C> <C>
24. Financial Statements and Exhibits.............. Financial Statements and Exhibits
(a) Financial Statements...................... (a) Financial Statements
(b) Exhibits.................................. (b) Exhibits
25. Directors and Officers of the Depositor........ Directors and Officers of Farm Bureau Life
Insurance Company
26. Persons Controlled By or Under Common Control
with the Depositor
or Registrant................................. Persons Controlled By or In Common Control with
the Depositor or Registrant
27. Number of Contractowners....................... Number of owners
28. Indemnification................................ Indemnification
29. Principal Underwriters......................... Principal Underwriter
30. Location of Accounts and Records............... Location of Books and Records
31. Management Services............................ Management Services
32. Undertakings................................... Undertakings and Representations
Signature Page................................. Signatures
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
[Logo]
VARIABLE ANNUITY
[LOGO]
May 1, 1998
Prospectuses for:
Flexible Premium Deferred Variable
Annuity Contracts
issued by
Farm Bureau Life
Insurance Company
-----------------------------------------------
EquiTrust Variable Insurance
Series Fund
managed by
EquiTrust Investment
Management Services, Inc.
Call Toll-Free
1-800-247-4170
225-5846 (Des Moines)
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
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 EquiTrust Variable Insurance
Series Fund (formerly known as FBL Variable Insurance Series Fund) (the "Fund").
The accompanying prospectus for the Fund describes its six Portfolios--the Value
Growth 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 should 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 31 of this Prospectus. You may obtain a copy
of the Statement of Additional Information free of charge by writing or calling
the Company at the address or phone number shown below.
- --------------------------------------------------------------------------------
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
1-800-247-4170
515-225-5846
THE DATE OF THIS PROSPECTUS IS
MAY 1, 1998
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
EXPENSE TABLES............................................................. 3
- --------------------------------------------------------------------------------
DEFINITIONS................................................................ 5
- --------------------------------------------------------------------------------
SUMMARY.................................................................... 6
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION............................................ 8
- --------------------------------------------------------------------------------
THE COMPANY, ACCOUNT AND FUND.............................................. 8
Farm Bureau Life Insurance Company..................... 8
Iowa Farm Bureau Federation............................ 9
Farm Bureau Life Annuity Account....................... 9
EquiTrust Variable Insurance Series Fund............... 9
Addition, Deletion or Substitution of Investments...... 11
- --------------------------------------------------------------------------------
DESCRIPTION OF ANNUITY CONTRACT............................................ 12
Issuance of a Contract................................. 12
Premiums............................................... 12
Free-Look Period....................................... 12
Allocation of Premiums................................. 12
Variable Cash Value.................................... 13
Transfer Privilege..................................... 14
Partial Surrenders and Surrenders...................... 14
Death Benefit Before the Retirement Date............... 15
Proceeds on the Retirement Date........................ 15
Payments............................................... 16
Modification........................................... 16
Reports to Owners...................................... 16
Inquiries.............................................. 16
- --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION............................................... 17
Minimum Guaranteed and Current Interest Rates.......... 17
Transfers From Declared Interest Option................ 17
Payment Deferral....................................... 18
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS..................................................... 18
Surrender Charge (Contingent Deferred Sales Charge).... 18
Annual Administrative Charge........................... 19
Transfer Processing Fee................................ 19
Mortality and Expense Risk Charge...................... 19
Fund Expenses.......................................... 19
Premium Taxes.......................................... 19
Other Taxes............................................ 19
- --------------------------------------------------------------------------------
PAYMENT OPTIONS............................................................ 20
Election of Options.................................... 20
Description of Options................................. 20
- --------------------------------------------------------------------------------
YIELDS AND TOTAL RETURNS................................................... 21
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS........................................................ 22
Introduction........................................... 22
Tax Status of the Contract............................. 23
Taxation of Annuities.................................. 24
Transfers, Assignments or Exchanges of a Contract...... 26
Withholding............................................ 26
Multiple Contracts..................................... 26
Taxation of Qualified Plans............................ 27
Possible Charge for the Company's Taxes................ 28
Other Tax Consequences................................. 28
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE CONTRACTS.............................................. 29
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS.......................................................... 29
- --------------------------------------------------------------------------------
VOTING RIGHTS.............................................................. 29
- --------------------------------------------------------------------------------
YEAR 2000.................................................................. 30
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS....................................................... 30
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS...................... 31
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
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*
</TABLE>
* The Company reserves the right to charge a transfer fee in the future. See
"Charges and Deductions."
<TABLE>
<S> <C>
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>
VALUE GROWTH
PORTFOLIO
---------------
<S> <C>
Management Fees (investment advisory fees)................................................ 0.45%
Other Expenses After Reimbursement....................................................... 0.10%
Total Annual Fund Expenses (after reimbursements)...................................... 0.55%(1)
<CAPTION>
HIGH GRADE
BOND PORTFOLIO
---------------
<S> <C>
Management Fees (investment advisory fees)................................................ 0.30%
Other Expenses After Reimbursement....................................................... 0.22%
Total Annual Fund Expenses (after reimbursements)...................................... 0.52%
<CAPTION>
HIGH YIELD
BOND PORTFOLIO
---------------
<S> <C>
Management Fees (investment advisory fees)................................................ 0.45%
Other Expenses After Reimbursement....................................................... 0.12%
Total Annual Fund Expenses (after reimbursements)...................................... 0.57%(1)
<CAPTION>
MANAGED
PORTFOLIO
---------------
<S> <C>
Management Fees (investment advisory fees)................................................ 0.45%
Other Expenses After Reimbursement....................................................... 0.09%
Total Annual Fund Expenses (after reimbursements)...................................... 0.54%(1)
<CAPTION>
MONEY MARKET
PORTFOLIO
---------------
<S> <C>
Management Fees (investment advisory fees)............................................... 0.25%
Other Expenses After Reimbursement....................................................... 0.23%
Total Annual Fund Expenses (after reimbursements)...................................... 0.48%(1)
<CAPTION>
BLUE CHIP
PORTFOLIO
---------------
<S> <C>
Management Fees (investment advisory fees)............................................... 0.20%
Other Expenses After Reimbursement....................................................... 0.13%
Total Annual Fund Expenses (after reimbursements)...................................... 0.33%
</TABLE>
(1) Total annual fund expenses have been restated for the reduction in
management fees from 0.50% to 0.45% for the Value Growth and High Yield Bond
Portfolios, 0.55% to 0.45% for the Managed Portfolio and 0.30% to 0.25% for
the Money Market Portfolio, effective May 1, 1997.
3
<PAGE>
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 1997 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 adviser has voluntarily agreed to reimburse each Portfolio for
expenses that exceed 0.65%. Although there can be no assurance that this
reimbursement will be continued, the Fund expects it to be renewed for the 1999
fiscal year. Absent the reimbursements, the Portfolio's total expenses for the
1997 fiscal year would have been: Value Growth 0.58%, High Grade Bond 0.57%,
High Yield Bond 0.65%, Managed 0.60% and Money Market 0.55%.
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>
Value Growth.............................................................................. $ 110 $ 190 $ 270
High Grade Bond........................................................................... 110 189 268
High Yield Bond........................................................................... 110 191 271
Managed................................................................................... 110 190 269
Money Market.............................................................................. 109 188 266
Blue Chip................................................................................. 108 184 259
<CAPTION>
SUBACCOUNT 10 YEARS
- ------------------------------------------------------------------------------------------ -----------
<S> <C>
Value Growth.............................................................................. $ 508
High Grade Bond........................................................................... 505
High Yield Bond........................................................................... 511
Managed................................................................................... 507
Money Market.............................................................................. 501
Blue Chip................................................................................. 485
</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>
Value Growth.............................................................................. $ 48 $ 146 $ 247
High Grade Bond........................................................................... 48 146 245
High Yield Bond........................................................................... 48 147 248
Managed................................................................................... 48 146 246
Money Market.............................................................................. 48 144 243
Blue Chip................................................................................. 46 140 235
<CAPTION>
SUBACCOUNT 10 YEARS
- ------------------------------------------------------------------------------------------ -----------
<S> <C>
Value Growth.............................................................................. $ 508
High Grade Bond........................................................................... 505
High Yield Bond........................................................................... 511
Managed................................................................................... 507
Money Market.............................................................................. 501
Blue Chip................................................................................. 485
</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 before Christmas (in 1998) 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.
(Owners in the states of Idaho, North Dakota and
Wisconsin are allowed to return the Contract within 20
days after he or she receives it. Owners may be entitled
to a 20-day free-look period if the Contract is a
replacement.) 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 the 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 further discussion of the federal income
status of variable annuity contracts, see "Federal Tax
Matters."
7
<PAGE>
- --------------------------------------------------------------------------------
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,
1997.
<TABLE>
<CAPTION>
ACCUMULATION UNIT ACCUMULATION
VALUE AT BEGINNING UNIT VALUE AT NUMBER OF UNITS AT
YEAR ENDED 12/31 OF YEAR END OF YEAR END OF YEAR
- ---------------------------------- ------------------ -------------- --------------------
<S> <C> <C> <C>
Value Growth Subaccount
1994 $ 10.000000 $ 9.444367 432,277.301991
1995 9.444367 11.757386 517,391.062449
1996 11.757386 13.674196 842,024.475801
1997 13.674196 14.351888 1,480,458.189756
High Grade Bond Subaccount
1994 $ 10.000000 $ 9.814168 76,901.476870
1995 9.814168 11.081686 111,363.527645
1996 11.081686 11.598221 157,246.624168
1997 11.598221 12.638724 246,715.778945
High Yield Bond Subaccount
1994 $ 10.000000 $ 9.694750 121,183.181173
1995 9.694750 11.030995 204,375.618302
1996 11.030995 12.279317 259,711.686337
1997 12.279317 13.599893 318,387.884067
Managed Subaccount
1994 $ 10.000000 $ 9.391586 399,444.197239
1995 9.391586 11.673937 470,401.235924
1996 11.673937 13.544603 874,077.697751
1997 13.544603 14.812821 1,587,400.851287
Money Market Subaccount
1994 $ 10.000000 $ 10.244543 34,710.804010
1995 10.244543 10.674932 35,138.421239
1996 10.674932 11.060720 98,181.048713
1997 11.060720 11.490613 103,638.521767
Blue Chip Subaccount
1994 $ 10.000000 $ 9.894181 79,759.631145
1995 9.894181 12.994267 166,613.068180
1996 12.994267 15.598591 420,198.490583
1997 15.598591 19.644248 865,517.558301
</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.
One hundred percent of the outstanding voting shares of
the Company are owned by FBL Financial Group, Inc. At
December 31, 1997, Iowa Farm Bureau Federation owned
66.36% of the outstanding voting stock of FBL Financial
Group, Inc. The Company is principally engaged in the
offering of life insurance policies, disability income
insurance policies and annuity contracts and is admitted
to do business in fifteen states--Arizona, Colorado,
Idaho, Iowa, Kansas, Minnesota, Montana, Nebraska, New
Mexico, North Dakota, Oklahoma, South Dakota, Utah,
Wisconsin and Wyoming. The principal offices of the
Company are at 5400 University Avenue, West Des Moines,
Iowa 50266.
8
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
EQUITRUST 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 Value Growth
Portfolio, High Grade Bond Portfolio, High Yield Bond
Portfolio, Managed Portfolio, Money Market Portfolio and
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.
VALUE GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation. The Portfolio pursues
this objective by investing primarily in equity
securities of companies that the investment adviser
believes have a potential to earn a high return on
capital and/or in equity securities that the
investment adviser believes are undervalued by the
market place. Such equity securities may include
common stock, preferred stock and securities
convertible or exchangeable into common stock.
HIGH GRADE BOND PORTFOLIO. This Portfolio seeks as
high a level of current income as is consistent with
an investment in a high grade portfolio of debt
securities. The Portfolio will pursue this objective
by investing primarily in debt
9
<PAGE>
securities rated AAA, AA or A by Standard & Poor's or
Aaa, Aa or A by Moody's Investors Service, Inc. and
in securities issued or guaranteed by the United
States government or its agencies or
instrumentalities.
HIGH YIELD BOND PORTFOLIO. This Portfolio seeks as a
primary objective, as high a level of current income
as is consistent with investment in a portfolio of
fixed-income securities rated in the lower categories
of established rating services. As a secondary
objective, the Portfolio seeks capital appreciation
when consistent with its primary objective. The
Portfolio pursues these objectives by investing
primarily in fixed-income securities rated Baa or
lower by Moody's Investors Service, Inc. and/or BBB
or lower by Standards & Poor's, or in unrated
securities of comparable quality. AN INVESTMENT IN
THIS PORTFOLIO MAY ENTAIL GREATER THAN ORDINARY
FINANCIAL RISK. (See the Fund Prospectus "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) growth common stocks and
securities convertible or exchangeable into growth
common stocks, including warrants and rights; (ii)
high grade 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
to separate accounts of the Company supporting variable
annuity contracts and other variable life insurance
policies. The Fund may in the future sell shares to other
separate accounts of the Company or its life insurance
company affiliates supporting other variable insurance
products, or to variable life insurance and 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 variable life insurance policies and
variable annuity contracts, or from shares being sold to
separate accounts of insurance companies that may or may
not be affiliated with the Company. However, 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 such products. 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.)
10
<PAGE>
STRUCTURAL CHART
[CHART]
EquiTrust Investment Management Services, Inc. (formerly
known as 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.
- --------------------------------------------------------------------------------
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.
11
<PAGE>
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
EquiTrust Marketing Services, Inc. (formerly known as FBL
Marketing Services, Inc.) ("EquiTrust Marketing"), a
broker-dealer having a selling agreement with EquiTrust
Marketing or a broker-dealer having a selling agreement
with such broker/dealer. The Contract date will be the
date the properly completed application is received by
the Company at its Home Office. If this date is the 29th,
30th or 31st of any month, the Contract date will be the
28th of such month. 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.
The Company's Custom Term II policy contains a Premium
Credit Benefit that allows the policy owner credit
towards the purchase of a Contract at any time between
the first and sixth policy anniversaries on their term
policy. Upon exercise of this benefit, the Company will
credit to the initial premium for the Contract an amount
equal to the annual premium paid on the term policy, up
to a limit of $5.00 per $1,000 of the term insurance face
amount. The existing Custom Term II policy need not be
canceled to use this benefit. These credits will be
treated as a premium for purposes of Contract provisions
applicable to premiums, such as premium taxes and
contingent deferred sales charges. Please see your
registered representative for more information. A
commission is paid to a registered representative upon a
conversion.
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. (Owners in the states of Idaho,
North Dakota and Wisconsin are allowed to return the
Contract within 20 days of receiving it. Owners may be
entitled to a 20-day free-look period if the Contract is
a replacement.) When the Company receives the returned
Contract at its Home Office, it will cancel the Contract
and refund to the 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
12
<PAGE>
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
values 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
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.
13
<PAGE>
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 of 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
will be considered to be one transfer, regardless of the
Subaccounts or the Declared Interest Option affected. The
processing fee will 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 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
14
<PAGE>
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.
- --------------------------------------------------------------------------------
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 70 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.
15
<PAGE>
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 70th 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 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 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.
16
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
17
<PAGE>
- --------------------------------------------------------------------------------
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.
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.
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.
18
<PAGE>
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. (If the Contract date falls on Thanksgiving,
the Friday following Thanksgiving or the weekend
following Thanksgiving; or on the 27th or 28th day of
February, 1999, the annual administrative charge will be
deducted on the preceding Business Day.) 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. 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
will be considered to be one transfer, regardless of the
Subaccounts or the Declared Interest Option affected. The
fee will be deducted from the amount being transferred.
- --------------------------------------------------------------------------------
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 Company may realize a profit
from this charge.
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.
- --------------------------------------------------------------------------------
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 "Expense Tables" in this prospectus
and 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.
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.
19
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
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.
20
<PAGE>
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 last 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.
- --------------------------------------------------------------------------------
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 are currently in effect 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
(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
21
<PAGE>
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
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.
22
<PAGE>
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.
- --------------------------------------------------------------------------------
TAX STATUS OF THE
CONTRACT
The Company believes that the Contract will be subject to
tax as an annuity contract under the Code, which
generally means that any increase in Account Value will
not be taxable until amounts are received from the
Contract, either in the form of Annuity payments or in
some other form. In order to be subject to annuity
contract treatment for tax purposes, the Contract must
meet the following Code requirements:
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.
OWNER CONTROL. 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
23
<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.
NON-NATURAL OWNER. 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. Certain Contracts
will generally be treated as held by a natural person if
(a) the nominal owner is a trust or other entity which
holds the contract as an agent for a natural person (but
not in the case of certain non-qualified deferred
compensation arrangements); (b) the Contract is acquired
by an estate of a decedent by reason of the death of the
decedent; (c) the Contract is issued in connection with
certain Qualified Plans; (d) the Contract is purchased by
an employer upon the termination of certain Qualified
Plans; (e) the Contract is used in connection with a
structured settlement agreement; and (f) the Contract is
purchased with a single purchase payment when the annuity
starting date (as defined in the tax law) is no later
than a year from the purchase of the Contract and
substantially equal periodic payments are made, not less
frequently than annually, during the annuity period. 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.
24
<PAGE>
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.
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. 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. For these purposes, the investment in the
Contract is not affected by the owner's death. That is,
the investment in the Contract remains the amount of any
purchase payments which were not excluded from gross
income.
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;
25
<PAGE>
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
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.
Legislation has been proposed in 1998 that, if enacted,
would adversely modify the federal taxation of certain
insurance and annuity contracts. For example, one
proposal would tax transfers among investment options and
tax exchanges involving variable contracts. A second
proposal would reduce the "investment in the contract"
under cash value life insurance and certain annuity
contracts by certain amounts, thereby increasing the
amount of income for purposes of computing gain. Although
the likelihood of there being any changes is uncertain,
there is always the possibility that the tax treatment of
the Contracts could change by legislation or other means.
Moreover, it is also possible that any change could be
retroactive (that is, effective prior to the date of the
change). You should consult a tax adviser with respect to
legislative developments and their effect on the
Contract.
- --------------------------------------------------------------------------------
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,
selection or exchange of a Contract should contact a
competent tax adviser with respect to the potential tax
effects of such a transaction.
- --------------------------------------------------------------------------------
WITHHOLDING
Distributions from Contracts generally are subject to
withholding for the owner's federal income tax liability.
The withholding rate varies according to the type of
distribution and the owner's tax status. The owner will
be provided the opportunity to elect not have tax
withheld from distributions.
"Eligible rollover distributions" from section 401(a)
plans and section 403(b) tax-sheltered annuities are
subject to a mandatory federal income tax withholding of
20%. An eligible rollover distribution is the taxable
portion of any distribution from such a plan, except
certain distributions such as distributions required by
the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the owner
chooses a "direct rollover" from the plan to another tax-
qualified plan or IRA.
- --------------------------------------------------------------------------------
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.
26
<PAGE>
- --------------------------------------------------------------------------------
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; 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 comply with applicable law. For qualified plans
under Section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no
later than the later of April 1 of the calendar year
following the calendar year in which the owner (or plan
participant) (i) reaches age 70 1/2 or (ii) retires, and
must be made in a specified form or manner. If the plan
participant is a "5 percent owner" (as defined in the
Code), distributions generally must begin no later than
April 1 of the calendar year following the calendar year
in which the owner (or plan participant) reaches age
70 1/2. For IRAs described in Section 408, distributions
generally must commence no later than the later of April
1 of the calendar year following the calendar year in
which the owner (or plan participant) reaches age 70 1/2.
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. Earnings in
an IRA are not taxed until distribution. IRA
contributions are limited each year to the lesser of
$2,000 or 100% of the owner's adjusted gross income and
may be deductible in whole or in part depending on the
individual's income. The limit on the amount contributed
to an IRA does not apply to distributions from certain
other types of qualified plans that are "rolled over" on
a tax-deferred basis into an IRA. Amounts in the IRA
(other than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age
59 1/2 (unless certain exceptions apply) are subject to a
10% penalty tax.
27
<PAGE>
Employers may establish Simplified Employee Pension (SEP)
Plans to provide IRA contributions on behalf of their
employees. In addition to all of the general Code rules
governing IRAs, such plans are subject to certain Code
requirements regarding participation and amounts of
contributions.
SIMPLE RETIREMENT ACCOUNTS. Beginning January 1, 1997,
certain small employers may establish Simple Retirement
Accounts as provided by Section 408(p) of the Code, under
which employees may elect to defer up to $6,000 (as
increased for cost of living adjustments) as a percentage
of compensation. The sponsoring employer is required to
make a matching contribution on behalf of contributing
employees. Distributions from a Simple Retirement Account
are subject to the same restrictions that apply to IRA
distributions and are taxed as ordinary income. Subject
to certain exceptions, premature distributions prior to
age 59 1/2 are subject to a 10% penalty tax, which is
increased to 25% if the distribution occurs within the
first two years after the commencement of the employee's
participation in the plan. The failure of the Simple
Retirement Account to meet Code requirements may result
in adverse tax consequences.
ROTH IRAS. Effective January 1, 1998, section 408A of
the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA,
which are subject to certain limitations, are not
deductible and must be made in cash or as a rollover or
transfer from another Roth IRA or other IRA. A rollover
from or conversion of an IRA to a Roth IRA may be subject
to tax and other special rules may apply. You should
consult a tax adviser before combining any converted
amounts with any other Roth IRA contributions, including
any other conversion amounts from other tax years.
Distributions from a Roth IRA generally are not taxed,
except that, once aggregate distributions exceed
contributions to the Roth IRA, income tax and a 10%
penalty tax may apply to distributions made (1) before
age 59 1/2 (subject to certain exceptions) or (2) during
the five taxable years starting with the year in which
the first contribution is made to the Roth IRA.
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. Code section 403(b)(11)
restricts the distribution under Code section 403(b)
annuity contracts of: (1) elective contributions made in
years beginning after December 31, 1988; (2) earnings on
those contributions; and (3) earnings in such years on
amounts held as of the last year beginning before January
1, 1989. Distribution of those amounts may only occur
upon 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.
RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other
restrictions with respect to the election, commencement
or distribution of benefits may apply under Qualified
Contracts or under the terms of the plans in respect of
which Qualified Contracts are issued.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
28
<PAGE>
- --------------------------------------------------------------------------------
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 EquiTrust Marketing,
broker/dealers having selling agreements with EquiTrust
Marketing or broker/dealers having selling agreements
with such broker/dealers. EquiTrust 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.
EquiTrust 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 Company
and EquiTrust Marketing. EquiTrust Marketing is not
obligated to sell any specific number of Contracts.
EquiTrust 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 may also receive
commission overrides of up to 30% of the sales
representative's commissions. 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.
29
<PAGE>
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.
- --------------------------------------------------------------------------------
YEAR 2000
- --------------------------------------------------------------------------------
Like other investment funds, financial and business
organizations and individuals around the world, the
Account could be adversely affected if the computer
systems used by the Company and other service providers
do not properly process and calculate date-related
information and data from and after January 1, 2000. In
1997, the Company completed a comprehensive assessment of
the Year 2000 issue and developed a plan to address the
issue in a timely manner. The Company has and will
utilize both internal and external resources to
reprogram, or replace, and test the software for Year
2000 modifications. The Company anticipates completing
the Year 2000 project no later than December 31, 1998,
and prior to any anticipated impact on its operating
systems.
The date on which the Company believes it will complete
the Year 2000 modifications is based on management's best
estimates, which were derived utilizing numerous
assumptions of future events. The Company also recognizes
there are outside influences and dependencies relative to
its Year 2000 effort, over which is has little or no
control. However, the Company is putting effort into
ensuring these considerations will have minimal impact.
These would include the continued availability of certain
resources, third party modification plans and many other
factors. However, there can be no guarantee that these
estimates will be achieved and actual results could
differ from those anticipated.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited consolidated balance sheets of the Company as
of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1997, as well as
the related 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, 1997 and the related statements of
operations for the year then ended and changes in net
assets for each of the two years then ended, as well as
the related Report of Independent Auditors are contained
in the Statement of Additional Information.
30
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS.................................................................... 1
</TABLE>
<TABLE>
<S> <C> <C>
The Contract......................................................... 1
</TABLE>
<TABLE>
<S> <C> <C>
Incontestability..................................................... 1
</TABLE>
<TABLE>
<S> <C> <C>
Misstatement of Age or Sex........................................... 1
</TABLE>
<TABLE>
<S> <C> <C>
Non-Participation.................................................... 1
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CALCULATION OF YIELDS AND TOTAL RETURNS........................................................... 1
</TABLE>
<TABLE>
<S> <C> <C>
Money Market Subaccount Yields....................................... 1
</TABLE>
<TABLE>
<S> <C> <C>
Other Subaccount Yields.............................................. 3
</TABLE>
<TABLE>
<S> <C> <C>
Average Annual Total Returns......................................... 4
</TABLE>
<TABLE>
<S> <C> <C>
Other Total Returns.................................................. 6
</TABLE>
<TABLE>
<S> <C> <C>
Effect of the Administrative Charge on Performance Data.............. 6
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LEGAL MATTERS..................................................................................... 6
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
EXPERTS........................................................................................... 7
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OTHER INFORMATION................................................................................. 7
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FINANCIAL STATEMENTS.............................................................................. 7
</TABLE>
- --------------------------------------------------------------------------------
31
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
32
<PAGE>
[LOGO]
[LOGO]
FARM BUREAU LIFE INSURANCE COMPANY
FARM BUREAU MUTUAL FUNDS
5400 UNIVERSITY AVENUE
[LOGO]
WEST DES MOINES, IOWA 50266
737-524 (5/98)
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FARM BUREAU LIFE INSURANCE COMPANY
5400 University Avenue
West Des Moines, Iowa 50266
1-800-247-4170
FARM BUREAU LIFE ANNUITY ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information contains information in addition to the
information described in the Prospectus for the flexible premium deferred
variable annuity contract (the "Contract") offered by Farm Bureau Life Insurance
Company (the "Company"). This Statement of Additional Information is not a
Prospectus, and it should be read only in conjunction with the Prospectuses for
the Contract and EquiTrust Variable Insurance Series Fund. The Prospectus is
dated the same as this Statement of Additional information. You may obtain a
copy of the Prospectus by writing or calling us at our address or phone number
shown above.
May 1, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<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 Fee On Performance Data.............................................. 6
LEGAL MATTERS....................................................................................... 6
EXPERTS............................................................................................. 7
OTHER INFORMATION................................................................................... 7
FINANCIAL STATEMENTS................................................................................ 7
</TABLE>
<PAGE>
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The application and all other attached papers are part of the Contract. The
statements made in the application are deemed representations and not
warranties. The Company will not use any statement in defense of a claim or to
void the Contract unless it is contained in the application.
INCONTESTABILITY
The Company will not contest the Contract from its Contract date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the annuitant has been misstated, the amount which will be
paid is that which the proceeds would have purchased at the correct age and sex.
NON-PARTICIPATION
The Contracts are not eligible for dividends and will not participate in the
Company's divisible surplus.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, the Company may disclose yields, total returns and other
performance data pertaining to the contracts for a Subaccount. Such performance
data will be computed, or accompanied by performance data computed, in
accordance with the standards defined by the SEC.
MONEY MARKET SUBACCOUNT YIELDS
From time to time, advertisements and sales literature may quote the current
annualized yield of the Money Market Subaccount for a seven-day period in a
manner which does not take into consideration any realized or unrealized gains
or losses on shares of the Fund's Money Market Portfolio or on its portfolio
securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities, unrealized
appreciation and depreciation, and excluding income other than investment
income) at the end of the seven-day period in the value of a hypothetical
account under a Contract having a balance of 1 unit of the Money Market
Subaccount at the beginning of the period, dividing such net change in account
value by the value of the hypothetical account at the beginning of the period to
determine the base period return, and annualizing this quotient on a 365-day
basis.
1
<PAGE>
The net change in account value reflects: 1) net income from the portfolio
attributable to the hypothetical account; and 2) charges and deductions imposed
under the Contract which are attributable to the hypothetical account. The
charges and deductions include the per unit charges for the hypothetical account
for: 1) the annual administrative fee and 2) the mortality and expense risk
charge. For purposes of calculating current yields for a Contract, an average
per unit administrative fee is used based on the $30 administrative fee deducted
at the beginning of each Contract Year. Current Yield will be calculated
according to the following formula:
<TABLE>
<S> <C> <C>
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Portfolio (exclusive or realized gains or losses
on the sale of securities and unrealized appreciation and depreciation and income
other than investment income) for the seven-day period attributable to a
hypothetical account having a balance of 1 subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the seven-day
period.
UV = the unit value for the first day of the seven-day period.
Effective Yield = (1 + ((NCS-ES)/UV))365/7 - 1
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized gains or losses
on the sale of securities and unrealized appreciation and depreciation and income
other than investment income) for the seven-day period attributable to a
hypothetical account having a balance of 1 subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the seven-day
period.
UV = the unit value for the first day of the seven-day period.
</TABLE>
Because of the charges and deductions imposed under the Contract, the yield for
the Money Market Subaccount will be lower than the yield for the Money Market
Portfolio.
2
<PAGE>
The current and effective yields on amounts held in the Money Market Subaccount
normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED YIELD FOR ANY
GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR
RATES OF RETURN. The Money Market Subaccount's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Money Market Portfolio, the types of quality of portfolio securities held
by the Money Market Portfolio, and the Money Market Portfolio's operating
expenses. Yields on amounts held in the Money Market Subaccount may also be
presented for periods other than a seven-day period.
OTHER SUBACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the subaccounts (except the Money Market
Subaccount) for a Contract for 30-day or one month periods. The annualized yield
or a subaccount refers to income generated by the subaccount during a 30-day or
one-month period is assumed to be generated each period over a 12-month period.
The yield is computed by: 1) dividing net investment income of the portfolio
attributable to the subaccount units less subaccount expenses for the period; by
2) the maximum offering price per unit on the last day of the period times the
daily average number of units outstanding for the period; by 3) compounding that
yield for a six-month period; and by 4) multiplying that result by 2. Expenses
attributable to the subaccount include the annual administrative fee and the
mortality and expense risk charge. The yield calculation assumes an
administrative fee of $30 per year per Contract deducted at the beginning of
each Contract year. For purposes of calculating the 30-day or one-month yield,
an average administrative fee per dollar of Contract value in the Account issued
to determine the amount of the charge attributable to the subaccount for the
30-day or one-month period. The 30-day or one-month yield is calculated
according to the following formula:
<TABLE>
<S> <C> <C>
Yield = 2 X ((NI - ES)/(U X UV)) + 1)6 - 1
Where:
NI = net income of the portfolio for the 30-day or one-month period attributable to the
subaccount's units.
ES = expenses of the subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
UV = the unit value at the close of the last day in the 30-day one-month period.
</TABLE>
Because of the charges and deductions imposed under the Contracts, the yield for
the subaccount will be lower that the yield for the corresponding fund
portfolio.
The yield on the amounts held in the subaccounts normally will fluctuate over
time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. A subaccount's
actual yield is affected by the types and quality of portfolio securities held
by the corresponding portfolio and its operating expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract equal to 1% to 6% of the amount surrendered during the first six
Contract years. A surrender charge will not be imposed upon surrender or on the
first partial surrender in any Contract year on an amount up to 10% of the cash
value as of the time of such surrender.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns for one or more of the subaccounts for various periods of
time.
When a subaccount has been in operation for 1, 5 and 10 years, respectively, the
average annual total return for these periods will be provided. Average annual
total returns for other periods of time may, from time to time, also be
disclosed.
Standard average annual total returns 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. The ending date for each period for which total return
quotations are provided will be for the most recent month-end practicable,
considering the type and media of the communication that will be stated in the
communication.
Standard average annual total returns will be calculated using subaccount unit
values which the Company calculates on each valuation day based on the
performance of the subaccount's underlying portfolio, the deductions for the
mortality and expense risk charge, and the annual administrative fee. The
calculation assumes that the administrative fee is $30 per year per Contract
deducted at the beginning of each Contract year. For purposes of calculating
average annual total return, an average per dollar administrative fee
attributable to the hypothetical account for the period is
4
<PAGE>
used. The calculation also assumes surrender of the Contract at the end of the
period for the return quotation. Total returns will therefore reflect a
deduction of the surrender charge for any period less than seven years. The
total return will then be calculated according to the following formula:
<TABLE>
<S> <C> <C>
TR = ((ERV/P)/N)-1
Where:
TR = the average annual total return net of subaccount recurring charges.
EHV = the ending redeemable value (net of any applicable surrender charge) of the
hypothetical account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
</TABLE>
From time to time, sales literature or advertisements may present historic
performance data for an investment portfolio in which a subaccount invests,
shown since the portfolio's inception reduced by some or all of the fees and
charges under the Contract. Such adjusted historic performance would include
data that proceeds the inception date of the subaccount. This data is designed
to show the performance that would have resulted if the Contract had been in
existence during that time. This type of non-standard performance data will only
be disclosed if standard performance data for the required periods is also
disclosed.
Such average annual total return information for the Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE 1-YEAR FOR THE 5-YEAR FOR THE 10-YEAR
PERIOD PERIOD PERIOD
SUBACCOUNT ENDED 12/31/97 ENDED 12/31/97 ENDED 12/31/97
- -------------------------------------------------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
Value Growth............................................ (1.25)% 11.91% 10.78%
High Grade Bond......................................... 2.69 5.73 7.60
High Yield Bond......................................... 4.52 8.84 9.83
Managed................................................. 3.12 11.80 10.63
Money Market (1)........................................ (2.48 ) 2.41 --
Blue Chip (2)........................................... 19.86 17.30 --
<CAPTION>
FOR THE PERIOD FROM DATE
OF INCEPTION OF FUND
SUBACCOUNT PORTFOLIO TO 12/31/97
- -------------------------------------------------------- -------------------------
<S> <C>
Value Growth............................................ 7.66%
High Grade Bond......................................... 8.07
High Yield Bond......................................... 10.04
Managed................................................. 10.05
Money Market (1)........................................ 3.19
Blue Chip (2)........................................... 18.02
</TABLE>
- ------------------------
(1) The Money Market Portfolio commenced operations on February 20, 1990.
(2) The Blue Chip Portfolio commenced operations on October 15, 1990.
5
<PAGE>
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the surrender charge. These are
calculated in exactly the same way as average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered or withdrawn.
The Company may disclose cumulative total returns in conjunction with the
standard formats described above. The cumulative total returns will be
calculated using the following formula:
<TABLE>
<S> <C> <C>
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of subaccount recurring charges for the period.
ERV = The ending redeemable value of the hypothetical investment at the end of the
period.
P = A hypothetical single payment of $1,000.
</TABLE>
EFFECT OF THE ADMINISTRATIVE FEE ON PERFORMANCE DATA
The Contract provides for a $30 annual administrative fee to be deducted
annually at the beginning of each Contract Year, from the subaccounts and the
Declared Interest Option based, on the proportion that the value of each such
account bears to the total cash value. For purposes of reflecting the
administrative fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on the average contract value
in the Account of all Contracts on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
LEGAL MATTERS
All matters relating to Iowa law pertaining to the Contracts, including the
validity of the Contracts and the Company's authority to issue the Contracts,
have been passed upon by Stephen M. Morain, Esquire, Senior Vice President and
General Counsel of the Company. Sutherland, Asbill & Brennan LLP of Washington
D.C. has provided advice on certain matters relating to the federal securities
laws.
6
<PAGE>
EXPERTS
The Account's statement of net assets as of December 31, 1997 and the related
statements of operations for the year then ended and changes in net assets for
each of the two years in the period then ended and the consolidated balance
sheets of the Company at December 31, 1997 and 1996 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1997, appearing herein, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
respective reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933 as amended, with respect to the Contracts discussed in this Statement of
Additional Information. Not all the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the Contracts and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The Company's financial statements included in this Statement of Additional
Information should be considered only as bearing on the Company's ability to
meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Account.
7
<PAGE>
FINANCIAL STATEMENTS
FARM BUREAU LIFE ANNUITY ACCOUNT
YEAR ENDED DECEMBER 31, 1997
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Farm Bureau Life Annuity Account
Financial Statements
Year ended December 31, 1997
CONTENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 1
Financial Statements
Statement of Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
[LETTERHEAD]
Report of Independent Auditors
The Board of Directors and Participants
Farm Bureau Life Insurance Company
We have audited the accompanying statement of net assets of Farm Bureau Life
Annuity Account (comprising, respectively, the Value Growth, High Grade Bond,
High Yield Bond, Managed, Money Market, and Blue Chip Subaccounts) as of
December 31, 1997, the related statements of operations for the year then ended,
and changes in net assets for each of the two years in the period then ended.
These financial statements are the responsibility of the Account's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the Farm Bureau Life Annuity Account at December 31,
1997, and the results of their operations for the year then ended and changes in
their net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
March 18, 1998
1
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
<PAGE>
Farm Bureau Life Annuity Account
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in FBL Variable Insurance Series Fund:
Value Growth Subaccount:
Value Growth Portfolio, 1,688,980 shares at net asset
value of $12.58 per share (cost $21,637,981) $21,247,371
High Grade Bond Subaccount:
High Grade Bond Portfolio, 308,425 shares at net asset value
of $10.11 per share (cost $3,046,844) 3,118,173
High Yield Bond Subaccount:
High Yield Bond Portfolio, 424,098 shares at net asset value
of $10.21 per share (cost $4,210,375) 4,330,041
Managed Subaccount:
Managed Portfolio, 1,873,616 shares at net asset value of
$12.55 per share (cost $23,383,953) 23,513,885
Money Market Subaccount:
Money Market Portfolio, 1,190,870 shares at net asset value
of $1.00 per share (cost $1,190,870) 1,190,870
Blue Chip Subaccount:
Blue Chip Portfolio, 548,289 shares at net asset value of $31.01
per share (cost $14,095,785) 17,002,442
-----------
Total investments (cost $67,565,808) 70,402,782
LIABILITIES -
-----------
NET ASSETS $70,402,782
-----------
-----------
<CAPTION>
EXTENDED
UNITS UNIT VALUE VALUE
---------------------------------------------
<S> <C> <C> <C>
Net assets are represented by:
Value Growth Subaccount 1,480,458.189756 $14.351888 $21,247,371
High Grade Bond Subaccount 246,715.778945 12.638724 3,118,173
High Yield Bond Subaccount 318,387.884067 13.599893 4,330,041
Managed Subaccount 1,587,400.851287 14.812821 23,513,885
Money Market Subaccount 103,638.521767 11.490613 1,190,870
Blue Chip Subaccount 865,517.558301 19.644248 17,002,442
-----------
Total net assets $70,402,782
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
Farm Bureau Life Annuity Account
Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
VALUE
GROWTH
COMBINED SUBACCOUNT
---------- -----------
<S> <C> <C>
Net investment income:
Dividend income $4,900,098 $ 2,106,785
Mortality and expense risk charges (673,386) (214,159)
---------- -----------
Net investment income 4,226,712 1,892,626
Net realized and unrealized gain (loss) on investments:
Net realized gain from investment transactions 606,318 79,947
Change in unrealized appreciation/depreciation of
investments 519,543 (1,205,412)
---------- -----------
Net gain (loss) on investments 1,125,861 (1,125,465)
---------- -----------
Net increase in net assets resulting from operations $5,352,573 $ 767,161
---------- -----------
---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE HIGH YIELD MONEY
BOND BOND MANAGED MARKET BLUE CHIP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$159,267 $304,437 $2,027,205 $66,306 $ 236,098
(28,215) (44,280) (219,599) (16,602) (150,531)
- ---------------------------------------------------------------------------------
131,052 260,157 1,807,606 49,704 85,567
521 17,856 110,938 - 397,056
71,860 93,347 (388,555) - 1,948,303
- ---------------------------------------------------------------------------------
72,381 111,203 (277,617) - 2,345,359
- ---------------------------------------------------------------------------------
$203,433 $371,360 $1,529,989 $49,704 $2,430,926
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
Farm Bureau Life Annuity Account
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
COMBINED VALUE GROWTH SUBACCOUNT
---------------------------------- ----------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 4,226,712 $ 2,452,656 $ 1,892,626 $ 965,593
Net realized gain from investment transactions 606,318 133,418 79,947 57,568
Change in unrealized appreciation/
depreciation of investments 519,543 1,224,615 (1,205,412) 330,549
---------------------------------- ----------------------------------
Net increase in net assets resulting from
operations 5,352,573 3,810,689 767,161 1,353,710
Capital share transactions:
Transfers of net premiums 29,782,855 14,564,927 2,802,538 1,010,140
Transfers of death benefits (2,069) - 342 -
Transfers of surrenders (3,311,843) (1,083,116) (1,237,462) (287,461)
Transfers of administrative charges (71,157) (36,178) (23,653) (13,281)
Transfers between subaccounts 2,646,059 1,146,764 7,424,437 3,367,733
---------------------------------- ----------------------------------
Net increase in net assets resulting from capital
share transactions 29,043,845 14,592,397 8,966,202 4,077,131
---------------------------------- ----------------------------------
Total increase in net assets 34,396,418 18,403,086 9,733,363 5,430,841
Net assets at beginning of year 36,006,364 17,603,278 11,514,008 6,083,167
---------------------------------- ----------------------------------
Net assets at end of year $70,402,782 $36,006,364 $21,247,371 $11,514,008
---------------------------------- ----------------------------------
---------------------------------- ----------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE BOND HIGH YIELD BOND
SUBACCOUNT SUBACCOUNT MANAGED SUBACCOUNT
-------------------------- -------------------------- --------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996 1997 1996
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
$ 131,052 $ 90,721 $ 260,157 $ 243,668 $ 1,807,606 $ 1,058,105
521 100 17,856 1,834 110,938 24,808
71,860 (14,630) 93,347 61,194 (388,555) 212,363
- ------------------------------------------------------------------------------------------------
203,433 76,191 371,360 306,696 1,529,989 1,295,276
348,419 162,342 337,381 303,788 2,762,109 1,247,608
- - - - (2,411) -
(97,706) (149,055) (416,329) (106,444) (1,152,155) (378,612)
(2,836) (2,092) (4,597) (3,090) (21,902) (11,934)
843,082 502,299 853,144 433,666 8,559,219 4,195,264
- ------------------------------------------------------------------------------------------------
1,090,959 513,494 769,599 627,920 10,144,860 5,052,326
- ------------------------------------------------------------------------------------------------
1,294,392 589,685 1,140,959 934,616 11,674,849 6,347,602
1,823,781 1,234,096 3,189,082 2,254,466 11,839,036 5,491,434
- ------------------------------------------------------------------------------------------------
$3,118,173 $1,823,781 $4,330,041 $3,189,082 $23,513,885 $11,839,036
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Farm Bureau Life Annuity Account
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
MONEY MARKET SUBACCOUNT BLUE CHIP SUBACCOUNT
---------------------------------- ----------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 49,704 $ 24,014 $ 85,567 $ 70,555
Net realized gain from investment transactions - - 397,056 49,108
Change in unrealized appreciation/
depreciation of investments - - 1,948,303 635,139
---------------------------------- ----------------------------------
Net increase in net assets resulting from
operations 49,704 24,014 2,430,926 754,802
Capital share transactions:
Transfers of net premiums 21,183,345 11,059,760 2,349,063 781,289
Transfers of death benefits - - - -
Transfers of surrenders (42,253) (4,846) (365,938) (156,698)
Transfers of administrative charges (596) (388) (17,573) (5,393)
Transfers between subaccounts (21,085,283) (10,367,687) 6,051,460 3,015,489
---------------------------------- ----------------------------------
Net increase in net assets resulting from capital
share transactions 55,213 686,839 8,017,012 3,634,687
---------------------------------- ----------------------------------
Total increase in net assets 104,917 710,853 10,447,938 4,389,489
Net assets at beginning of year 1,085,953 375,100 6,554,504 2,165,015
---------------------------------- ----------------------------------
Net assets at end of year $ 1,190,870 $ 1,085,953 $17,002,442 $ 6,554,504
---------------------------------- ----------------------------------
---------------------------------- ----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
Farm Bureau Life Annuity Account
Notes to Financial Statements
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Farm Bureau Life Annuity Account (the Account) is a unit investment trust
registered under the Investment Company Act of 1940. The Account was established
as a separate investment account within Farm Bureau Life Insurance Company (the
Company) to fund flexible premium deferred variable annuity insurance policies.
The Account commenced operations on January 1, 1994.
The Account has six separate subaccounts, each of which invests solely, as
directed by contract owners, in a different portfolio of FBL Variable Insurance
Series Fund (the Fund), an open-end, diversified management investment company
sponsored by the Company. Contract owners also may direct investments to a fixed
interest subaccount held in the general assets of the Company.
Investments in shares of the Fund are stated at market value, which is the
closing net asset value per share as determined by the Fund. The average cost
basis has been used in determining the net realized gain or loss from investment
transactions and unrealized appreciation or depreciation on investments.
Dividends paid to the Account are automatically reinvested in shares of the Fund
on the payable date.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Account's financial statements and accompanying notes
requires management to make estimates and assumptions that affect the amounts
reported and disclosed. These estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.
2. EXPENSE CHARGES
The Account pays the Company certain amounts relating to the distribution and
administration of the policies funded by the Account and as reimbursement for
certain mortality and other risks assumed by the Company. The following
summarizes those amounts.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts a daily mortality and
expense risk charge from the Account at an effective annual rate of 1.25% of the
average daily net asset value of the Account. These charges are assessed in
return for the Company's assumption of risks associated with adverse mortality
experience or excess administrative expenses in connection with policies issued.
8
<PAGE>
Farm Bureau Life Annuity Account
Notes to Financial Statements (continued)
2. EXPENSE CHARGES (CONTINUED)
ADMINISTRATIVE CHARGE: Prior to the annuity payment period, the Company will
deduct an annual administrative charge of $30 to reimburse it for administrative
expenses related to the contract. A portion of this charge may be deducted from
funds held in the Fixed Interest Subaccount.
SURRENDER CHARGE: A surrender charge is imposed in the event of a full or
partial surrender during the first six contract years. During the second through
sixth contract years, this charge is not assessed on the first 10% of cash value
surrendered. The amount charged is 6% of the amount surrendered during the first
contract year and declines by 1% in each of the next five contract years. No
surrender charge is deducted if the partial surrender or surrender occurs after
six full contract years.
3. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, operations of
the Company, which is taxed as a life insurance company under the Internal
Revenue Code. Under current law, no federal income taxes are payable with
respect to the Account's net investment income or net realized gain on
investments. Accordingly, no charge for income tax is currently being made to
the Account. If such taxes are incurred by the Company in the future, a charge
to the Account may be assessed.
4. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
----------------------------- ----------------------------
PURCHASES SALES PURCHASES SALES
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Value Growth Subaccount $12,215,703 $ 1,356,875 $ 5,679,612 $ 636,888
High Grade Bond Subaccount 1,521,372 299,361 839,451 235,236
High Yield Bond Subaccount 2,282,855 1,253,099 1,284,585 412,997
Managed Subaccount 13,390,437 1,437,971 6,449,185 338,754
Money Market Subaccount 16,257,452 16,152,535 7,635,182 6,924,329
Blue Chip Subaccount 10,133,454 2,030,875 4,038,721 333,479
----------------------------- ----------------------------
Combined $55,801,273 $22,530,716 $25,926,736 $8,881,683
----------------------------- ----------------------------
----------------------------- ----------------------------
</TABLE>
9
<PAGE>
Farm Bureau Life Annuity Account
Notes to Financial Statements (continued)
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units of each subaccount were as follows:
<TABLE>
<CAPTION>
UNITS SOLD UNITS REDEEMED NET INCREASE
-------------------------- -------------------------- --------------------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
-------------------------- -------------------------- --------------------------
YEAR ENDED DECEMBER 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Value Growth Subaccount 718,492 $10,103,031 80,058 $ 1,136,829 638,434 $ 8,966,202
High Grade Bond Subaccount 112,250 1,362,829 22,781 271,870 89,469 1,090,959
High Yield Bond Subaccount 153,849 1,978,417 95,173 1,208,818 58,676 769,599
Managed Subaccount 796,561 11,363,232 83,238 1,218,372 713,323 10,144,860
Money Market Subaccount 1,438,716 16,230,410 1,433,258 16,175,197 5,458 55,213
Blue Chip Subaccount 545,580 9,897,356 100,260 1,880,344 445,320 8,017,012
-------------------------- -------------------------- --------------------------
Combined 3,765,448 $50,935,275 1,814,768 $21,891,430 1,950,680 $29,043,845
-------------------------- -------------------------- --------------------------
-------------------------- -------------------------- --------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
Value Growth Subaccount 369,011 $ 4,612,528 44,377 $ 535,397 324,634 $ 4,077,131
High Grade Bond Subaccount 65,166 729,945 19,283 216,451 45,883 513,494
High Yield Bond Subaccount 87,020 1,005,743 31,684 377,823 55,336 627,920
Managed Subaccount 422,671 5,286,545 18,994 234,219 403,677 5,052,326
Money Market Subaccount 698,512 7,602,778 635,469 6,915,939 63,043 686,839
Blue Chip Subaccount 272,909 3,917,187 19,323 282,500 253,586 3,634,687
-------------------------- -------------------------- --------------------------
Combined 1,915,289 $23,154,726 769,130 $ 8,562,329 1,146,159 $14,592,397
-------------------------- -------------------------- --------------------------
-------------------------- -------------------------- --------------------------
</TABLE>
6. NET ASSETS
The Account has an unlimited number of units of beneficial interest authorized
with no par value. Net assets as of December 31, 1997 consisted of:
<TABLE>
<CAPTION>
VALUE HIGH GRADE HIGH YIELD MONEY
GROWTH BOND BOND MANAGED MARKET BLUE CHIP
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paid-in capital $58,744,255 $18,143,427 $2,729,340 $3,472,591 $19,841,950 $1,098,497 $13,458,450
Accumulated undistributed
net investment income 8,215,235 3,414,607 316,983 719,928 3,431,065 92,373 240,279
Accumulated undistributed
net realized gain from
investment transactions 606,318 79,947 521 17,856 110,938 - 397,056
Net unrealized appreciation
(depreciation) of
investments 2,836,974 (390,610) 71,329 119,666 129,932 - 2,906,657
-------------------------------------------------------------------------------------------------
Net assets $70,402,782 $21,247,371 $3,118,173 $4,330,041 $23,513,885 $1,190,870 $17,002,442
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Farm Bureau Life Annuity Account
Notes to Financial Statements (continued)
7. IMPACT OF YEAR 2000 (UNAUDITED)
Like other investment funds, financial and business organizations and
individuals around the world, the Account could be adversely affected if the
computer systems used by the Company and other service providers do not properly
process and calculate date-related information and data from and after
January 1, 2000. In 1997, the Company completed a comprehensive assessment of
the Year 2000 issue and developed a plan to address the issue in a timely
manner. The Company has and will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. The
Company anticipates completing the Year 2000 project no later than December 31,
1998, and prior to any anticipated impact on its operating systems.
The date on which the Company believes it will complete the Year 2000
modifications is based on management's best estimates, which were derived
utilizing numerous assumptions of future events. The Company also recognizes
there are outside influences and dependencies relative to its Year 2000 effort,
over which it has little or no control. However, the Company is putting effort
into ensuring these considerations will have minimal impact. These would include
the continued availability of certain resources, third-party modification plans
and many other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ from those anticipated.
11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Farm Bureau Life Insurance Company
We have audited the accompanying consolidated balance sheets of Farm Bureau Life
Insurance Company as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Farm
Bureau Life Insurance Company at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 16, 1998
59
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost (market: 1997--$541,332;
1996--$574,338) $ 522,411 $ 562,283
Available for sale, at market (amortized cost: 1997--$1,218,469;
1996--$1,096,179) 1,286,169 1,128,587
Equity securities, at market (cost: 1997--$54,861; 1996--$69,915) 51,268 79,786
Mortgage loans on real estate 253,093 235,331
Investment real estate, less allowances for depreciation of $2,507 in 1997 and $1,741 in 1996 38,774 26,384
Policy loans 90,052 88,940
Other long-term investments 9,989 22,157
Short-term investments 23,853 62,025
-------------- -------------
Total investments 2,275,609 2,205,493
Cash and cash equivalents 1,678 1,802
Securities and indebtedness of related parties 63,394 39,244
Accrued investment income 25,340 24,298
Accounts and notes receivable 703 1,526
Amounts receivable from affiliates 6,686 7,095
Reinsurance recoverable 3,934 5,552
Deferred policy acquisition costs 157,096 145,614
Property and equipment, less allowances for depreciation of $18,330 in 1997 and $17,313 in 1996 32,518 36,182
Current income taxes recoverable 10,349 --
Goodwill, less accumulated amortization of $2,792 in 1997 and $2,172 in 1996 10,640 9,726
Other assets 7,443 5,388
Assets held in separate accounts 138,409 79,043
-------------- -------------
Total assets $ 2,733,799 $ 2,560,963
-------------- -------------
-------------- -------------
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive products $ 1,172,881 $ 1,132,491
Traditional life insurance and accident and health products 576,405 555,664
Unearned revenue reserve 23,341 22,182
Other policy claims and benefits 7,091 7,313
-------------- -------------
1,779,718 1,717,650
Other policyholders' funds:
Supplementary contracts without life contingencies 129,389 120,649
Advance premiums and other deposits 66,626 66,572
Accrued dividends 12,107 12,796
-------------- -------------
208,122 200,017
Long-term debt 77 81
Amounts payable to affiliates -- 1,700
Current income taxes payable -- 56
Deferred income taxes 45,123 43,810
Other liabilities 29,639 27,602
Liabilities related to separate accounts 138,409 79,043
-------------- -------------
Total liabilities 2,201,088 2,069,959
Commitments and contingencies
Stockholder's equity:
Preferred stock, 7 1/2% cumulative, par value $50.00 per share--authorized 6,000 shares -- --
Common stock, par value $50.00 per share--authorized 994,000 shares, issued and outstanding
50,000 shares 2,500 2,500
Additional paid-in capital 55,285 55,285
Net unrealized investment gains 38,719 26,327
Retained earnings 436,207 406,892
-------------- -------------
Total stockholder's equity 532,711 491,004
-------------- -------------
Total liabilities and stockholder's equity $ 2,733,799 $ 2,560,963
-------------- -------------
-------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
61
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
----------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Interest sensitive product charges $ 37,802 $ 33,755 $ 33,343
Traditional life insurance and accident and health premiums 61,675 61,611 57,907
Property-casualty premiums -- -- 18,709
Net investment income 174,763 166,422 184,348
Realized gains on investments 38,639 54,454 5,902
Other income 4,968 11,887 28,011
----------------- ---------------- ----------------
Total revenues 317,847 328,129 328,220
Benefits and expenses:
Interest sensitive product benefits 95,052 90,720 88,147
Traditional life insurance and accident and health benefits 42,121 42,370 37,710
Increase in traditional life and accident and health future policy
benefits 15,107 13,679 15,310
Distributions to participating policyholders 22,784 23,725 23,838
Property-casualty losses and loss adjustment expenses -- -- 13,621
Underwriting, acquisition and insurance expenses 48,380 45,714 54,336
Interest expense 9 425 1,007
Other expenses 1,149 7,814 17,776
----------------- ---------------- ----------------
Total benefits and expenses 224,602 224,447 251,745
----------------- ---------------- ----------------
93,245 103,682 76,475
Income taxes (31,579) (34,156) (27,291)
Minority interest in earnings of subsidiaries -- -- (12)
Equity income, net of related income taxes 1,908 4,138 1,488
----------------- ---------------- ----------------
Net income $ 63,574 $ 73,664 $ 50,660
----------------- ---------------- ----------------
----------------- ---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
62
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL INVESTMENT TOTAL
COMMON PAID-IN GAINS RETAINED STOCKHOLDER'S
STOCK CAPITAL (LOSSES) EARNINGS EQUITY
------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $1,194 $ 51,732 $(10,768) $ 313,314 $ 355,472
Issuance of 26,119.72 shares
pursuant to stock dividend 1,306 (1,306) -- -- --
Net income for 1995 -- -- -- 50,660 50,660
Change in net unrealized investment
gains/losses -- -- 45,375 -- 45,375
Dividend of Utah Farm Bureau
Insurance Company to parent -- -- (461) (10,650) (11,111)
------- ------------ ------------ ------------- --------------
Balance at December 31, 1995 2,500 50,426 34,146 353,324 440,396
Net income for 1996 -- -- -- 73,664 73,664
Change in net unrealized investment
gains/losses -- -- (7,819) -- (7,819)
Adjustment resulting from capital
transaction of equity investee -- 4,859 -- -- 4,859
Dividend of FBL Financial Services,
Inc. to parent -- -- -- (15,096) (15,096)
Cash dividend paid to parent -- -- -- (5,000) (5,000)
------- ------------ ------------ ------------- --------------
Balance at December 31, 1996 2,500 55,285 26,327 406,892 491,004
Net income for 1997 -- -- -- 63,574 63,574
Change in net unrealized investment
gains/losses -- -- 12,392 -- 12,392
Cash dividends paid to parent -- -- -- (33,000) (33,000)
Other -- -- -- (1,259) (1,259)
------- ------------ ------------ ------------- --------------
Balance at December 31, 1997 $2,500 $ 55,285 $ 38,719 $ 436,207 $ 532,711
------- ------------ ------------ ------------- --------------
------- ------------ ------------ ------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES.
63
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
-----------------------------------------
OPERATING ACTIVITIES
Net income $ 63,574 $ 73,664 $ 50,660
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances 82,821 80,867 80,132
Charges for mortality and administration (38,134) (35,050) (34,083)
Deferral of unearned revenues 2,266 1,825 1,696
Amortization of unearned revenue reserve (779) (530) (956)
Provision for depreciation and amortization 3,088 5,906 10,034
Net gains and losses related to investments held by broker-dealer and investment
company subsidiaries (1,223) (3,125) (25,801)
Realized gains on investments (38,639) (54,454) (5,902)
Increase in traditional life, accident and health and property-casualty benefit
accruals 15,198 13,646 16,144
Policy acquisition costs deferred (22,334) (18,561) (18,995)
Amortization of deferred policy acquisition costs 7,760 7,271 10,181
Provision for deferred income taxes (5,172) 6,310 15,026
Other (12,545) 8,635 (19,895)
-----------------------------------------
Net cash provided by operating activities 55,881 86,404 78,241
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities--held for investment 40,460 33,212 16,529
Fixed maturities--available for sale 250,842 222,093 208,189
Equity securities 109,641 101,937 29,766
Mortgage loans on real estate 38,725 21,977 18,646
Investment real estate 6 4,829 927
Policy loans 21,002 20,092 19,701
Other long-term investments 52 10,404 11,609
Short-term investments--net 41,061 -- 68,799
-----------------------------------------
501,789 414,544 374,166
</TABLE>
64
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
-----------------------------------------
Acquisition of investments:
Fixed maturities--held for investment $ -- $ (38,472) $ (120,885)
Fixed maturities--available for sale (363,560) (374,808) (282,657)
Equity securities (45,520) (28,824) (30,380)
Mortgage loans on real estate (56,571) (40,601) (17,110)
Investment real estate (10,142) (4,988) (8,034)
Policy loans (22,114) (20,506) (20,275)
Other long-term investments (1,936) (535) (13,632)
Short-term investments--net -- (30,249) --
-----------------------------------------
(499,843) (538,983) (492,973)
Proceeds from disposal, repayments of advances and other distributions from equity
investees 16,084 36,265 31,986
Investments in and advances to equity investees (41,018) (10,396) (21,463)
Net cash paid for acquisitions (9,694) -- --
Net purchases of property and equipment and other (28) (7,062) (7,664)
-----------------------------------------
Net cash used in investing activities (32,710) (105,632) (115,948)
FINANCING ACTIVITIES
Receipts from interest sensitive products credited to policyholder account balances 220,437 181,148 169,207
Return of policyholder account balances on interest sensitive products (210,728) (153,784) (124,802)
Proceeds from short-term borrowings -- -- 8
Repayments of short-term borrowings -- -- (6,396)
Repayments of long-term debt (4) (1,199) (5,915)
Dividends paid (33,000) (5,135) (248)
-----------------------------------------
Net cash provided by (used in) financing activities (23,295) 21,030 31,854
-----------------------------------------
Increase (decrease) in cash and cash equivalents (124) 1,802 (5,853)
Cash and cash equivalents at beginning of year 1,802 -- 5,853
-----------------------------------------
Cash and cash equivalents at end of year $ 1,678 $ 1,802 $ --
-----------------------------------------
-----------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 8 $ 415 $ 1,086
Income taxes 48,876 17,694 16,833
</TABLE>
SEE ACCOMPANYING NOTES.
65
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Farm Bureau Life Insurance Company (the Company), a wholly-owned subsidiary of
FBL Financial Group, Inc., operates predominantly in the life insurance
industry. The Company currently markets its products, which consist primarily of
individual life insurance policies and annuity contracts, to Farm Bureau members
and other individuals and businesses in 15 midwestern and western states.
Prior to May 31, 1996, the Company owned 100% of the outstanding common stock of
FBL Financial Services, Inc., a holding company which, through its subsidiaries,
provided investment advisory, marketing and distribution, and leasing services.
On May 31, 1996, the common stock of FBL Financial Services, Inc. was
transferred to FBL Financial Group, Inc. in the form of a dividend. FBL
Financial Services, Inc. had investments of $6.1 million, property and equipment
of $26.1 million, other assets of $3.3 million, long-term debt of $11.3 million
and other liabilities of $8.8 million on the date of the dividend.
Prior to December 31, 1995, the Company owned approximately 99% of the
outstanding common stock of Utah Farm Bureau Insurance Company, a
property-casualty insurance company providing individual and small business
coverages. On December 31, 1995, the common stock of Utah Farm Bureau Insurance
Company was transferred to FBL Financial Group, Inc. in the form of a dividend.
Utah Farm Bureau Insurance Company had investments of $26.0 million, reinsurance
recoverable of $26.7 million, other assets of $7.6 million, reserves on
property-casualty policies of $30.0 million and other liabilities of $19.1
million on the date of the dividend.
CONSOLIDATION
The consolidated financial statements include the financial statements of the
Company and its direct and indirect subsidiaries. All significant intercompany
transactions have been eliminated.
INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
Fixed maturity securities, comprised of bonds and redeemable preferred stocks,
that the Company has the positive intent and ability to hold to maturity are
designated as "held for investment". Held for investment securities are reported
at cost adjusted for amortization of premiums and discounts. Changes in the
market value of these securities, except for declines that are other than
temporary, are not reflected in the Company's financial statements. Fixed
maturity securities which may be sold are designated as "available for sale".
Available for sale securities are reported at market value and unrealized gains
and losses on these securities are included directly in stockholder's equity,
net of certain adjustments (see Note 2). Premiums and discounts are
amortized/accrued using methods which result in a constant yield over the
securities' expected lives. Amortization/accrual of premiums and discounts on
mortgage and asset-backed securities incorporates prepayment assumptions to
estimate the securities' expected lives.
Equity securities, comprised of common and non-redeemable preferred stocks, are
reported at market value. The change in unrealized appreciation and depreciation
of equity securities is included directly in stockholder's equity, net of any
related deferred income taxes.
MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate are reported at cost adjusted for amortization of
premiums and accrual of discounts. If the value of any mortgage loan is
determined to be impaired (i.e., when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement), the carrying value of the mortgage loan is reduced to its fair
value, which may be based upon the present value of expected future cash flows
from the loan (discounted at the loan's effective interest rate), or the fair
value of the underlying collateral. The carrying value of impaired loans is
reduced by the establishment of a valuation allowance, changes to which are
recognized as realized gains or losses on investments. Interest income on
impaired loans is recorded on a cash basis.
OTHER INVESTMENTS
Investment real estate is reported at cost less allowances for depreciation.
Policy loans are reported at unpaid principal balance. Short-term investments
are reported at cost adjusted for amortization of premiums and accrual of
discounts.
Other long-term investments include certain nontraditional investments and
securities held by a subsidiary engaged in the venture capital investment
company industry. Nontraditional investments include a debt-related instrument
and
66
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
investment deposits which are reported at cost. In accordance with accounting
practices for the investment company industry, marketable securities held by
subsidiaries in this industry are valued at market value if readily marketable
or at fair value, as determined by the Board of Directors of the subsidiary
holding the security, if not readily marketable. The resulting difference
between cost and market is included in the statements of income as net
investment income. Realized gains and losses are also reported as a component of
net investment income. The Company recorded transfers from its venture capital
subsidiary, which was dissolved during 1997, at fair value on the date of
transfer, re-establishing a new cost basis for the security.
Securities and indebtedness of related parties include investments in
partnerships and corporations over which the Company may exercise significant
influence. Such investments are accounted for using the equity method. Changes
in the value of the Company's investment in equity investees attributable to
capital transactions of the investee, such as a public offering of stock, are
recorded directly to stockholder's equity. Securities and indebtedness of
related parties also includes advances and loans to the partnerships and
corporations which are principally reported at cost.
REALIZED GAINS AND LOSSES ON INVESTMENTS
The carrying values of all the Company's investments are reviewed on an ongoing
basis for credit deterioration, and if this review indicates a decline in market
value that is other than temporary, the Company's carrying value in the
investment is reduced to its estimated realizable value (the sum of the
estimated nondiscounted cash flows for securities or fair value for mortgage
loans on real estate) and a specific writedown is taken. Such reductions in
carrying value are recognized as realized losses on investments. Realized gains
and losses on sales are determined on the basis of specific identification of
investments. If the Company expects that an issuer of a security will modify its
payment pattern from contractual terms but no writedown is required, future
investment income is recognized at the rate implicit in the calculation of net
realizable value under the expected payment pattern.
MARKET VALUES
Market values of fixed maturity securities are reported based on quoted market
prices, where available. Market values of fixed maturity securities not actively
traded in a liquid market are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U. S.
Treasury bonds. Market values of redeemable preferred stock and equity
securities are based on the latest quoted market prices, or for those not
readily marketable, generally at values which are representative of the market
values of comparable issues.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. For
participating traditional life insurance and interest sensitive products
(principally universal life insurance policies and annuity contracts), these
costs are being amortized generally in proportion to expected gross profits
(after dividends to policyholders, if applicable) from surrender charges and
investment, mortality, and expense margins. That amortization is adjusted
retrospectively when estimates of current or future gross profits/margins
(including the impact of investment gains and losses) to be realized from a
group of products are revised. For nonparticipating traditional life and
accident and health insurance products, these costs are amortized over the
premium paying period of the related policies, in proportion to the ratio of
annual premium revenues to total anticipated premium revenues. Such anticipated
premium revenues are estimated using the same assumptions used for computing
liabilities for future policy benefits. The deferred policy acquisition costs
for property-casualty insurance are amortized over the effective period of the
related insurance policies; deferred policy acquisition costs for these policies
are charged to expense when such costs are deemed not to be recoverable from the
related unearned premiums and any related investment income.
67
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment, comprised primarily of home office properties, furniture
and equipment, are reported at cost less allowances for depreciation.
Depreciation expense is computed primarily using the straight-line method over
the estimated useful lives of the assets. Depreciation expense for the years
ended December 31, 1997, 1996 and 1995 was $2.3 million, $5.1 million and $9.3
million, respectively.
GOODWILL
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is generally being amortized on a straight-line
basis over a period of 20 years. The carrying value of goodwill is regularly
reviewed for indicators of impairment in value, which in the view of management
are other than temporary. If facts and circumstances suggest that goodwill is
impaired, the Company assesses the fair value of the underlying business and
reduces goodwill to an amount that results in the book value of the underlying
business approximating fair value. The Company has not recorded any such
writedowns during the years ended December 31, 1997, 1996 or 1995.
FUTURE POLICY BENEFITS
The liability for future policy benefits for participating traditional life
insurance is based on net level premium reserves, including assumptions as to
interest, mortality, and other assumptions underlying the guaranteed policy cash
values. Reserve interest assumptions are level and range from 2.5% to 6.0%. The
average rate of assumed investment yields used in estimating gross margins was
8.15% in 1997, 8.34% in 1996 and 8.14% in 1995. Accrued dividends for
participating business are established for anticipated amounts earned to date
for the period through the policy's next anniversary and are provided for as a
separate liability. The declaration of future dividends for participating
business is at the discretion of the Board of Directors. Participating life
insurance business accounted for 42% of receipts from policyholders during the
year ended December 31, 1997 and represented 19% of life insurance inforce at
December 31, 1997.
The liabilities for future policy benefits for accident and health insurance are
computed using a net level or two-year preliminary term method, including
assumptions as to morbidity, mortality and interest and to include provisions
for possible unfavorable deviations. Policy benefit claims are charged to
expense in the period that the claims are incurred.
Future policy benefit reserves for interest sensitive products are computed
under a retrospective deposit method and represent policy account balances
before applicable surrender charges. Policy benefits and claims that are charged
to expense include benefit claims incurred in the period in excess of related
policy account balances.
Interest crediting rates for interest sensitive products ranged from 5.25% to
6.90% in 1997, 5.75% to 7.50% in 1996 and 5.50% to 7.50% in 1995.
The unearned revenue reserve reflects the unamortized balance of the excess of
first year administration charges over renewal period administration charges
(policy initiation fees) on interest sensitive products. These excess charges
have been deferred and are being recognized in income over the period benefited
using the same assumptions and factors used to amortize deferred policy
acquisition costs.
RESERVES AND UNEARNED PREMIUMS ON PROPERTY-CASUALTY POLICIES
Unpaid property-casualty losses and loss adjustment expenses represent the
estimated liability for reported claims plus those incurred but not yet reported
and the related estimated adjustment expenses. The reserve for unpaid claims and
related adjustment expenses was determined using case-basis evaluations and
statistical analyses and represented estimates of the ultimate cost of all
unpaid losses incurred through December 31 of each year. Salvage and subrogation
recoverables were offset against reserves on property-casualty policies and were
estimated using statistical analysis.
Property-casualty insurance unearned premiums were calculated on a pro rata
basis.
GUARANTEE FUND ASSESSMENTS
From time to time assessments are levied on the Company by guaranty associations
in most states in which the Company is licensed. These assessments are to cover
losses of policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. During 1997, the Company adopted Statement of Position (SOP)
97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments", which requires the accrual of such assessments. Prior to 1997, the
Company
68
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognized its obligation for guarantee fund assessments when such assessments
were received and an asset was recorded for future premium tax offsets on
assessments paid. The impact of adopting SOP 97-3 was not separately reported as
a change in accounting principle because the impact of adoption was not material
to the Company.
At December 31, 1997, the Company had an undiscounted reserve of $1.8 million to
cover estimated future assessments on known insolvencies and had an asset
totaling $2.3 million representing estimated premium tax offsets on paid and
future assessments. Expenses incurred for guaranty fund assessments, net of
related premium tax offsets, totaled $1.1 million (including $0.9 million
related to the adoption of SOP 97-3) during the year ended December 31, 1997,
and $0.1 million during each of the years ended December 31, 1996 and 1995. It
is estimated future guarantee fund assessments on known insolvencies will be
paid during the three year period ended December 31, 2000 and substantially all
the related future premium tax offsets will be realized during the six year
period ended December 31, 2003. The Company believes the reserve for guarantee
fund assessments is sufficient to provide for future assessments based upon
known insolvencies and projected premium levels.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. Deferred income tax expenses or credits are based on
the changes in the asset or liability from period to period.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately administered,
principally for the benefit of certain policyholders who bear the underlying
investment risk. The separate account assets and liabilities are carried at fair
value. Revenues and expenses related to the separate account assets and
liabilities, to the extent of benefits paid or provided to the separate account
policyholders, are excluded from the amounts reported in the accompanying
consolidated statements of income.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Revenues for interest sensitive products consist of policy charges for the cost
of insurance, administration charges, amortization of policy initiation fees and
surrender charges assessed against policyholder account balances. Expenses
related to these products include interest credited to policyholder account
balances and benefit claims incurred in excess of policyholder account balances.
Traditional life insurance premiums are recognized as revenues over the
premium-paying period. Future policy benefits and policy acquisition costs are
recognized as expenses over the life of the policy by means of the provision for
future policy benefits and amortization of deferred policy acquisition costs.
Property-casualty insurance premiums were recognized using a daily or monthly
pro rata method over the terms of the policies.
All insurance-related revenues, benefits, losses and expenses are reported net
of reinsurance ceded.
REINSURANCE
The Company uses reinsurance to manage certain risks associated with its
insurance operations. These reinsurance arrangements provide for greater
diversification of business, allow management to control exposure to potential
risks arising from large losses and provide additional capacity for growth.
The Company's life insurance operations cede reinsurance to various reinsurers.
The cost of reinsurance is generally amortized over the contract periods of the
reinsurance agreements.
The Company's property-casualty operations assumed and ceded reinsurance,
principally as a participant in a reinsurance pooling agreement with two
affiliates. The Company's contracts were prospective and the cost of insurance
was amortized over the contract periods in proportion to the amount of insurance
protection provided.
69
<PAGE>
Farm Bureau Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER INCOME AND OTHER EXPENSES
Other income and other expenses include revenue and expenses generated by the
Company's various non-insurance subsidiaries for investment advisory, marketing
and distribution, and leasing services. A portion of these activities are
performed on behalf of affiliates of the Company. In addition, certain revenue
generated by the insurance companies have been classified as other income.
During the years ended December 31, 1997, 1996 and 1995, revenues of the
insurance companies included as other income aggregated $3.7 million, $2.7
million and $8.4 million, respectively.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 consolidated financial statements have been
reclassified to conform to the 1997 financial statement presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. For
example, significant estimates and assumptions are utilized in the calculation
of deferred policy acquisition costs, policyholder liabilities and accruals and
valuation allowances on investments. It is reasonably possible that actual
experience could differ from the estimates and assumptions utilized which could
have a material impact on the consolidated financial statements.
PENDING ACCOUNTING CHANGE
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income". Statement No. 130 establishes standards for
reporting comprehensive income and its components which include net income and
items currently recorded directly in stockholder's equity such as unrealized
gains and losses on fixed maturity securities classified as available for sale.
The impact of Statement No. 130 is not expected to be material to the Company as
the Statement does not change the computation or disclosure of net income or
stockholder's equity. Statement No. 130 is effective for and will be adopted in
1998.
2. INVESTMENT OPERATIONS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
-----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
Corporate securities $ 5,008 $ 814 $ (8) $ 5,814
Mortgage-backed securities 517,403 19,575 (1,460) 535,518
-----------------------------------------------------
Total fixed maturities $ 522,411 $ 20,389 $ (1,468) $ 541,332
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
70
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
-----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
United States Government and agencies $ 14,406 $ 18 $ (19) $ 14,405
State, municipal and other governments 37,986 1,012 (126) 38,872
Public utilities 80,071 4,637 (390) 84,318
Corporate securities 688,362 55,095 (6,089) 737,368
Mortgage and asset-backed securities 372,482 13,418 (1,283) 384,617
Redeemable preferred stock 25,162 1,533 (106) 26,589
-----------------------------------------------------
Total fixed maturities $ 1,218,469 $ 75,713 $ (8,013) $ 1,286,169
-----------------------------------------------------
-----------------------------------------------------
Equity securities $ 54,861 $ 3,635 $ (7,228) $ 51,268
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
Corporate securities $ 5,009 $ 649 $ (9) $ 5,649
Mortgage-backed securities 557,274 16,577 (5,162) 568,689
------------------------------------------------------
Total fixed maturities $ 562,283 $ 17,226 $ (5,171) $ 574,338
------------------------------------------------------
------------------------------------------------------
<CAPTION>
AVAILABLE FOR SALE
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and agencies $ 44,440 $ 237 $ (281) $ 44,396
State, municipal and other governments 11,530 383 (53) 11,860
Public utilities 119,619 4,995 (836) 123,778
Corporate securities 611,021 32,078 (9,989) 633,110
Mortgage and asset-backed securities 278,308 7,391 (2,793) 282,906
Redeemable preferred stock 31,261 1,369 (93) 32,537
------------------------------------------------------
Total fixed maturities $ 1,096,179 $ 46,453 $ (14,045) $ 1,128,587
------------------------------------------------------
------------------------------------------------------
Equity securities $ 69,915 $ 28,671 $ (18,800) $ 79,786
------------------------------------------------------
------------------------------------------------------
</TABLE>
71
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
Amortized cost of securities held by a subsidiary engaged in the investment
company industry was $8.7 million at December 31, 1996. Gross unrealized
appreciation and depreciation on these securities totaled $5.4 million and $0.3
million, respectively. Short-term investments have been excluded from the above
schedules as amortized cost approximates market value for these securities.
The carrying value and estimated market value of the Company's portfolio of
fixed maturity securities at December 31, 1997, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
HELD FOR INVESTMENT AVAILABLE FOR SALE
-------------------------- ------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ 19,224 $ 19,274
Due after one year through five years -- -- 133,569 139,424
Due after five years through ten years 5,008 5,814 207,167 222,249
Due after ten years -- -- 460,865 494,016
----------------------------------------------------------
5,008 5,814 820,825 874,963
Mortgage and asset-backed securities 517,403 535,518 372,482 384,617
Redeemable preferred stocks -- -- 25,162 26,589
----------------------------------------------------------
$ 522,411 $ 541,332 $ 1,218,469 $ 1,286,169
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
The unrealized appreciation or depreciation on fixed maturity and equity
securities available for sale is reported as a separate component of
stockholder's equity, reduced by adjustments to deferred policy acquisition
costs, value of insurance in force acquired and unearned revenue reserve that
would have been required as a charge or credit to income had such amounts been
realized, and a provision for deferred income taxes. Net unrealized investment
gains as reported were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity securities available for sale $ 64,107 $ 42,279
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs (5,251) (2,159)
Unearned revenue reserve 711 383
Provision for deferred income taxes (20,848) (14,176)
-----------------------
Net unrealized investment gains $ 38,719 $ 26,327
-----------------------
-----------------------
</TABLE>
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loan portfolio consists principally of commercial
mortgage loans. The Company's lending policies require that the loans be
collateralized by the value of the related property, establish limits on the
amount that can be loaned to one borrower and require diversification by
geographic location and collateral type. Regions in which at least 20% of the
Company's mortgage loan portfolio is invested during the years presented
include; Pacific (26% in 1997 and 28% in 1996), which includes California,
Oregon and Washington; West South Central (22% in 1997 and 12% in 1996), which
includes Oklahoma and Texas; and Mountain (15% in 1997 and 20% in 1996), which
includes Arizona, Colorado, Idaho, New Mexico, Utah and Wyoming. Mortgage loans
on real estate have also been analyzed during the years presented by collateral
types with office buildings (44% in 1997 and 46% in 1996) and retail facilities
(36% in 1997 and 34% in 1996), representing the largest holdings.
72
<PAGE>
Farm Bureau Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENT OPERATIONS (CONTINUED)
The Company has also provided an allowance for possible losses against its
mortgage loan portfolio. An analysis of this allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 600 $ 600 $ 600
Realized losses -- 2,527 --
Uncollectible amounts written off, net of recoveries (77) (2,527) --
-------------------------------
Balance at end of year $ 523 $ 600 $ 600
-------------------------------
-------------------------------
</TABLE>
Impaired loans (those loans in which the Company does not believe it will
collect all amounts due according to the contractual terms of the respective
loan agreements) totaled $3.1 million at December 31, 1996. There were no
impaired loans at December 31, 1997. No valuation allowance was established on
the impaired loans at December 31, 1996.
NET INVESTMENT INCOME
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
--------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Held for investment $ 43,648 $ 45,744 $ 42,016
Available for sale 97,044 85,722 83,490
Equity securities 1,259 1,345 1,098
Mortgage loans on real estate 21,027 20,297 19,544
Investment real estate 4,457 4,495 4,191
Policy loans 5,692 5,653 5,567
Other long-term investments 2,921 3,698 26,249
Short-term investments 3,691 3,166 2,671
Other 4,105 3,485 5,581
--------------------------------------
183,844 173,605 190,407
Less investment expenses (9,081) (7,183) (6,059)
--------------------------------------
Net investment income $ 174,763 $ 166,422 $ 184,348
--------------------------------------
--------------------------------------
</TABLE>
Investment income from other long-term investments, which includes investments
held by subsidiaries engaged in the broker-dealer and investment company
industries, is comprised of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Dividends, interest and other income $ 1,698 $ 613 $ 519
Net realized gain (loss) from investment transactions 6,288 (1,811) 25,810
Change in unrealized appreciation/depreciation of investments (5,065) 4,896 (80)
--------------------------------
$ 2,921 $ 3,698 $ 26,249
--------------------------------
--------------------------------
</TABLE>
During the year ended December 31, 1997, 13 securities with a total fair value
of $15.0 million were transferred to the Company from its venture capital
subsidiary, upon its dissolution. During the year ended December 31, 1995, two
securities with a total fair value of $27.6 million were transferred out of the
subsidiary. Realized gains (recognized in net investment income) of $6.3 million
and $24.6 million were recognized on the 1997 and 1995 transfers, respectively,
although neither transfer had an impact on net income (as unrealized
appreciation had been reported prior to the transfer).
73
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized appreciation/depreciation
on investments, excluding amounts attributed to investments held by subsidiaries
engaged in the broker-dealer and investment company industries discussed above,
are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
-------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REALIZED
Fixed maturities--available for sale $ 4,300 $ 2,199 $ 5,526
Equity securities 35,120 56,522 (763)
Mortgage loans on real estate -- (2,527) --
Investment real estate 6 619 123
Other long-term investments (300) (154) (158)
Securities and indebtedness of related parties (487) (1,438) 1,182
Notes receivable and other -- (767) (8)
-------------------------------------
Realized gains on investments $ 38,639 $ 54,454 $ 5,902
-------------------------------------
-------------------------------------
UNREALIZED
Fixed maturities:
Held for investment $ 6,866 $ (12,225) $ 50,905
Available for sale 35,292 (25,675) 75,590
Equity securities (13,464) 4,429 9,209
-------------------------------------
Change in unrealized appreciation/depreciation of investments $ 28,694 $ (33,471) $ 135,704
-------------------------------------
-------------------------------------
</TABLE>
An analysis of sales, maturities and principal repayments of the Company's fixed
maturities portfolio for the years ended December 31, 1997, 1996, and 1995 is as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
-------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Scheduled principal repayments and calls:
Available for sale $ 154,939 $ -- $ -- $ 154,939
Held for investment 40,460 -- -- 40,460
Sales--available for sale 91,603 6,313 (2,013) 95,903
-------------------------------------------------
Total $ 287,002 $ 6,313 $ (2,013) $ 291,302
-------------------------------------------------
-------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Scheduled principal repayments and calls:
Available for sale $ 148,299 $ -- $ -- $ 148,299
Held for investment 33,212 -- -- 33,212
Sales--available for sale 71,095 5,197 (2,498) 73,794
-------------------------------------------------
Total $ 252,606 $ 5,197 $ (2,498) $ 255,305
-------------------------------------------------
-------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Scheduled principal repayments and calls:
Available for sale $ 74,710 $ -- $ -- $ 74,710
Held for investment 16,529 -- -- 16,529
Sales--available for sale 127,738 7,186 (1,445) 133,479
-------------------------------------------------
Total $ 218,977 $ 7,186 $ (1,445) $ 224,718
-------------------------------------------------
-------------------------------------------------
</TABLE>
Realized losses totaling $0.5 million and $0.2 million were incurred during the
years ended December 31, 1996 and 1995, respectively, as a result of writedowns
for other than temporary impairment of fixed maturity securities. No such
writedowns were recorded during the year ended December 31, 1997.
74
<PAGE>
Farm Bureau Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENT OPERATIONS (CONTINUED)
OTHER
In December 1997, the Company acquired a 35% interest (with 20% voting control)
in an unaffiliated life insurance company for $25.0 million. The excess
(approximately $5.1 million) of the carrying amount of the investment, which is
classified as securities and indebtedness of related parties on the consolidated
balance sheet, over the amount of underlying equity in net assets is
attributable to goodwill and is being amortized over a 20 year period. The
investment is being accounted for using the equity method. The insurance company
underwrites and markets life insurance and annuity products throughout the
United States.
Also in December 1997, the Company acquired all of the common stock of EquiTrust
Life Insurance Company for $9.7 million. EquiTrust Life Insurance Company is a
shell life insurance company licensed in 38 states. Goodwill totaling $1.5
million was recorded in connection with the acquisition and is being amortized
over 20 years.
In February 1996, an equity investee of the Company completed an initial public
offering which resulted in an increase of $4.9 million, net of $2.6 million in
taxes, in the Company's share of the investee's stockholders' equity. This
increase was credited directly to additional paid-in capital. Subsequent to the
public offering, the Company reclassified the investment to equity securities.
The Company has sold the majority of its holdings in this investment and
realized gains of $24.3 million during the year ended December 31, 1997 and
$50.4 million during the year ended December 31, 1996.
At December 31, 1997, affidavits of deposits covering investments with a
carrying value totaling $2,081.4 million were on deposit with state agencies to
meet regulatory requirements.
At December 31, 1997, the Company had committed to provide additional funding
for mortgage loans on real estate aggregating $6.5 million. These commitments
arose in the normal course of business at terms which are comparable to similar
investments.
The carrying value of investments which have been non-income producing for the
twelve months preceding December 31, 1997, include fixed maturities of $3.2
million and other long-term investments of $1.6 million.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded ten percent of stockholder's
equity at December 31, 1997.
3. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 also excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements and allows companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented herein are limited by each of these factors and do
not purport to represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
FIXED MATURITY SECURITIES: Fair values for fixed maturity securities are based
on quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U. S.
Treasury bonds.
EQUITY SECURITIES: The fair values for equity securities are based on quoted
market prices, where available. For equity securities that are not actively
traded, estimated fair values are based on values of comparable issues.
MORTGAGE LOANS ON REAL ESTATE AND POLICY LOANS: Fair values are estimated by
discounting expected cash flows using interest rates currently being offered for
similar loans.
75
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER LONG-TERM INVESTMENTS: The fair values for nontraditional debt
instruments and investment deposits are estimated by discounting expected cash
flows using interest rates currently being offered for similar investments. The
fair values for investments held by a subsidiary in the investment company
industry are based on quoted market prices, where available. For holdings that
are not actively traded, fair values are determined in good faith by the Board
of Directors of the subsidiary holding the security.
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
consolidated balance sheet for these instruments approximate their fair values.
SECURITIES AND INDEBTEDNESS OF RELATED PARTIES: Fair values for loans and
advances are estimated by discounting expected cash flows using interest rates
currently being offered for similar investments. As allowed by Statement No.
107, fair values are not assigned to investments accounted for using the equity
method.
ASSETS AND LIABILITIES OF SEPARATE ACCOUNTS: Separate account assets and
liabilities are reported at estimated fair value in the Company's consolidated
balance sheet.
FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' FUNDS: Fair values of the
Company's liabilities under contracts not involving significant mortality or
morbidity risks (principally deferred annuities, deposit administration funds
and supplementary contracts) are stated at cash surrender value, the cost the
Company would incur to extinguish the liability. The Company is not required to
estimate the fair value of its liabilities under other contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement No.
107:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1997 1996
------------------------------ ----------------------------
CARRYING FAIR CARRYING
VALUE VALUE VALUE FAIR VALUE
------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Held for investment $ 522,411 $ 541,332 $ 562,283 $ 574,338
Available for sale 1,286,169 1,286,169 1,128,587 1,128,587
Equity securities 51,268 51,268 79,786 79,786
Mortgage loans on real estate 253,093 265,059 235,331 245,125
Policy loans 90,052 97,712 88,940 88,940
Other long-term investments 9,989 9,587 22,157 21,671
Cash and short-term investments 25,531 25,531 63,827 63,827
Securities and indebtedness of related parties 5,451 5,829 11,658 12,292
Assets held in separate accounts 138,409 138,409 79,043 79,043
LIABILITIES
Future policy benefits $ 782,933 $ 767,030 $ 744,369 $ 730,272
Other policyholders' funds 195,330 195,330 186,535 186,535
Liabilities related to separate accounts 138,409 138,409 79,043 79,043
</TABLE>
4. REINSURANCE AND POLICY PROVISIONS
LIFE INSURANCE OPERATIONS
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers. Reinsurance coverages
for life insurance vary according to the age and risk classification of the
insured with retention limits ranging up to $0.5 million of coverage per
individual life. The Company does not use financial or surplus relief
reinsurance. Life insurance in force ceded totaled $663.4 million (5.1% of total
life insurance in force) at December 31, 1997 and $594.9 million (4.9% of total
life insurance in force) at December 31, 1996.
76
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
Reinsurance contracts do not relieve the Company of its obligations to its
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company's life insurance
subsidiaries would be liable for these obligations, and payment of these
obligations could result in losses to the Company. To limit the possibility of
such losses, the Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk.
No allowance for uncollectible amounts has been established against the
Company's asset for reinsurance recoverable since none of the receivables are
deemed to be uncollectible. Insurance premiums and product charges have been
reduced by $3.7 million, $3.4 million and $3.3 million and insurance benefits
have been reduced by $2.9 million, $4.0 million and $1.7 million during the
years ended December 31, 1997, 1996 and 1995, respectively, as a result of
cession agreements. The amount of reinsurance assumed is not significant.
Unpaid claims on accident and health policies (entirely disability income
products) include amounts for losses and related adjustment expense and are
estimates of the ultimate net costs of all losses, reported and unreported.
These estimates are subject to the impact of future changes in claim severity,
frequency and other factors. The activity in the liability for unpaid claims and
related adjustment expense, net of reinsurance, is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Unpaid claims liability, net of related
reinsurance, at beginning of year $ 13,812 $ 13,899 $ 10,494
Add:
Provision for claims occurring in the current
year 5,829 4,737 5,011
Increase (decrease) in estimated expense for
claims occurring in the prior years 2,236 (371) 2,357
--------------------------------
Incurred claim expense during the current year 8,065 4,366 7,368
Deduct expense payments for claims occurring
during:
Current year 1,692 1,681 2,109
Prior years 2,564 2,772 1,854
--------------------------------
4,256 4,453 3,963
--------------------------------
Unpaid claims liability, net of related
reinsurance, at end of year 17,621 13,812 13,899
Active life reserve 15,832 15,376 14,614
--------------------------------
Net accident and health reserves 33,453 29,188 28,513
Reinsurance ceded 1,721 1,483 934
--------------------------------
Gross accident and health reserves $ 35,174 $ 30,671 $ 29,447
--------------------------------
--------------------------------
</TABLE>
Reserves for unpaid claims are developed using industry mortality and morbidity
data. One year development on prior year reserves represents Company experience
being more or less favorable than that of the industry. Over time, the Company
expects its experience with respect to disability income business to be
comparable to that of the industry. A certain level of volatility in development
is inherent in these reserves since the underlying block of business is
relatively small.
PROPERTY-CASUALTY OPERATIONS
Utah Insurance is a participant with Farm Bureau Mutual Insurance Company and
South Dakota Farm Bureau Mutual Insurance Company, another affiliate, in a
reinsurance pooling agreement (the Farm Bureau Mutual pool). Under the terms of
the agreement, Utah Insurance and South Dakota Farm Bureau Mutual Insurance
Company cede to Farm Bureau Mutual Insurance Company all of their insurance
business and assume back from Farm Bureau Mutual Insurance Company an amount
equal to their participation in the pooling agreement. Also, losses, loss
adjustment expenses, and other underwriting and administrative expenses are
prorated among the companies on the basis of their participation in the pooling
agreement. For the year ended December 31, 1995, Utah Insurance's participation
in the reinsurance pool was 8%.
77
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
Property-casualty premiums earned and losses and loss adjustment expenses
incurred, reflect the following reinsurance amounts during the year ended
December 31, 1995 (dollars in thousands):
<TABLE>
<S> <C>
PREMIUMS EARNED
Direct premiums written $ 26,244
Assumed from non-affiliates 5
Ceded to non-affiliates (615)
Assumed from Farm Bureau Mutual pool 18,851
Ceded to Farm Bureau Mutual pool (25,634)
---------
Net premiums written 18,851
Increase in reserve for unearned premiums, net of
reinsurance (150)
Increase in accrued retrospective premiums 8
---------
Total premiums earned $ 18,709
---------
---------
LOSSES AND LOSS ADJUSTMENT EXPENSES INCURRED
Direct losses and loss adjustment expenses paid $ 18,532
Net ceded to non-affiliates 91
Assumed from Farm Bureau Mutual pool 13,030
Ceded to Farm Bureau Mutual pool (18,623)
---------
Net losses and loss adjustment expenses paid 13,030
Increase in losses and loss adjustment expense
reserves, net of reinsurance 591
---------
Total losses and loss adjustment expenses incurred $ 13,621
---------
---------
</TABLE>
The difference between premiums on a written and on an earned basis is not
significant.
The activity in the reserves on property-casualty policies, net of reinsurance
and salvage and subrogation recoverables, is summarized as follows during the
year ended December 31, 1995 (dollars in thousands):
<TABLE>
<S> <C>
Reserves on property-casualty policies (gross),
beginning of year $ 28,828
Less reinsurance recoverable on unpaid losses and
loss adjustment expenses, beginning of year (16,646)
---------
Reserve for losses and loss adjustment expenses,
net of related reinsurance, beginning of year 12,182
Add:
Provision for losses and loss adjustment
expenses for claims occurring in the current
year 14,529
Decrease in estimated losses and loss adjustment
expenses for claims occurring in the prior
years (908)
---------
Incurred losses and loss adjustment expenses
during the current year 13,621
Deduct loss and loss adjustment expense payments
for claims occurring during:
Current year (7,678)
Prior years (5,351)
---------
(13,029)
---------
Reserve for losses and loss adjustment expenses,
net of related reinsurance, end of year 12,774
Reinsurance recoverables on unpaid losses and loss
adjustment expenses, end of year 17,210
Transfer to parent as part of dividend of Utah
Farm Bureau Insurance Company (29,984)
---------
Reserves on property-casualty policies (gross),
end of year $ --
---------
---------
</TABLE>
5. INCOME TAXES
The Company files a consolidated federal income tax return with FBL Financial
Group, Inc. and a majority of its subsidiaries. FBL Financial Group, Inc. and
its direct and indirect subsidiaries included in the consolidated federal income
tax return each report current income tax expense as allocated under a
consolidated tax allocation agreement.
78
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Generally, this allocation results in profitable companies recognizing a tax
provision as if the individual company filed a separate return and loss
companies recognizing benefits to the extent their losses contribute to reduce
consolidated taxes. The companies file separate state income tax returns.
Deferred income taxes have been established based upon the temporary differences
between the financial statement and income tax bases of assets and liabilities
within each entity. The reversal of the temporary differences will result in
taxable or deductible amounts in future years when the related asset or
liability is recovered or settled.
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes provided in consolidated statements of
income on:
Income before minority interest in earnings of
subsidiaries and equity income:
Current $ 36,828 $ 28,400 $ 13,278
Deferred (5,249) 5,756 14,013
--------------------------------
31,579 34,156 27,291
Equity income:
Current 951 1,674 (212)
Deferred 77 554 1,013
--------------------------------
1,028 2,228 801
Taxes provided in consolidated statement of
changes in stockholder's equity:
Change in net unrealized investment
gains/losses--deferred 6,672 (4,211) 24,435
Adjustment resulting from capital transaction of
equity investee-- deferred -- 2,617 --
--------------------------------
6,672 (1,594) 24,435
--------------------------------
$ 39,279 $ 34,790 $ 52,527
--------------------------------
--------------------------------
</TABLE>
The effective tax rate on income before income taxes, minority interest in
earnings of subsidiaries and equity income is different from the prevailing
federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
----------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes, minority interest in
earnings of subsidiaries and equity income $ 93,245 $ 103,682 $ 76,475
----------------------------------
----------------------------------
Income tax at federal statutory rate (35%) $ 32,636 $ 36,289 $ 26,766
Tax effect (decrease) of:
Tax-exempt interest income (323) (383) (574)
Tax-exempt dividend income (1,148) (1,246) (798)
State income taxes 39 242 1,337
Other items 375 (746) 560
----------------------------------
Income tax expense $ 31,579 $ 34,156 $ 27,291
----------------------------------
----------------------------------
</TABLE>
The Internal Revenue Service (IRS) has examined the federal income tax returns
of FBL Financial Group, Inc. for the tax years through 1994 and FBL Financial
Group, Inc. has reached a tentative settlement with the IRS's Appeals Division
for tax years 1988 through 1994. The settlement is subject to approval of the
Joint Committee on Taxation. Management believes that any settlement will not
have a material impact on the Company's financial statements.
79
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Fixed maturity and equity securities $ 25,247 $ 17,265
Deferred policy acquisition costs 46,944 44,307
Deferred investment gains -- 10,551
Other 14,236 13,437
-----------------------
86,427 85,560
Deferred income tax assets:
Future policy benefits (21,320) (22,304)
Accrued dividends (3,273) (2,997)
Accrued pension costs (9,092) (10,082)
Other (7,619) (6,367)
-----------------------
(41,304) (41,750)
-----------------------
Deferred income tax liability $ 45,123 $ 43,810
-----------------------
-----------------------
</TABLE>
Prior to 1984, a portion of current income of the Company was not subject to
current income taxation, but was accumulated, for tax purposes, in a memorandum
account designated as "policyholders' surplus account". The aggregate
accumulation in this account at December 31, 1997 was $11.1 million. Should the
policyholders' surplus account of the Company exceed the limitation prescribed
by federal income tax law, or should distributions be made by the Company to its
stockholder in excess of $445.3 million, such excess would be subject to federal
income taxes at rates then effective. Deferred income taxes of $3.9 million have
not been provided on amounts included in this memorandum account since the
Company contemplates no action and can foresee no events that would create such
a tax.
Deferred income taxes were also reported on equity income. These taxes arise
from the recognition of income and losses differently for purposes of filing
federal income tax returns than for financial reporting purposes.
6. CREDIT ARRANGEMENT
As an investor in the Federal Home Loan Bank (FHLB), the Company has the right
to borrow up to $43.9 million from the FHLB as of December 31, 1997. As of
December 31, 1997 and 1996, the Company had no outstanding debt under this
credit arrangement.
7. RETIREMENT AND COMPENSATION PLANS
The Company participates with several affiliates in various defined benefit
plans covering substantially all employees. The benefits of these plans are
based primarily on years of service and employees' compensation. The Company and
affiliates have adopted a policy of allocating the net periodic pension cost of
the plans between themselves generally on a basis of time incurred by the
respective employees for each employer. Such allocations are reviewed annually.
Pension expense aggregated $4.2 million, $5.9 million and $7.9 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
Prior to January 1, 1996, the Company provided benefits to agents of the Company
and certain of its affiliates through the Agents' Career Incentive Plan. Company
contributions to the plan were based upon the individual agent's earned
commissions and varied based upon the overall production level and the number of
years of service. Company contributions charged to expense with respect to this
plan during the year ended December 31, 1995 were $1.4 million. During 1996, in
conjunction with a restructuring of the agents' compensation program,
contributions to this plan were discontinued.
80
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
The Company has established deferred compensation plans for certain key current
and former employees and has certain other benefit plans which provide for
retirement and other benefits. These plans have been accrued or funded as deemed
appropriate by management of the Company.
Certain of the assets related to these plans are on deposit with the Company and
amounts relating to these plans are included in the financial statements herein.
In addition, certain amounts included in the policy liabilities for interest
sensitive products relate to deposit administration funds maintained by the
Company on behalf of affiliates offering substantially the same benefit programs
as the Company.
In addition to benefits offered under the aforementioned benefit plans, the
Company and several other affiliates sponsor a plan that provides group term
life insurance benefits to retired full-time employees who have worked ten years
and attained age 55 while in service with the Company. Postretirement benefit
expense is allocated in a manner consistent with pension expense discussed
above. Postretirement pension expense aggregated $0.1 million for each of the
years ended December 31, 1997, 1996 and 1995, respectively.
8. STATUTORY INFORMATION
STATUTORY LIMITATIONS ON DIVIDENDS
The ability of the Company to pay dividends to the parent company is restricted
because prior approval of insurance regulatory authorities is required for
payment of dividends to the stockholder which exceed an annual limitation.
During 1998 the Company could pay dividends to the parent company of
approximately $37.8 million without prior approval of insurance regulatory
authorities.
STATUTORY ACCOUNTING POLICIES
The financial statements of the Company included herein differ from related
statutory-basis financial statements principally as follows: (a) the bond
portfolio is segregated into held-for-investment (carried at amortized cost) and
available-for-sale (carried at fair value) classifications rather than generally
being carried at amortized cost; (b) future policy benefit reserves for
participating traditional life insurance products are based on net level premium
methods and guaranteed cash value assumptions which may differ from statutory
reserves; (c) future policy benefit reserves on certain interest sensitive
products are based on full account values, rather than discounting methodologies
utilizing statutory interest rates; (d) deferred income taxes are provided for
the difference between the financial statement and income tax bases of assets
and liabilities; (e) net realized gains or losses attributed to changes in the
level of interest rates in the market are recognized as gains or losses in the
statement of income when the sale is completed rather than deferred and
amortized over the remaining life of the fixed maturity security or mortgage
loan; (f) declines in the estimated realizable value of investments are charged
to the statement of income when such declines are judged to be other than
temporary rather than through the establishment of a formula-determined
statutory investment reserve (carried as a liability), changes in which are
charged directly to surplus; (g) agents' balances and certain other assets
designated as "non-admitted assets" for statutory purposes are reported as
assets rather than being charged to surplus; (h) revenues for interest sensitive
products consist of policy charges for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed rather than premiums received; (i) pension income or expense is
recognized in accordance with Statement No. 87, "Employers' Accounting for
Pensions" rather than in accordance with rules and regulations permitted by the
Employee Retirement Income Security Act of 1974; (j) the financial statements of
subsidiaries are consolidated with those of the Company; and (k) assets and
liabilities are restated to fair values when a change in ownership occurs that
is accounted for as a purchase, with provisions for goodwill and other
intangible assets, rather than continuing to be presented at historical cost.
Total statutory capital and surplus of the Company was $291.3 million at
December 31, 1997 and $280.6 million at December 31, 1996. Net income for the
Company determined in accordance with statutory accounting practices was $73.5
million in 1997, $75.0 million in 1996 and $47.4 million in 1995.
81
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STATUTORY INFORMATION (CONTINUED)
The Company's insurance subsidiaries reported the following statutory amounts to
regulatory agencies, after appropriate elimination of intercompany accounts:
<TABLE>
<CAPTION>
CAPITAL AND NET INCOME
SURPLUS YEAR ENDED DECEMBER
DECEMBER 31, 31,
-------------- ----------------------
1997 1996 1997 1996 1995
--------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Life insurance companies $13,111 $3,352 $ 56 $ 151 $ 92
Property-casualty insurance subsidiary -- -- -- -- 1,454
--------------------------------------
Total $13,111 $3,352 $ 56 $ 151 $1,546
--------------------------------------
--------------------------------------
</TABLE>
The National Association of Insurance Commissioners (NAIC) is in the process of
codifying statutory accounting practices (Codification). Codification will
likely change, to some extent, prescribed statutory accounting practices and may
result in changes to the accounting practices that the Company's insurance
subsidiaries use to prepare their statutory-basis financial statements.
Codification, which is expected to be approved by the NAIC in 1998, will require
adoption by the various state insurance departments before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective the
state of domicile must adopt Codification as the prescribed basis of accounting
on which domestic insurers must report their statutory-basis results. At this
time it is unclear whether the state of Iowa will adopt Codification.
9. MANAGEMENT AND OTHER AGREEMENTS
The Company shares certain office facilities and services with the Iowa Farm
Bureau Federation and its affiliated companies. These expenses are allocated by
the Company on the basis of cost and time studies that are updated annually and
consist primarily of salaries and related expenses, travel, and occupancy costs.
In addition, prior to January 1, 1996, the Company participated in a management
agreement with Farm Bureau Management Corporation, a wholly-owned subsidiary of
the Iowa Farm Bureau Federation. Under this agreement, Farm Bureau Management
Corporation provided general business, administration and management services to
the Company. During 1996, the Company's parent assumed responsibility for
providing a majority of these services for itself as well as Farm Bureau
Management Corporation and other affiliates. During the years ended December 31,
1997, 1996 and 1995, the Company incurred expenses under these contracts of $0.8
million, $2.4 million and $3.7 million, respectively.
The Company has equipment and auto lease agreements with FBL Leasing Services,
Inc., a wholly-owned subsidiary of FBL Financial Services, Inc. The Company
incurred expenses totaling $1.7 million during 1997 and $0.7 million during the
seven month period ended December 31, 1996 (period in 1996 subsequent to the
dividend of FBL Financial Services, Inc. to FBL Financial Group, Inc.) under
these agreements.
FBL Investment Advisory Services, Inc., a wholly-owned subsidiary of FBL
Financial Services, Inc., provides investment advisory services to the Company.
The related fees are based on the level of assets under management plus certain
out-of-pocket expenses. The Company incurred expenses totaling $4.1 million
during 1997 and $1.6 million during the seven month period ended December 31,
1996 relating to these services.
Effective January 1, 1996, the Company entered into marketing agreements with
the property-casualty companies operating within its marketing territory,
including Farm Bureau Mutual Insurance Company and other affiliates. Under the
marketing agreements, the property-casualty companies assumed responsibility for
development and management of the Company's agency force for a fee equal to a
percentage of commissions on first year life insurance premiums and annuity
deposits. During the years ended December 31, 1997 and 1996, the Company paid
$3.3 million and $2.8 million, respectively, to the property-casualty companies
under these arrangements.
The Company is licensed by the Iowa Farm Bureau Federation to use the "Farm
Bureau" and "FB" designations in Iowa. In connection with this license,
royalties of $0.5 million, $0.4 million and $0.3 million were paid to the Iowa
Farm Bureau Federation for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company has
82
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANAGEMENT AND OTHER AGREEMENTS (CONTINUED)
similar arrangements with Farm Bureau organizations in other states in its
market territory. Total royalties paid to Farm Bureau organizations other than
the Iowa Farm Bureau Federation were $0.4 million in 1997 and $0.3 million in
1996 and 1995.
10. COMMITMENTS AND CONTINGENCIES
IMPACT OF YEAR 2000 (UNAUDITED)
Many of the Company's computer programs were originally written using two digits
rather than four to define a particular year. As a result, these computer
programs have time-sensitive software that may recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions to operations, including, but not limited
to, a temporary inability to process transactions, send premium notices and
calculate policy reserves and accruals.
During 1997, the Company completed a comprehensive assessment of the Year 2000
issue and developed a plan to address the issue in a timely manner. The Company
is currently in the process of modifying or replacing portions of its software
to help ensure that its computer systems will function properly when using
date-sensitive information. The testing of these modifications is also currently
being performed. Furthermore, the Company has initiated formal communications
with all of its significant vendors to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues.
The Company has and will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. The
Company anticipates completing the Year 2000 project no later than December 31,
1998, and prior to any anticipated impact on its operating systems. The total
incremental cost of the Year 2000 project (those costs which the Company would
not have incurred had the Year 2000 issue not existed) is estimated to be $1.4
million and is being funded through operating cash flows. Year 2000 modification
costs incurred and charged to expense during 1997 totaled $0.6 million. It is
anticipated the project costs to be charged to expense during 1998 will total
approximately $0.8 million and that these expenses will primarily be incurred
during the first three quarters of the year.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantees that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
OTHER
In the normal course of business, the Company may be involved in litigation
where amounts are alleged that are substantially in excess of contractual policy
benefits or certain other agreements. At December 31, 1997, management is not
aware of any claims for which a material loss is reasonably possible.
The Company has extended a line of credit in the amount of $15.0 million to FBL
Leasing Services, Inc., a wholly-owned subsidiary of FBL Financial Group, Inc.
Interest on this agreement is equal to the prime rate of a national bank and
payable monthly. At December 31, 1997, there was $4.8 million outstanding on the
line of credit. No amounts were outstanding at December 31, 1996.
The Company has extended a line of credit in the amount of $0.5 million to
Western Computer Services, Inc., an affiliate. Interest on this agreement is
equal to the prime rate of a national bank and payable monthly. At December 31,
1997, there was $0.1 million outstanding on the line of credit. No amounts were
outstanding at December 31, 1996.
The Company has guaranteed the payment of principal and interest on notes
totaling $24.5 million payable by FBL Leasing Services, Inc. to a bank. The
notes are due August 1999 and are collateralized by lease agreements primarily
with affiliates. The Company believes no losses will be recognized in connection
with this guarantee due to the credit worthiness of the lessees and the value of
the underlying collateral.
83
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In connection with an investment in a limited real estate partnership in 1996,
the Company has agreed to pay any cash flow deficiencies of a medium-sized
shopping center owned by the partnership through January 1, 2001. At December
31, 1997, the Company assessed the probability and amount of future cash flows
from the property and determined that no accrual was necessary. At December 31,
1997 and 1996, the limited partnership had a $5.4 million mortgage loan, secured
by the shopping center, with Farm Bureau Mutual Insurance Company.
11. SUBSEQUENT EVENT (UNAUDITED)
During the first quarter of 1998, the Company's Board of Directors approved a
transaction whereby the Company will transfer its home office properties to its
parent in the form of a dividend. The fair value of the building is $45.7
million and will serve as the basis of the transaction. The Company will lease a
portion of the properties back from its parent under a sublease arrangement. A
majority of the gain on the dividend (approximately $21.0 million) will be
deferred by the Company and amortized over the term of the operating lease. The
transaction is structured as a tax-free exchange of a real estate subsidiary and
is expected to close in March 1998. The dividend has been approved by the
Insurance Division, Department of Commerce, of the State of Iowa.
84
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B.
(b) Exhibits
<TABLE>
<C> <C> <S>
(1) *Certified resolution of the board of directors of Farm Bureau Life Insurance Company (the
"Company") establishing Farm Bureau Life Annuity Account (the "Account").
(2) Not Applicable.
(3) *Form of Principal Underwriting Agreement
(4) (a) Contract Form.(1)
(5) (a) Contract Application.(2)
(6) *(a) Certificate of Incorporation of the Company.
*(b) By-Laws of the Company.
(7) Not Applicable.
(8) *Participation agreement between the registrant and the Company.
(9) *Opinion and Consent of Stephen M. Morain, Esquire.
(10) *(a) Consent of Sutherland, Asbill & Brennan LLP
*(b) Consent of Ernst & Young LLP.
*(c) Opinion and Consent of Christopher G. Daniels, FSA, MSAA, Life Product Development and
Pricing Vice President.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) *Powers of Attorney.
</TABLE>
- ------------------------
* Attached as an exhibit.
(1) Incorporated herein by reference to Exhibit (4)(b) in post-effective
amendment No. 4 to this registration statement (File No. 33-67538) filed on
May 1, 1997.
(2)Incorporated herein by reference to Exhibit (5)(b) in post-effective
amendment No. 4 to this registration statement (File No. 33-67538) filed on
May 1, 1997.
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
Incorporated herein by reference to pages 42 - 46 of the prospectus in
post-effective amendment number 12 to the Form S-6 registration statement (File
No. 33-12789) for certain variable life insurance contracts issued by the
Company filed with the Commission on May 1, 1998.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by FBL Financial Group, Inc. This Company and its
affiliates are described more fully in the prospectus included in this
registration statement. Various companies and other entities controlled by FBL
Financial Group, Inc., may therefore be considered to be under common control
with the registrant or the Company. Such other companies and entities, together
with the identity of the owners of their common stock (where applicable), are
set forth on the following diagram.
SEE ORGANIZATION CHART ON FOLLOWING PAGE
1
<PAGE>
FBL FINANCIAL GROUP, INC.
OWNERSHIP CHART
01/01/98
[CHART]
2
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 23, 1998 there were 5,717 owners of contracts.
ITEM 28. INDEMNIFICATION
Article XII of the Company's By-Laws provides for the indemnification by the
Company of any person who is a party or who is threatened to be made a party to
any threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Article
XII also provides for the indemnification by the Company of any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or another enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification will be made in respect of any claim,
issue, or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Company
unless and only to the extent that the court in which such action or suit was
brought determines upon application that, despite the adjudication of liability
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) EquiTrust Marketing Services, Inc. is the registrant's principal
underwriter and also serves as the principal underwriter of certain variable
life insurance policies and variable annuity contracts issued by 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.
(b) Officers and Directors of EquiTrust Marketing Services, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS AND OFFICES WITH THE COMPANY
- ------------------------------------------------------ ------------------------------------------------------------------------
<S> <C>
Stephen M. Morain General Counsel and Assistant Secretary, Iowa Farm Bureau Federation;
Senior Vice President, General Counsel and Director General Counsel, Secretary and Director, Farm Bureau Management
Corporation; Senior Vice President, General Counsel and Director, FBL
Financial Group, Inc.; Senior Vice President and General Counsel, Farm
Bureau Life Insurance Company and other affiliates of the foregoing.
Holds various positions with affiliates of the foregoing. Director,
Computer Aided Design Software, Inc., and Iowa Business Development
Finance Corporation Chairman, Edge Technologies, Inc.
William J. Oddy Chief Operating Officer, FBL Financial Group, Inc., Farm Bureau Life
Chief Operating Officer and Director Insurance Company, Western Farm Bureau Life Insurance Company and other
affiliates of the foregoing. Holds various positions with affiliates of
the foregoing.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS AND OFFICES WITH THE COMPANY
- ------------------------------------------------------ ------------------------------------------------------------------------
<S> <C>
Dennis M. Marker Investment Vice President, Administration, FBL Financial Group, Inc.
Investment Vice President, Administration, Secretary Holds various positions with affiliates of the foregoing.
and Director
Thomas R. Gibson Chief Executive Officer and Director, FBL Financial Group, Inc.; Chief
Chief Executive Officer and Director Executive Officer, Farm Bureau Life Insurance Company, Western Farm
Bureau Life Insurance Company and other affiliates of the foregoing.
Holds various positions with affiliates of the foregoing.
Timothy J. Hoffman Chief Property/Casualty Officer, FBL Financial Group, Inc.; Vice
Vice President and Director President, Farm Bureau Life Insurance Company, Western Farm Bureau Life
Insurance Company and other affiliates of the foregoing. Holds various
positions with affiliates of the foregoing.
James W. Noyce Chief Financial Officer, Farm Bureau Life Insurance Company, FBL
Chief Financial Officer, Treasurer and Director Financial Group, Inc., Western Farm Bureau Life Insurance Company and
other affiliates of the foregoing. Holds various positions with
affiliates of the foregoing.
Thomas E. Burlingame Vice President - Associate General Counsel, FBL Financial Group, Inc.
Director Holds various positions with affiliates of the foregoing.
F. Walter Tomenga Vice President - Corporate Affairs and Marketing Services, FBL Financial
Director Group, Inc. Holds various positions with affiliates of the foregoing.
Lynn E. Wilson Vice President - Life Sales, FBL Financial Group, Inc. Holds various
President and Director positions with affiliates of the foregoing.
Lou Ann Sandburg Vice President - Investments and Assistant Treasurer, Farm Bureau Life
Vice President, Investments Insurance Company, FBL Financial Group, Inc., Western Farm Bureau Life
Insurance Company and other affiliates of the foregoing. Holds various
positions with affiliates of the foregoing.
James P. Brannen Tax and Investment Accounting Vice President, FBL Financial Group, Inc.
Tax and Investment Accounting Vice President Holds various positions with affiliates of the foregoing.
Sue A. Cornick Market Conduct and Mutual Funds Vice President and Assistant Secretary,
Market Conduct and Mutual Funds Vice President and EquiTrust Investment Management Services, Inc., EquiTrust Money Market
Assistant Secretary Fund, Inc., EquiTrust Series Fund, Inc. and EquiTrust Variable
Insurance Series Fund.
Kristi Rojohn Assistant Mutual Funds Manager and Assistant Secretary, EquiTrust
Assistant Mutual Funds Manager and Assistant Secretary Investment Management Services, Inc.; Assistant Secretary, EquiTrust
Money Market Fund, Inc., EquiTrust Series Fund, Inc. and EquiTrust
Variable Insurance SeriesFund.
Elaine A. Followwill Compliance Assistant and Assistant Secretary, EquiTrust Investment
Compliance Assistant and Assistant Secretary Management Services, Inc.; Assistant Secretary, EquiTrust Money Market
Fund, Inc., EquiTrust Series Fund, Inc. and EquiTrust Variable
Insurance Series Fund
Roger F. Grefe Investment Management Vice President, FBL Financial Group, Inc. and
Investment Management Vice President EquiTrust Investment Management Services, Inc.
Robert Rummelhart Fixed Income Vice President, FBL Financial Group, Inc. and EquiTrust
Fixed Income Vice President Investment Management Services, Inc.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS AND OFFICES WITH THE COMPANY
- ------------------------------------------------------ ------------------------------------------------------------------------
<S> <C>
Charles T. Happel Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
Laura Kellen Beebe Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
</TABLE>
- ------------------------
* The principal business address of all of the persons listed above is 5400
University Avenue, West Des Moines, Iowa 50266.
ITEM 30. LOCATION BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be kept by
Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are
maintained by the Company at 5400 University Avenue, West Des Moines, Iowa
50266.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this registration
statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective amendment
to this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for as long as purchase payments under the contracts offered
herein are being accepted.
(b) The registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a statement of additional information, or (2) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove and send to the Company for a statement
of additional information.
(c) The registrant undertakes to deliver any statement of additional
information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request to the Company at the
address or phone number listed in the prospectus.
(d) The Company represents that in connection with its offering of the
contracts as funding vehicles for retirement plans meeting the requirements of
Section 403(b) of the Internal Revenue Code of 1986, it is relying on a no-
action letter dated November 28, 1988, to the American Council of Life Insurance
(Ref. No. IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of the
Investment Company Act of 1940, and that paragraphs numbered (1) through (4) of
that letter will be complied with.
(e) The Company represents that the aggregate charges under the Contracts
are reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by the Company.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Farm Bureau Life Insurance Company certifies
that this amendment has met all the requirements for effectiveness pursuant to
Paragraph (b) of Rule 485 and has duly caused this Post-Effective Amendment No.
5 to the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized in the City of West Des Moines, State of Iowa, on the
27th day of April, 1998.
Farm Bureau Life Insurance Company
Farm Bureau Life Annuity Account
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------
Edward M. Wiederstein
PRESIDENT
Farm Bureau Life Insurance Company
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 5 to the Registration Statement has been signed
below by the following Directors and Officers of Farm Bureau Life Insurance
Company on the date indicated.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ EDWARD M. WIEDERSTEIN President and Director
- ----------------------------------- [Principal Executive April 27, 1998
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ----------------------------------- [Principal Financial April 27, 1998
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ----------------------------------- [Principal Accounting April 27, 1998
James W. Noyce Officer]
- ----------------------------------- Vice President and April 27, 1998
Craig A. Lang* Director
- ----------------------------------- Director April 27, 1998
Kenneth R. Ashby*
- ----------------------------------- Director April 27, 1998
Al Christopherson*
- ----------------------------------- Director April 27, 1998
Ernest A. Glienke*
- ----------------------------------- Director April 27, 1998
Philip A. Hemesath*
- ----------------------------------- Director April 27, 1998
Craig D. Hill*
- ----------------------------------- Director April 27, 1998
Daniel L. Johnson*
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
<C> <S> <C>
- ----------------------------------- Director April 27, 1998
Richard G. Kjerstad*
- ----------------------------------- Director April 27, 1998
Lindsey D. Larsen*
- ----------------------------------- Director April 27, 1998
David R. Machacek*
- ----------------------------------- Director April 27, 1998
Donald O. Narigon*
- ----------------------------------- Director April 27, 1998
Bryce P. Neidig*
- ----------------------------------- Director April 27, 1998
Charles E. Norris*
- ----------------------------------- Director April 27, 1998
Keith R. Olsen*
- ----------------------------------- Director April 27, 1998
Bennett M. Osmonson*
- ----------------------------------- Director April 27, 1998
Howard D. Poulson*
- ----------------------------------- Director April 27, 1998
Sally A. Puttmann*
- ----------------------------------- Director April 27, 1998
Beverly L. Schnepel*
- ----------------------------------- Director April 27, 1998
F. Gary Steiner*
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Farm Bureau Life Annuity Account, has duly caused this Post-Effective Amendment
No. 5 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized in the City of West Des Moines, State of
Iowa, on the 27th day of April, 1998.
Farm Bureau Life Annuity Account
(Registrant)
By: Farm Bureau Life Insurance Company
(Depositor)
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------
Edward M. Wiederstein
PRESIDENT
Farm Bureau Life Insurance Company
*By /s/ STEPHEN M. MORAIN
----------------------------------
Stephen M. Morain
ATTORNEY-IN-FACT,
pursuant to Power of Attorney.
<PAGE>
BOARD OF DIRECTORS RESOLUTIONS
FARM BUREAU LIFE INSURANCE COMPANY
BE IT RESOLVED, That the Board of Directors of Farm Bureau Life Insurance
Company ("Company"), hereby establishes a separate account, pursuant to Iowa
Code Section 508A.1 (1985), designated "Farm Bureau Life Annuity Account"
(hereinafter "Annuity Account") for the following use and purposes, and subject
to such conditions as hereinafter set forth; and
FURTHER RESOLVED, That the Annuity Account is established for the purpose
of providing for the issuance by the Company of certain variable annuity
contracts ("Contracts"), and shall constitute a funding medium to support
reserves under such Contracts issued by the Company; and
FURTHER RESOLVED, That portion of the assets of the Annuity Account equal
to the reserves and other Contract liabilities with respect to such Account
shall not be chargeable with liabilities arising out of any other business the
Company may conduct; and
FURTHER RESOLVED, That the income, gains and losses, realized or
unrealized, from assets allocated to the Annuity Account shall, in accordance
with the Contracts, be credited to or charged against such Account without
regard to other income, gains, or losses of the Company; and
FURTHER RESOLVED, That the Annuity Account shall be divided into investment
subaccounts, each investment subaccount in the Annuity Account shall invest in
the shares of a mutual fund portfolio designated on the schedule page of the
Contract and net premiums under the Contracts shall be allocated to the eligible
portfolios in accordance with instructions received from owners of the
Contracts; and
FURTHER RESOLVED, That the Board of Directors expressly reserves the right
to add or remove any investment subaccount of the Annuity Account or substitute
one designated mutual fund for another as it may hereafter deem necessary or
appropriate;
FURTHER RESOLVED, That the President, the Senior Vice President and
Secretary-Treasurer, or the Vice President, Chief Financial Officer and
Assistant General Manager, and each of them, with full power to act without the
others, be, and they hereby are, severally authorized to invest such amount or
amounts of the Company's cash in the Annuity Account or in any investment
subaccount thereof as may be deemed necessary or appropriate to facilitate the
commencement of the Account's operations and/or to meet any minimum capital
requirements under the Investment Company Act of 1940 (the "1940 Act"); and
FURTHER RESOLVED, That the President, the Senior Vice President and
Secretary-Treasurer, or the Vice President, Chief Financial Officer and
Assistant General Manager, and each of them, with full power to act without the
others, be, and they hereby are, severally authorized to transfer cash from time
to time between the Company's general account and the
<PAGE>
Annuity Account as deemed necessary or appropriate and consistent with the terms
of the contracts; and
FURTHER RESOLVED, That the Board of Directors of the Company reserves the
right to change the designation of the Annuity Account hereafter to such other
designation as it may deem necessary or appropriate; and
FURTHER RESOLVED, That the President, the Senior Vice President and
Secretary-Treasurer, or the Vice President, Chief Financial Officer and
Assistant General Manager, and each of them, with full power to act without the
others, with such assistance from the Company's independent certified public
accountants, legal counsel and independent consultants or others as they may
require, be, and hereby are, severally authorized and directed to take all
action necessary to: (a) register the Annuity Account as a unit investment
trust under the 1940 Act; (b) register the Contracts in such amounts, which may
be an indefinite amount, as such officers of the Company shall from time deem
appropriate under the Securities Act of 1933 (the "1933 Act"); and (c) take all
other actions which are necessary in connection with the offering of the
Contracts for sale and the operation of the Annuity Account in order to comply
with the 1940 Act, the Securities Exchange Act of 1934, the 1933 Act, and other
applicable federal laws, including the filing of any amendments to registration
statements, any undertakings, and any applications for exemptions from the 1940
Act or other applicable federal laws as the officers of the Company shall deem
necessary or appropriate; and
FURTHER RESOLVED, That the President, the Senior Vice President and
Secretary-Treasurer, or the Vice President, Chief Financial Officer and
Assistant General Manager, and each of them, with full power to act without the
others, hereby are severally authorized and empowered to prepare, execute and
cause to be filed with the Securities and Exchange Commission on behalf of the
Annuity Account, and by the Company as sponsor and depositor, a Notification of
Registration on Form N-8A, a registration statement registering the Account as
an investment company under the 1940 Act and the Contracts under the 1933 Act,
and any and all amendments to the foregoing on behalf of the Annuity Account and
the Company and on behalf of and as attorneys-in-fact for the principal
executive officer and/ or the principal financial officer and/ or the principal
accounting officer and/ or any other officer of the Company; and
FURTHER RESOLVED, That Stephen M. Morain, Senior Vice President and General
Counsel, is duly appointed as agent for service under any such registration
statement, duly authorized to receive communications and notices from the
Securities and Exchange Commission with respect thereto; and
FURTHER RESOLVED, That the President, the Senior Vice President and
Secretary-Treasurer, or the Vice President, Chief Financial Officer and
Assistant General Manager, and each of them, with full power to act without the
others, hereby are severally authorized on behalf of the Annuity Account and on
behalf of the Company to take any and all action that each of them may deem
necessary or advisable in order to offer and sell the Contracts, including any
registrations, filings and qualifications both of the Company, its officers,
agents and employees, and of the Contracts, under the insurance and securities
laws of any of the states of the United States of America or other
jurisdictions, and in connection therewith to prepare, execute, deliver
<PAGE>
and file all such applications, reports, covenants, resolutions, applications
for exemptions, consents to service of process and other papers and instruments
as may be required under such laws, and to take any and all further action which
such officers or legal counsel of the Company may deem necessary or desirable
(including entering into whatever agreements and contracts may be necessary) in
order to maintain such registrations or qualifications for as long as the
officers or legal counsel deem it to be in the best interests of the Annuity
Account and the Company; and
FURTHER RESOLVED, That the President, the Senior Vice President and
Secretary-Treasurer, or the Vice President, Chief Financial Officer and
Assistant General Manager, and each of them, with full power to act without the
others, be, and they hereby are, severally authorized in the names and on behalf
of the Annuity Account and the Company to execute and file irrevocable written
consents on the part of the Annuity Account and of the Company to be used in
such states wherein such consents to service of process may be requisite under
the insurance or securities laws therein in connection with the registration or
qualification of the Contracts and to appoint the appropriate state official, or
such other person as may be allowed by insurance or securities laws, agent of
the Annuity Account and of the Company for the purpose of receiving and
accepting process; and
FURTHER RESOLVED, That the President, the Senior Vice President and
Secretary-Treasurer, or the Vice President, Chief Financial Officer and
Assistant General Manager, and each of them, with full power to act without the
others, be, and hereby are, severally authorized to establish procedures under
which the Company will provide voting rights for owners of the Contracts with
respect to securities owned by the Annuity Account; and
FURTHER RESOLVED, That the President, the Senior Vice President and
Secretary-Treasurer, or the Vice President, Chief Financial Officer and
Assistant General Manager, and each of them, with full power to act without the
others, are hereby severally authorized to execute such agreement or agreements
as deemed necessary and appropriate (i) with FBL Investment Advisory Services,
Inc. ("FBL") or other qualified entity under which FBL or such other entity will
be appointed principal underwriter and distributor for the Contracts, (ii) with
one or more qualified banks or other qualified entities to provide
administrative and/ or custody services in connection with the establishment and
maintenance of the Annuity Account and the design, issuance, and administration
of the Contracts, and (iii) with the designated mutual funds and/ or the
principal underwriter and distributor of those funds for the purchase and
redemption of fund shares.
FURTHER RESOLVED, That the President, the Senior Vice President and
Secretary-Treasurer, of the Vice President, Chief Financial Officer and
Assistant General Manager, and each of them, with full power to act without the
others, are hereby severally authorized to execute and deliver such agreements
and other documents and do such acts and things as each of them may deem
necessary or desirable to carry out the foregoing resolutions and the intent and
purposes thereof.
<PAGE>
UNDERWRITING AGREEMENT
UNDERWRITING AGREEMENT made this 13th day of December 1993, by and between
Farm Bureau Life Insurance Company ("Farm Bureau"), an Iowa corporation, on its
own behalf and on behalf of Farm Bureau Life Annuity Account ("Annuity Account")
and FBL Marketing Services, Inc. ("FBL Marketing"), a Delaware corporation.
WITNESSETH:
WHEREAS, Farm Bureau has established and maintains the Annuity Account, a
segregated investment account, pursuant to the laws of the State of Iowa for the
purpose of selling flexible premium deferred variable annuity contracts (the
"Contracts"), to commence after the effectiveness of the registration statement
for the Contracts as filed with Securities and Exchange Commission (the "SEC")
on Form N-4 pursuant to the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, the Annuity Account is registeed as a unit investment trust under
the Investment Company Act of 1940, as amended (the "1940 Act:"); and
WHEREAS, the FBL Marketing is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member of the National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the parties desire to have FBL Marketing act as principal
underwriter for the Account and assume such supervisory responsibility as is
required by federal and state securities law and applicable requirements of the
NASD for the securities activities of any "person associated" (as that term is
defined in Section 3(a)(18) of the 1934 Act) with FBL Marketing, including Farm
Bureau personnel, and engaged directly or indirectly in Farm Bureau's variable
annuity operations (the "associated persons"); and
WHEREAS, Farm Bureau and the Annuity Account desire to have the Contracts
sold and distributed through FBL Marketing, and FBL Marketing is willing to sell
and distribute such Contracts, under the terms stated herein.
NOW THEREFORE, the parties hereto agree as follows:
1. DISTRIBUTOR AND PRINCIPAL UNDERWRITER
Farm Bureau grants to FBL Marketing the right to be, and FBL Marketing
agrees to serve as, distributor and principal underwriter of the Contracts
during the term of this Agreement. FBL Marketing agrees to use its best efforts
to solicit applications for the Contracts, and to undertake to provide sales
services relative to the Contracts and otherwise to perform all duties and
functions which are necessary and proper for the distribution of the Contracts.
<PAGE>
2. PREMIUM PAYMENTS
All premium payments or other monies payable for the Contracts shall be
paid or remitted in full by or on behalf of contractowners directly to Farm
Bureau or its designated servicing agent together with such applications, forms
and other documentation as may be required by Farm Bureau. Checks or money
orders in payment of premiums or other monies payable shall be drawn to the
order of "Farm Bureau Life Insurance Company." Farm Bureau will retain all such
payments except to the extent such payments are allocated to the Annuity
Account.
3. SALES IN ACCORDANCE WITH CURRENT PROSPECTUS
FBL Marketing agrees to offer the Contracts for sale in accordance with the
current prospectus therefor. FBL Marketing is not authorized to give any
information or to make any representations concerning the Contracts other than
those contained in the current prospectus therefor filed with the SEC or in
such sales literature as may be developed and authorized by Farm Bureau.
4. PROSPECTUSES AND PROMOTIONAL MATERIALS
On behalf of the Annuity Account, Farm Bureau shall furnish FBL Marketing
with copies of all prospectuses, financial statements, and other documents which
FBL Marketing reasonably requests for use in connection with the distribution
of the Contracts. Farm Bureau shall have responsibility for preparing, filing
and printing all required prospectuses and/ or registration statements in
connection with the Contracts and the payment of all related expenses. FBL
Marketing and Farm Bureau shall cooperate fully in the design, draft, and review
of sales promotion materials and the preparation of individual sales proposals
related to the sale of the Contracts. FBL Marketing shall not use any such
materials not provided or approved by Farm Bureau.
5. COMPLIANCE WITH APPLICABLE LAWS
FBL Marketing represents that it is duly registered as a broker-dealer
under the 1934 Act and is a member in good standing of the NASD and, to the
extent necessary to offer the Contracts, shall be duly registered or otherwise
qualified under the securities laws of any state or other jurisdiction. FBL
Marketing shall be responsible for carrying out its sales and underwriting
obligation hereunder in continued compliance with the NASD Rules of Fair
Practice and federal and state securities laws and regulations. Without
limiting the generality of the foregoing, FBL Marketing agrees that it shall be
fully responsible for:
(a) ensuring that no person shall offer or sell the Contracts on its behalf
until such person is duly registered as a representative of FBL Marketing,
duly licensed and appointed by Farm Bureau under applicable state insurance
law, and appropriately licensed, registered or otherwise qualified to offer
and sell such Contracts under the federal securities laws and any applicable
securities laws of each state or other jurisdiction in which such Contracts
may be
<PAGE>
lawfully sold, in which Farm Bureau is licensed to sell the Contracts and
in which such persons shall offer or sell the Contracts; and
(b) training, supervision, and control of all such persons for purposes of
complying on a continuous basis with the NASD Rules of Fair Practice and
with federal and state securities laws requirements applicable in connection
with the offering and sale of the Contracts. In this connection FBL
Marketing shall:
(i) conduct such training (including the preparation and utilization of
training materials) as in the opinion of FBL Marketing is necessary to
accomplish the purposes of this Agreement;
(ii) establish and implement reasonable written procedures for supervision
of sales practices of associated persons or brokers selling the
Contracts;
(iii) establish branch offices and offices of supervisory jurisdiction, as
necessary or appropriate; and
(iv) take reasonable steps to ensure that the various sales representatives
associated with it shall not make recommendations to an applicant to
purchase a Contract in the absence of reasonable grounds to believe
that the purchase of the Contract is suitable for such applicant.
While not limited to the following, a determination of suitability
shall be based on information furnished to a sales representative
after reasonable inquiry of such applicant concerning the applicant's
insurance and investment objectives, financial situation and needs,
and the likelihood of whether the applicant will persist with the
Contract for such a period of time that Farm Bureau's acquisition
costs are amortized over a reasonable period of time.
6. SALES AGREEMENTS
FBL Marketing is hereby authorized to enter into separate written
agreements, on such terms and conditions as FBL Marketing may determine not
inconsistent with this Agreement, with broker-dealers which agree to participate
in the distribution of the Contracts and to use their best efforts to solicit
applications for the Contracts. All such sales agreements shall provide that
each independent broker-dealer will assume full responsibility for continued
compliance by itself and its representatives with applicable federal and state
securities laws. Such broker-dealers and their agents or representatives
soliciting applications for the Contracts shall be duly and appropriately
licensed, registered or otherwise qualified for the sale of such Contracts under
the federal securities laws, the state insurance laws and any applicable state
securities laws of each state or other jurisdiction in which such Contracts may
be lawfully sold and in which Farm Bureau is licensed to sell the Contracts.
Each such organization shall be both registered as a broker-dealer under the
1934 Act and a member of the NASD.
Applications for the Contracts solicited by such organizations through
their representatives shall be forwarded to Farm Bureau. All payments for the
Contracts shall be made by check payable to "Farm Bureau Life Insurance Company"
and remitted promptly by such organizations to Farm Bureau as agent for FBL
Marketing. All broker-dealers who agree to participate in the distribution of
the Contracts shall act as independent contractors and nothing
<PAGE>
herein contained shall constitute such broker-dealers or their agents or
employees as employees of Farm Bureau in connection with the sale of the
Contracts.
7. INSURANCE LICENSES
Farm Bureau shall apply for the proper insurance licenses in the
appropriate states or jurisdictions for the designated persons associated with
FBL Marketing or with other independent broker-dealers which have entered into
agreements with FBL Marketing for the sale of the Contracts, provided that Farm
Bureau reserves the right to refuse to appoint any proposed registered
representatives as an agent or broker, and to terminate an agent or broker once
appointed.
8. MAINTENANCE OF BOOKS, RECORDS AND ACCOUNTS
Farm Bureau and FBL Marketing shall cause to be maintained and preserved,
for the periods prescribed, such accounts, books and other documents as are
required of them by the 1940 Act, the 1934 Act and any other applicable laws and
regulations. The books, accounts and records of Farm Bureau, the Annuity
Account, and FBL Marketing as to all transactions hereunder shall be maintained
so as to disclose clearly and accurately the nature and details of the
transactions.
As agent for and on behalf of FBL Marketing, Farm Bureau shall maintain
such books and records of FBL Marketing pertaining to the sale of the Contracts
and required by the 1934 Act as may be mutually agreed upon from time to time by
Farm Bureau and FBL Marketing; provided that such books and records shall be the
property of FBL Marketing and shall at all times be subject to such reasonable
periodic, special or other examination by the SEC and all other regulatory
bodies having jurisdiction. In addition, Farm Bureau will maintain records of
all sales commissions paid to associated persons of FBL Marketing in connection
with the sale of the Contract. Farm Bureau, as agent for FBL Marketing, shall
be responsible for sending all required confirmations on customer transactions
in compliance with applicable regulations, as modified by an exemption or other
relief obtained by Farm Bureau and FBL Marketing.
FBL Marketing shall have the responsibility for maintaining the records of
associated persons of FBL Marketing who are licensed, registered, and otherwise
qualified to sell the Contracts, and for furnishing periodic reports thereto to
Farm Bureau. FBL Marketing shall cause Farm Bureau to be furnished with such
other reports as Farm Bureau may reasonable request for the purpose of meeting
its reporting and recordkeeping requirements under the insurance laws of the
State of Iowa and any other applicable states or jurisdictions.
9. COSTS AND EXPENSES BORNE BY FBL MARKETING
FBL Marketing shall bear the costs and expenses of: (a) services,
materials, and supplies required to be supplied by FBL Marketing pursuant to the
terms of this Agreement; (b) registration, licensing or other qualification of
associated persons of FBL Marketing under federal and state securities laws and
with the NASD; and (c) training and supervision of associated persons.
<PAGE>
10. COMPENSATION
As compensation for FBL Marketing's assumption of the costs and expenses
set forth in Section 9 hereof, the sales services rendered by FBL Marketing and
the associated persons of FBL Marketing, and the continuing obligations spelled
out herein, Farm Bureau shall pay FBL Marketing an annual fee, payable monthly,
at a rate equal to $100 multiplied by the number of associated persons of FBL
Marketing, and shall, on behalf of and as agent for FBL Marketing, pay
associated persons of FBL Marketing all commissions or other fees which are due
for the sale of the Contracts. No associated person shall have an interest in
any fees payable to FBL Marketing pursuant to this Agreement.
For Contracts sold under dealer sales agreements that FBL Marketing enters
into with other broker-dealers pursuant to Section 6 hereof, Farm Bureau shall
pay to the parties specified in any such agreements such compensation as is due
under the terms of such sales agreements.
11. INDEMNIFICATION
Farm Bureau agrees to indemnify FBL Marketing for any losses incurred as a
result of any action taken or omitted by FBL Marketing or any of its officers,
agents, or employees in performing their responsibilities under this Agreement
in good faith and without willful misfeasance, gross negligence, or reckless
disregard of such obligations.
12. INVESTIGATIONS AND PROCEEDINGS
FBL Marketing and Farm Bureau agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Contracts distributed under this Agreement. FBL Marketing
and Farm Bureau further agree to cooperate fully in any securities regulatory
inspection, inquiry, investigation or proceeding or any judicial proceeding with
respect to Farm Bureau, FBL Marketing, their affiliates, or the associated
persons to the extent that such inspection, inquiry, investigation or proceeding
is in connection with the Contracts distributed under this Agreement. Without
limiting the foregoing:
(a) FBL Marketing will be notified promptly of any customer complaint or
notice of any regulatory inspection, inquiry, investigation or
proceeding or judicial proceeding received by Farm Bureau with respect
to FBL Marketing or any associated person or which may affect Farm
Bureau's issuance of any Contract marketed under this Agreement; and
(b) FBL Marketing will promptly notify Farm Bureau of any customer
complaint or notice of any regulatory inspection, inquiry,
investigation or proceeding received by FBL Marketing or its
affiliates with respect to FBL Marketing or any associated person in
connection with any Contract distributed under this Agreement or any
activity in connection with any such Contract
<PAGE>
In the case of a customer complaint, FBL Marketing and Farm Bureau will
cooperate in investigating such complaint and arrive at a mutually satisfactory
response.
13. TERMINATION
This Agreement may be terminated by either party hereto upon 60 days'
written notice to the other party without the payment of any penalty. This
Agreement may be terminated upon written notice of one party to the other party
hereto in the event of bankruptcy or insolvency of such party to which notice is
given. This Agreement may be terminated at any time upon the mutual written
consent of the parties hereto. This Agreement shall terminate automatically if
it shall be assigned.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease except (a) the obligation to settle accounts
hereunder, including commissions on premiums subsequently received for Contracts
in effect at the time of termination or issued pursuant to applications received
by Farm Bureau prior to termination, and (b) the agreements contained in 12
hereof.
1. EXCLUSIVITY
The services of FBL Marketing hereunder are not to be deemed exclusive and
FBL Marketing shall be free to render similar services to others so long as its
services hereunder are not impaired or interfered with hereby.
15. REGULATION
This Agreement shall be subject to the provisions of the 1940 Act and the
1934 Act and the rules, regulations, and rulings thereunder and of the NASD,
from time to time in effect, including such exemptions from the 1940 Act as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
FBL Marketing shall submit to all regulatory and administrative bodies
having jurisdiction over the operations of Farm Bureau or the Annuity Account,
present or future, and will provide any information, reports or other material
which any such body by reason of this Agreement may request or require pursuant
to applicable laws or regulations. Without limiting the generality of the
foregoing, FBL Marketing shall furnish the Iowa Department of Insurance with any
information or reports which the Department may request in order to ascertain
whether the variable Annuity operations of Farm Bureau are being conducted in a
manner consistent with the Department's variable annuity insurance regulations
and any other applicable law or regulations.
16. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
<PAGE>
17. APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest:
FARM BUREAU LIFE INSURANCE COMPANY
[signature]
Merlin D. Plagge,
President
Attest:
FBL MARKETING SERVICES, INC.
[signature]
Timothy J. Hoffman,
President
<PAGE>
Exhibit 6(a)
Certificate of Incorporation of the Company
STATE OF IOWA
OFFICE OF SECRETARY OF STATE
This is to Certify that the IOWA LIFE INSURANCE COMPANY of Des Moines, Iowa
has filed in this office Articles of Incorporation, and paid the fees as by law
provided.
Therefore, this Certificate is issued, thereby authorizing it to transact
business as a corporation, under and Subject to the laws of the State of Iowa,
PERPETUALLY from October 30th, 1944.
In testimony whereof, I have hereunto set my hand and caused to be affixed
the seal of the office.
Done at Des Moines, the Capital, this Thirtieth day of October, 1944.
/s/ Wayne M. Ropes
Wayne M. Ropes
Secretary of State
by [left blank] Deputy Secretary of State
Expires PERPETUAL
<PAGE>
ARTICLES OF INCORPORATION
OF
IOWA LIFE INSURANCE COMPANY
We, the undersigned, for the purpose of transacting the business
hereinafter set forth, do hereby associate ourselves together and under the
following Articles of Incorporation unite ourselves into a body corporate under
the provisions of Chapter 384 and Chapter 398 of the Code of Iowa, 1939, and all
acts amendatory thereto, and assume all powers and obligations granted bodies
corporate under said chapters, and do hereby adopt the following Articles of
Incorporation, to-wit:
ARTICLE I.
NAME
The name of this Corporation shall be IOWA LIFE INSURANCE COMPANY.
ARTICLE II.
PRINCIPAL PLACE OF BUSINESS
The principal place of business of this Corporation shall be in the city of
Des Moines, County of Polk, State of Iowa. It may establish and maintain branch
offices, depositories and agencies elsewhere.
ARTICLE III.
POWERS, OBJECTS AND PURPOSES
The purposes and objects for which this Corporation is formed, and the
powers which it shall have and exercise, are:
1. To make insurance on the lives of persons and every insurance
appertaining thereto or connected therewith, and granting, purchasing or
disposing of annuities, and to make insurance against bodily injury, disablement
or death by accident, and against disablement resulting from sickness or old age
and every insurance appertaining thereto, on a level premium plan and as a legal
reserve company with all the rights and privileges granted or permitted by
Chapter 384 and Chapter 398 of the Code of Iowa, 1939, and all acts amendatory
thereto.
2. To assume and exercise all the rights, powers and privileges that are
now or may hereafter be conferred by law upon similar corporations, and to have
the right of perpetual succession, sue and be sued, make contracts, acquire,
own, and transfer property, real and personal, and have a common seal.
<PAGE>
3. To issue all forms of insurance contracts pertaining to or connected
with the business of life insurance as it now or may hereafter be carried on in
this state or elsewhere.
4. To cede to and reinsure its excess risks wherever they may be in other
companies or associations, and to accept and reinsure the excess risks of other
companies or associations ceded to it.
5. To buy, sell, invest and reinvest its funds in any of the securities or
property in which a life insurance company may now or hereafter lawfully invest.
6. To have and exercise all of the rights and powers necessary and
incident to carrying into effect the purposes for which this Corporation is
formed.
7. The objects, powers and purposes specified above shall, except where
otherwise expressed, be in no way limited or restricted by inference to or
inference from the terms of any clause or paragraph of these Articles of
Incorporation, and the foregoing shall be construed both as powers and objects
and the enumeration thereof shall not be held to limit or restrict in any manner
the general powers conferred upon this Corporation by the laws of the State of
Iowa, or any acts amendatory thereto, all of which are hereby expressly claimed.
ARTICLE IV.
CAPITAL STOCK
The authorized capital stock of this Corporation is Five Hundred Thousand
($500,000.00) Dollars, divided into Two Hundred Six Thousand (206,000) shares,
of which amount Two Hundred Thousand (200,000) shares of the par value of One
($1.00) Dollar per share, amounting to Two Hundred Thousand ($200,000.00)
Dollars is "Common Stock," and Six Thousand (6,000) shares of the par value of
Fifty ($50.00) Dollars per share, amounting to Three Hundred Thousand
($300,000.00) Dollars, is 6% cumulative "First Preferred Stock."
The nature and definitive extent and preferences and privileges granted
each class is, as follows:
1. STOCK ISSUE CONDITIONS. No stock of this Corporation shall be issued
until this Corporation has received payment in full therefor the selling price
as fixed by the board of directors, which shall be not less than par, in cash or
property, providing, however, that when it is issued for anything other than
money it must be done in accordance with the statutes in force at the time said
stock shall be issued.
2. COMMON STOCK. The Common Stock shall be issued to and owned only by
the Iowa Farm Bureau Foundation, its assigns, or a member in good standing of
the
<PAGE>
Iowa Farm Bureau Federation as defined in the By-Laws of this Corporation, and
no one else shall be eligible to own the same.
The Common stockholders shall be entitled to receive, when and as
declared by the board of directors, subject to any limitations in these
Articles contained, dividends from the net earnings of this Corporation on
such equitable basis as the board of directors shall determine, and shall be
payable annually when and as determined by the board of directors, provided,
however, that no dividends shall be declared or paid on the Common Stock
issued to and owned by the Iowa Farm Bureau Federation or its assigns in
excess of six (6%) per cent per annum on the par value thereof. No dividends
shall be declared or paid on the Common Stock until the board of directors
has first declared dividends on the First Preferred Stock and paid or set
apart the same to or for the account of said First Preferred stockholders.
Dividends to the Common stockholders shall be non-cumulative. No person
shall be entitled to dividends unless he is a Common stockholder of record at
the time of the declaration of the same.
The holders of Common Stock shall be entitled to one vote for each and
every share of stock issued and owned at all meetings of the stockholders, and
shall not have the privilege of voting by proxy but a corporate stockholder
shall have the privilege of voting by an authorized representative or
representatives, and no one other than the Iowa Farm Bureau Federation shall be
entitled to own more than one share.
The Common Stock of any holder thereof, other than the Iowa Farm Bureau
Federation or its assigns, may be called, redeemed or retired at the election of
the board of directors at such time or times as it shall determine, and shall be
called, redeemed or retired by the board of directors whenever the holder
thereof shall cease to be eligible to own the same by ceasing to be a member in
good standing of a County Farm Bureau and the Iowa Farm Bureau Federation, as
herein provided and as defined in the By-Laws, or any amendment thereto, upon
the payment of the purchase price paid per share with accrued dividends, if any;
provided, however, that not less than thirty (30) days' prior notice of such
intention to retire or redeem such stock shall be given the holder of such stock
called for retirement or redemption by written notice postpaid to the last known
address of each stockholder as shown by the books of this Corporation.
From and after the date fixed for such redemption all dividends on the
Common Stock thereby called for redemption shall, unless the Corporation shall
default in the payment of the redemption price, cease and all rights of the
holders thereof as stockholders of the Corporation, except the right to receive
the redemption price and accrued dividends, if any, shall cease and terminate.
The eligibility of a person, other than the Iowa Farm Bureau Federation or
its assigns, to own and hold Common Stock in this Corporation shall be
determined by the records of the Iowa Farm Bureau Federation of which the owner
thereof or the one under which he is eligible to own the same is or was a member
at the time of issue of said stock, and said books and records shall be
conclusive of his or their said eligibility.
<PAGE>
In the event of the dissolution and winding up of the business of this
Corporation, whether voluntary or involuntary, or in the event of the sale of
all of the assets of the Corporation and the distribution of the proceeds
thereof, the Common stockholder shall receive nothing until the First Preferred
Stock has been paid in full the purchase price paid per share to this
Corporation, together with all unpaid accrued dividends on such shares of stock.
3. FIRST PREFERRED STOCK. The First Preferred Stock shall be issued to
and owned only by members in good standing of a County Farm Bureau of this state
and of the Iowa Farm Bureau Federation and shall have no voting privileges, and
the holder of First Preferred Stock shall be entitled to receive, when and as
declared by the board of directors, dividends from the net earnings of the
Corporation at the rate of six (6%) per cent per annum, payable annually, when
and as determined by the board of directors. Such dividends shall be payable
before any dividends shall be paid on or set apart for the Common stockholders,
and such dividends on the First Preferred Stock shall be cumulative so that if
at any time at the dividend period dividends at the rate of six (6%) per annum
should not have been paid upon or set apart for the First Preferred Stock, the
deficiency shall be fully paid or set apart without interest before any
dividends shall be paid or declared upon the Common Stock.
The First Preferred Stock may be redeemed or retired in whole or in part,
at the election of the board of directors at such time or times as it shall
determine at the purchase price paid per share with accrued dividends, if any,
provided, however, that not less than thirty (30) days' prior notice of such
intention to retire or redeem such stock shall be given the holders of such
stock so called for retirement or redemption by written notice postpaid to the
last known address of such stockholders as shown by the books of the
Corporation.
No First Preferred stockholders shall have any preferential right
respecting the retirement or redemption of the shares of First Preferred Stock
owned by him, but in the event less than all of the outstanding shares of First
Preferred Stock are to be redeemed such redemption may be made by lot or
pro-rata in such manner as may be determined by the board of directors of this
Corporation.
From and after the date fixed for such redemption all dividends on the
First Preferred Stock thereby called for redemption shall, unless the
Corporation shall default in the payment of the redemption price, cease and all
rights of the holders thereof as stockholders of the Corporation, except the
right to receive the redemption price and accrued dividends, if any, shall cease
and terminate.
In the event of the dissolution and winding up of the business of the
Corporation, whether voluntary or involuntary, or in the event of the sale of
all of the assets of the Corporation and the distribution of the proceeds
thereof, the holder of the First Preferred Stock shall be entitled to be paid in
full the purchase price paid per share, together with all unpaid dividends
accrued on such shares, before any sum whatsoever shall be paid
<PAGE>
in liquidation on account of the Common Stock, and thereafter the Common Stock
shall be entitled to the remaining assets.
4. LIMITATION ON STOCKHOLDERS' DIVIDENDS. No cash dividend on the capital
stock of the Corporation in excess of the amount required to pay dividends at
the rate of six (6%) per annum on the par value on the issued and outstanding
First Preferred Stock, shall be paid in any calendar year prior to January 1,
1946, unless the capital of the Corporation, its surplus and contingency
reserves shall aggregate ten (10%) per cent or more of all other liabilities of
the Corporation, and no cash dividend in excess of the amount required to pay
dividends at the rate of six (6%) per cent per annum on the par value of the
issued and outstanding First Preferred Stock shall be paid in any calendar year
between January 1, 1946 and January 1, 1951, unless the capital, surplus and
contingency reserves shall equal or exceed eight and one-half (8 1/2%) per cent
of all other liabilities; nor shall any cash dividends in excess of the amount
required to pay dividends at the rate of six (6%) per cent per annum on the par
value of the issued and outstanding First Preferred Stock be paid on the capital
stock in any calendar year after January 1, 1951, unless the capital, surplus
and contingency reserves shall equal or exceed seven (7%) per cent of all other
liabilities.
No cash dividend in any one calendar year in excess of the amount required
to pay dividends at the rate of six (6%) per cent per annum, on the issued and
outstanding First Preferred Stock, shall be paid on the capital stock unless the
policyholders dividend scale of the Corporation in effect for said calendar year
results in an average net cost equal to or less than the average net cost to the
ten legal reserve companies operating in the United States each having more than
$250,000,000 insurance in force and showing the lowest average net cost.
For the purpose of this comparison the average net cost shall be computed
on the Whole Life Plan for ages at issue 25, 35, and 45, and for a policy issued
in the amount of One Thousand ($1,000) Dollars. Cost for above ages shall be
determined for each year of issue since organization of the Corporation, except
that the cost on policies in force for twenty (20) years or more shall not be
used. The actual dividends payable for the year in question shall be used and
not a net cost based on dividend history. Companies doing primarily a mail
order business or operating through lodges or as fraternal organizations, as
well as United States Government Insurance, shall not be included in the
comparison.
5. REGISTERED OWNER. This Corporation shall be entitled to treat the
person or corporation in whose name any share of stock is registered as the
owner thereof for all purposes, and shall not be bound to recognize any
equitable right or claim to any interest in such share on the part of any other
person or corporation, whether or not the corporation shall have notice thereof,
save as expressly provided by the laws of the State of Iowa or as may hereafter
be provided.
6. TRANSFER OF STOCK. The shares of First Preferred Stock in this
Corporation shall be transferable only to a member in good standing of a County
Farm Bureau of
<PAGE>
this state and of the Iowa Farm Bureau Federation, and the shares of Common
Stock shall not be transferable in any manner except the shares owned by the
Iowa Farm Bureau Federation, and no transfer except as herein provided shall be
of any validity or cognizable by the Corporation, and no transfer of any stock
of this Corporation shall be of any validity until duly entered on the books of
the Corporation.
7. INCREASE OR DECREASE OF STOCK. From time to time any class of stock
may be increased or decreased as may be determined by vote of the stockholders
present at any annual or special meeting possessing voting rights to the extent
and in the manner provided by the statutes of the State of Iowa and these
Articles of Incorporation, and in the event it is determined to increase the
amount of First Preferred Stock it shall not be necessary to secure the consent
of the holders of the First Preferred Stock; provided, however, that no other
class of stock shall be created having preference over the First Preferred Stock
as now authorized or as may hereafter be authorized in respect of payment of
dividends out of the earnings or upon liquidation or dissolution unless the
amendment authorizing such change shall receive the affirmative vote of the
holders of not less than two-thirds of the outstanding First Preferred Stock
voting as a class.
8. All persons and/or corporations or associations who shall acquire stock
in this Corporation shall acquire the same subject to the provisions of these
Articles of Incorporation, and shall, by their subscription therefor and
acceptance thereof, be bound by the said Articles of Incorporation, and any
amendments thereto, and the By-Laws duly adopted thereunder.
ARTICLE V.
OFFICERS AND DIRECTORS
1. The business and affairs of this Corporation shall be managed by a
board of twelve (12) directors who shall be members in good standing of the Iowa
Farm Bureau Federation, and shall be elected by the stockholders of this
Corporation as hereinafter provided, and said directors shall hold office until
their successors are elected and qualified.
2. The term of office of the directors of this Corporation shall be two
(2) years and until their successors are elected and qualified.
3. At the first annual meeting of the stockholders of this Corporation to
be held in 1946, as provided in these Articles, seven (7) directors shall be
elected for a term which shall expire at the next annual meeting of the
stockholders and until their successors are elected and qualified; five (5)
directors for a term of two years, and then at each annual meeting thereafter
there shall be elected for a term of two years each as many directors as there
are directors whose terms expire.
4. Until the first annual meeting of the stockholders of this Corporation
to be held in 1946, the following persons shall constitute the directors of this
Corporation.
<PAGE>
Name Address
---- -------
Allan E. Kline Vinton, Iowa
E. Howard Hill Minburn, Iowa
Mrs. Raymond Sayre Ackworth, Iowa
A. Fletcher Aitchison Cascade, Iowa
J. S. Van Wort Hampton, Iowa
H. J. Shoemaker Hawarden, Iowa
J. Otto Gidel Lake City, Iowa
Russell Hayes Prairie City, Iowa
W. C. Molison Grinnell, Iowa
Lee Stephenson Eldon, Iowa
W. G. Lodwick Sedan, Iowa
F. A. Klopping Underwood, Iowa
5. Until the first annual meeting of the stockholders of this Corporation
and until their successors are elected and qualified the officers of this
Corporation shall be:
Office Name Address
------ ---- -------
President: Allan B. Kline Vinton, Iowa
Vice-President: E. Howard Hill Minburn, Iowa
Secretary: Donald B. Groves Des Moines, Iowa
Treasurer: Donald B. Groves Des Moines, Iowa
6. The officers of this Corporation shall be elected by the board of
directors immediately following the first annual meeting of the stockholders,
and thereafter immediately following each annual meeting, and shall hold office
for the term of one year or until their successors are elected and qualified.
7. The officers of this Corporation shall be a president, vice-president,
secretary, treasurer, and such other officers as the board of directors may from
time to time create, and the offices of secretary and treasurer may be held by
the same person.
8. The board of directors may fill all vacancies occurring in its
membership, and a director elected to fill a vacancy shall serve for the
unexpired term of the director whose vacancy he was elected to fill and/ or
until his successor is elected and qualified.
9. A majority of the board of directors shall constitute a quorum for the
transaction of all business of the Corporation.
10. The board of directors shall have full authority to adopt and enact
regulations and rules and by-laws for the proper government of the Corporation,
classify risks, promulgate rates therefor, adopt policy forms and riders,
appoint agents, officers,
<PAGE>
employees or others, require bonds for such officers and employees as they may
determine, issue such information as the welfare of the Corporation may require,
designate depositories, hold meetings at such times and places as the business
may require, and shall make a full and complete report of its doings at each
annual meeting of the Corporation.
11. The board of directors may appoint an executive committee, consisting
of five (5) members, and designate a chairman thereof; the members thereof shall
hold office for the term of one year or until their successors are appointed and
qualified; said term, however, being subject to the will and pleasure of the
board of directors. The executive committee shall have such powers and possess
such authority as the board of directors shall, from time to time, by by-law or
resolution vest in it.
12. The board of directors shall have power to appoint such other
committees as it may deem necessary for the efficient conduct of the business,
and every such committee so created by the board shall report its doings to the
meeting of the board of directors next ensuing.
13. All conveyances of real property, releases of mortgages, liens and
judgments, and all other instruments affecting real property, made by the
Corporation or required by law to be made a matter of record, shall be executed
by the president or vice-president and the secretary or assistant secretary and
attested to by the corporate seal.
ARTICLE VI.
MEETINGS OF STOCKHOLDERS
1. REGULAR ANNUAL MEETING. The first regular annual meeting of the
stockholders of this Corporation shall be held in the year 1946 and all
subsequent annual meetings of the stockholders of this Corporation shall be held
annually, at such time and place and upon such notice as the board of directors
shall, from time to time, fix and determine, provided such notice is not less
than ten days and such meeting shall be held at Des Moines, Iowa.
2. SPECIAL MEETINGS. Special Meetings of the stockholders may be called
at any time by the president upon the giving of five (5) days' notice in writing
by mail to the stockholders as shown by the records of this Corporation, and
such meetings shall be called at any time upon the request of stockholders
representing twenty-five (25%) per cent of the stock issued.
In case the president neglects or refuses to call a meeting at the request
of the stockholders, as herein provided, the stockholders may join in a call of
the stockholders at a special meeting upon giving to each stockholder of record
having voting privileges the same notice and in the same manner as hereinbefore
provided in this section.
<PAGE>
3. VOTING PRIVILEGE. At all meetings of the stockholders each Common
stockholder shall be entitled to one vote for each share of stock owned and held
by him or it.
ARTICLE VII.
CORPORATE PERIOD
This Corporation shall commence business under these Articles of
Incorporation as soon as it secures certificate of incorporation from the
Secretary of State of the State of Iowa, and certificate authorizing it to
transact an insurance business from the Commissioner of Insurance of the State
of Iowa, as by law provided, and shall have perpetual existence unless changed
as by law and these Articles of Incorporation required.
ARTICLE VIII.
PRIVATE PROPERTY EXEMPT
The private property of the stockholders of this Corporation shall be
exempt from the debts of the Corporation and from all liability therefor.
ARTICLE IX.
This Corporation shall have a corporate seal and shall have inscribed
thereon "Iowa Life Insurance Company, Des Moines, Iowa, Corporate Seal, " which
words may be changed at any time by resolution of the board of directors.
ARTICLE X.
BY-LAWS
The Board of Directors may at its pleasure make and adopt By-Laws which do
not conflict with the law or these Articles of Incorporation or By-Laws adopted
or ratified by the stockholders and alter or amend the same.
ARTICLE XI.
AMENDMENTS
These Articles of Incorporation may be amended at any annual meeting of the
stockholders or at any special meeting called for that purpose by a two-thirds
vote of the stockholders having voting privileges present at such meeting,
provided that no amendment shall be made or enacted unless the proposed
amendment or alteration has been filed in writing with the president and with
the secretary of this Corporation not less than sixty (60) days before the
meeting at which the same is offered. Notice of
<PAGE>
special meeting and the proposed amendment or alteration to these Articles of
Incorporation coming before such special meeting shall be given the stockholders
in the same manner and for the same period of time as is required for special
meetings of stockholders.
<PAGE>
STATE OF IOWA
[GRAPHIC]
OFFICE OF
THE SECRETARY OF STATE
TO ALL TO WHOM THESE PRESENTS SHALL COME, GREETING:
I, MELVIN D. LYNHORST, SECRETARY OF STATE OF THE STATE OF IOWA, DO HEREBY
CERTIFY THAT THE FOLLOWING AND HERETO ATTACHED IS A TRUE PHOTOSTATIC COPY OF
Amendment to Articles of Incorporation for IOWA LIFE INSURANCE COMPANY, of
- -------------------------------------------------------------------------------
Des Moines, Iowa, changing the corporate title to FARM BUREAU LIFE INSURANCE
- -------------------------------------------------------------------------------
COMPANY.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AS THE SAME APPEAR OF RECORD IN THIS OFFICE.
-----------------------------------
IN TESTIMONY WHEREOF, I HAVE HEREUNTO
SET MY HAND AND AFFIXED THE OFFICIAL SEAL
OF THE SECRETARY OF STATE AT THE CAPITOL, IN
DES MOINES, THIS 4th DAY OF August,
A.D. NINETEEN HUNDRED AND FIFTY-EIGHT.
/s/ Melvin D. Lynhorst
--------------------------------------------
SECRETARY OF STATE
--------------------------------------------
DEPUTY
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION,
AS AMENDED, OF
IOWA LIFE INSURANCE COMPANY
KNOW ALL MEN BY THESE PRESENTS:
That at the annual meeting of the stockholders of the Iowa Life Insurance
Company, held at the Fort Des Moines Hotel, Des Moines, Iowa, on the 1st day
of August, 1958, pursuant to notice in writing, stating the time, place and
purpose of said meeting mailed in accordance with the provisions of the Articles
of Incorporation and the laws of the State of Iowa, the following Amendment to
the Articles of Incorporation, a copy of which amendment was duly filed with the
president and secretary of this corporation more than sixty (60) days prior to
August 1, 1958, was adopted by a UNANIMOUS vote of all of the stockholders
present in person or represented by an authorized representative at said
meeting:
Amend Article I, entitled "Name," by striking all of said article, and
substituting in lieu thereof the following:
"The name of this corporation shall be 'FARM BUREAU LIFE INSURANCE
COMPANY'."
Amend Article IV, entitled "Capital Stock," by striking all of said
article, and substituting in lieu thereof the following:
"The authorized capital stock of this corporation is Five Hundred Thousand
($500,000.00) Dollars, divided into ten thousand (10,000) shares, of which
amount four thousand (4,000) shares of the par value of Fifty ($50.00)
Dollars per share, amounting to Two Hundred Thousand ($200,000.00) Dollars,
is Common Stock, and six thousand (6,000) shares of the par value of Fifty
($50.00) Dollars per share, amounting to Three Hundred Thousand
($300,000.00) Dollars, is six (6%) per cent cumulative First Preferred
Stock.
The nature and definite extent and preferences and privileges granted each
class is, as follows:
Section 1. STOCK ISSUE CONDITIONS. No stock of this corporation shall be
issued until this corporation has received payment in full therefor the
selling price as fixed by the board of directors, which shall be not less
than par, in cash or property, providing, however, that when it is issued
for anything other than money it must be done in accordance with the
statutes in force at the time said stock shall be issued.
Sec. 2. COMMON STOCK. The Common Stock shall have a par value of Fifty
($50.00) Dollars per share, and the holders of record thereof shall be
entitled to one vote per share at all
<PAGE>
-2-
meetings of the stockholders. The Common Stock shall be issued to and
owned only by the Iowa Farm Bureau Federation and shall be issued from time
to time upon application by it and upon tender and payment of the purchase
price as fixed by the board of directors, which shall be not less than par.
The holders of record of the Common Stock shall be entitled to vote at all
meetings of the stockholders by a duly authorized representative or
representatives.
If, after providing for the payment of full dividends for any fiscal year
on the First Preferred Stock and for any balance that remains due on the
cumulative dividends of such First Preferred Stock, there shall remain any
surplus net earnings or profits not in the opinion of the board of
directors required for the operation of the business of this corporation or
for the payment of its liabilities, it shall be applicable to dividends
upon the Common Stock for such fiscal year when and as from time to time
the same shall be declared by the board of directors, which dividend shall
not be cumulative but shall only be paid as surplus net earnings or profits
are available and dividends are declared. Such dividends shall be ratable
in proportion to the number of shares of Common Stock issued and
outstanding until dividends have been declared and set apart for the Common
Stock to the extent of, but not in excess of, six (6%) per cent for any one
fiscal year.
No common stockholder shall be entitled to dividends unless it is a
stockholder of record at the time of the declaration of the same.
The Common Stock or any part thereof may be called, redeemed or retired at
the option and election of the board of directors at such time or times and
in such manner as it shall determine upon the payment of the purchase price
paid this corporation for each share, with accrued dividends, if any,
provided, however, that not less than thirty (30) days' prior notice of
such intention to retire or redeem such stock shall be given the holder of
such stock called for retirement or redemption in writing, post-paid, to
the last known address of such stockholder as shown by the books of this
corporation.
From and after the date fixed for such retirement or redemption all
dividends on the Common Stock thereby called for retirement or redemption
shall, unless this corporation shall default in the payment of the
redemption price, cease, and all rights of the holders thereof as Common
stockholders of this corporation, except the right to receive the
redemption price and accrued dividends, if any, shall cease and terminate.
In the event of the dissolution or winding up of the business and affairs
of this corporation, whether voluntary or involuntary, or in the event of
the sale of all of the assets of this corporation and the distribution of
the proceeds thereof, the Common stockholders of record shall, after the
First Preferred stockholders have received distribution and payment of the
full purchase price paid per share to this corporation, together with all
unpaid accrued dividends, for their shares,
<PAGE>
-3-
as provided in Section 4 of this Article, be entitled to receive
distribution of all of the remaining assets of this corporation in
proportion to the purchase price paid per share to this corporation by said
Common stockholder.
Sec. 3. EXCHANGE OF ISSUED AND OUTSTANDING COMMON STOCK. Within a
reasonable time after the adoption of this amended and substituted Article
IV of the Articles of Incorporation of this corporation, the board of
directors shall call the present issued and outstanding Common Stock of
this corporation as permitted in the Articles of Incorporation, as amended,
and give the thirty (30) days' notice to the holders of record of the
Common Stock owned by the Iowa Farm Bureau Federation as provided in
Section 3 of Article IV of this corporation's Articles of Incorporation, as
amended, and all of the shares of the Class A Common Stock issued and of
record in the name of the Iowa Farm Bureau Federation, as of the date of
the adoption of this amendment, shall be surrendered up to this corporation
and exchanged for such number of shares or fractional part thereof of the
Common Stock authorized by this amendment as the total amount paid by the
Iowa Farm Bureau Federation, at the purchase price of One and 50/100
($1.50) Dollars per share will pay for, at the rate of Seventy-five
($75.00) Dollars per share for said Common Stock.
Sec. 4. FIRST PREFERRED STOCK. The First Preferred Stock shall have a par
value of Fifty ($50.00) Dollars per share and shall have no voting
privileges, and the holders of record of the First Preferred Stock shall be
entitled to receive, when and as declared by the board of directors,
dividends from the net earnings of this corporation at the rate of six (6%)
per cent per annum, payable annually, when and as determined by the board
of directors. Such dividends shall be payable before any dividends shall
be paid on or set apart for the Common stockholders, and such dividends on
the First Preferred Stock shall be cumulative so that if at any dividend
period dividends at the rate of six (6%) per cent per annum should not have
been paid upon or set apart for the First Preferred Stock the deficiency
shall be fully paid on or set apart without interest before any dividends
shall be paid or declared upon the Common Stock. No first preferred
stockholder shall be entitled to dividends unless he is a stockholder of
record at the time of the declaration of the same.
The First Preferred Stock may be redeemed or retired in whole or in part,
at the election and option of the board of directors, at such time or times
as it shall determine at the purchase price paid per share with accrued
dividends, if any, provided, however, that not less than thirty (30) days'
prior notice of such intention to retire or redeem such stock shall be
given the holders of such stock so called for retirement or redemption by a
written notice post-paid to the last known address of such stockholders as
shown by the books of the corporation.
Except as provided in the preceding paragraph, no First Preferred
stockholders shall have any preferential right respecting the
<PAGE>
-4-
retirement or redemption of the shares of First Preferred Stock owned by
him, but in the event less than all of the outstanding shares of First
Preferred Stock are to be redeemed, such redemption may be made by lot or
pro rata or by designation of stockholder or holders in such manner and
basis as may be determined by the board of directors of this corporation.
From and after the date fixed for such redemption all dividends on the
First Preferred Stock thereby called for redemption shall, unless the
corporation shall default in the payment of the redemption price, cease,
and all rights of the holders thereof as stockholders of the corporation,
except the right to receive the redemption price and accrued dividends, if
any, shall cease and terminate.
In the event of the dissolution and winding up of the business of the
corporation, whether voluntary or involuntary, or in the event of the sale
of all of the assets of the corporation and the distribution of the
proceeds thereof, the holder of the First Preferred Stock shall be entitled
to be paid in full the purchase price paid per share to this corporation,
together with all unpaid dividends accrued on such shares, before any sum
whatsoever shall be paid in liquidation on account of the Common Stock, and
thereafter the holders of the Common Stock shall be entitled to the entire
remaining assets ratably in proportion to the shares issued and
outstanding.
Sec. 5. LIMITATION ON STOCKHOLDER DIVIDENDS. No cash dividend on the
capital stock of this corporation in excess of the amount required to
pay dividends at the rate of six (6%) per cent per annum on the par
value of the issued and outstanding First Preferred Stock shall be paid
in any calendar year prior to January 1, 1946, unless the capital of the
corporation, its surplus and contingency reserves shall aggregate ten
(10%) per cent or more of all other liabilities of the corporation, and
no cash dividend in excess of the amount required to pay dividends at
the rate of six (6%) per cent per annum on the par value of the issued
and outstanding First Preferred Stock shall be paid in any calendar year
between January 1, 1946 and January 1, 1951, unless the capital, surplus
and contingency reserves shall equal or exceed eight and one-half (8
1/2%) per cent of all other liabilities; nor shall any cash dividends in
excess of the amount required to pay dividends at the rate of six (6%)
per cent per annum on the par value of the issued and outstanding First
Preferred Stock to be paid on the capital stock in any calendar year
after January 1, 1951, unless the capital, surplus and contingency
reserves shall equal or exceed seven (7%) per cent of all other
liabilities.
No cash dividend in any one calendar year in excess of the amount required
to pay dividends at the rate of six (6%) per cent per annum, on the issued
and outstanding First Preferred Stock, shall be paid on the capital stock
unless the policyholders dividend scale of the corporation in effect for
said calendar year results in an average net cost equal to or less than the
average net cost to the ten legal reserve companies, other than
<PAGE>
-5-
the Farm Bureau Life Insurance Company, having the most insurance in force
in the State of Iowa as of the preceding December 31st.
For the purpose of this comparison the average net cost shall be
computed on the Whole Life Plan for ages at issue at 25, 35 and 45, and
for a policy issued in the amount of One Thousand ($1,000.00) Dollars, cost
for above ages shall be determined from the information provided annually
by recognized life insurance publications. Companies doing primarily a
mail order business or operating through lodges or as fraternal
organizations, as well as United States Government insurance, shall not be
included in the comparison.
Sec. 6. REGISTERED OWNER. This corporation shall be entitled to treat the
person or corporation in whose name any share of stock is registered as the
owner thereof for all purposes, and shall not be bound to recognize any
equitable right or claim to any interest in such share on the part of any
other person or corporation, whether or not the corporation shall have
notice thereof, save as expressly provided by the laws of the State of Iowa
or as may hereafter be provided.
Sec. 7. TRANSFER OF STOCK. The shares of First Preferred Stock and Common
Stock shall not be transferable.
Sec. 8. INCREASE OR DECREASE OF STOCK. From time to time any class of
stock may be increased or decreased as may be determined by vote of the
stockholders present at any annual or special meeting possessing voting
rights to the extent and in the manner provided by the statutes of the
State of Iowa and these Articles of Incorporation, and in event it is
determined to increase the amount of First Preferred Stock it shall not be
necessary to secure the consent of the holders of the First Preferred
Stock; provided, however, that no other class of stock shall be created
having preference over the First Preferred Stock as now authorized or as
may hereafter be authorized in respect to payment of dividends out of the
earnings or upon liquidation or dissolution unless the amendment
authorizing such change shall receive the affirmative vote of the holders
of not less than two-thirds (2/3) of the outstanding First Preferred Stock
voting as a class.
Sec. 9. All persons and/or corporations or associations who shall acquire
stock in this corporation shall acquire the same subject to the provisions
of these Articles of Incorporation, and shall, by their subscription
therefor and acceptance thereof, be bound by the said Articles of
Incorporation and any amendments thereto, and the By-Laws duly adopted
thereunder."
Amend Article V, by striking all of Section 1 thereof, and substituting
in lieu thereof the following:
"Section 1. The business and affairs of this corporation shall be managed
by a board of directors of not less than twelve (12)
<PAGE>
-6-
nor more than twenty-one (21), the exact number to be fixed and defined by
a by-law adopted by a two-thirds (2/3) vote of the stockholders entitled to
vote and present in person or represented by an authorized representative
at any regular or special meeting of the stockholders of this corporation,
and said by-law shall only be amended in the same manner as is provided
herein for its adoption."
Amend Article V, by striking all of Section 2 thereof, and substituting in
lieu thereof the following:
"Sec. 2. The board of directors shall be divided into two classes,
district directors and directors at large, and the district directors shall
be elected to serve for terms of three (3) years and until their successors
are elected and have qualified, and the directors at large shall be elected
to serve for terms of two (2) years and until their successors are elected
and have qualified. The terms of the directors shall be on a staggered
basis so that approximately one-half of the directors at large shall be
elected each year and approximately one-third of the district directors
shall be elected each year. The manner, method and procedure for the
nomination and election of directors shall be as defined and provided in a
by-law duly adopted by a two-thirds (2/3) vote of the stockholders entitled
to vote and present in person or represented by an authorized
representative at any regular or special meeting of the stockholders of
this corporation, and said by-law shall only be amended in the same manner
as is provided herein for its adoption."
Amend Article V, by striking all of Section 3 thereof, and substituting in
lieu thereof the following:
"Sec. 3. The following named persons shall, from and after the date of the
adoption of this Amendment to the Articles of Incorporation, as amended,
constitute the board of directors of this corporation, and shall serve for
a term expiring as of the date set opposite their names and until their
successors are elected and qualified, in accordance with the terms and
provisions of the By-Laws. At the annual meeting of the stockholders of
this corporation held in the year of 1959, and at each annual meeting
thereafter, there shall be elected such number of directors as terms expire
as of the date of such annual meeting, and such additional directors, if
any, as provided for in the By-Laws, to serve for the terms fixed in the
By-Laws of this corporation and until their successors are elected and
qualified.
Expiration Date
Name Address of Term
---- ------- ---------------
K. Howard Hill Minburn, Iowa November, 1959
Howard Waters Danville, Iowa November 21, 1958
Mrs. H. L. Witmer Tipton, Iowa November 21, 1958
Clarence Myers Blue Earth, Minn. November, 1959
Charles Marshall Avoca, Nebraska November, 1959
John Ingels Maynard, Iowa November 21, 1958
<PAGE>
-7-
Expiration Date
Name Address of Term
---- ------- ---------------
Wayne Keith Burt, Iowa November, 1960
LeRoy Getting Sanborn, Iowa November 21, 1958
Wesley Seymour Lakeview, Iowa November, 1959
Harvey Moeckly Polk City, Iowa November 21, 1958
Wayne J. Farmer Van Horne, Iowa November, 1959
James B. Helmick Rte. #2, Columbus
Junction, Iowa November, 1960
R. Edwin Allen Lucas, Iowa November, 1959
John Kenagy Rte. #3, Clarinda,
Iowa November, 1960
Amend Article V, by striking all of Section 4 thereof.
Amend Article V, by striking all of Section 5 thereof, and substituting in
lieu thereof as Section 4 the following:
"Sec. 4. Until the first annual meeting of the stockholders of this
corporation held after the adoption of this Amendment, and until their
successors are elected and qualified, the officers of this corporation
shall be:
Office Name Address
------ ---- -------
President: E. Howard Hill Minburn, Iowa
Vice-President: Howard Waters Danville, Iowa
Secretary: Kenneth Thatcher Des Moines, Iowa
Treasurer: D. B. Groves Des Moines, Iowa."
Amend Article V, by striking all of Section 6 thereof, and substituting in
lieu thereof as Section 5 the following:
"Sec. 5. The officers of this corporation shall be elected by the board of
directors immediately following each annual meeting and shall hold office
for such term or until their successors are elected and qualified, as shall
be provided for in the By-Laws."
Amend Article V, by striking the numbers of Sections 7, 8, 9, 10, 11, 12
and 13, and re-numbering as "Sections 6, 7, 8, 9, 10, 11 and 12,"
respectively.
Amend Article V, by striking all of Section 14 thereof, and substituting in
lieu thereof as Section 13 the following:
"Sec. 13. PROPORTIONATE REPRESENTATION. The holder or holders jointly or
severally, of not less than one-fifth (1/5) of the aggregate vote of the
Common Stock, but less than a majority of the vote represented by the
shares of such stock, shall be entitled to nominate to be elected directors
in accordance with these Articles of Incorporation. In the event such
nomination shall be made, there shall be elected, to the extent that the
total number to be elected is divisible, such proportionate
<PAGE>
-8-
number from the persons so nominated as the aggregate vote of the shares of
stock held by persons making such nominations bear to the whole of Common
shares issued; provided the holders of the minority shares of such stock
shall only be entitled to one-fifth (1/5) of the total number of directors
to be elected for each one-fifth of the entire voting capital stock of such
corporation so held by them. This section shall not be construed to
prevent the holders of a majority of the votes represented by said Common
Stock from electing a majority of the directors. Vacancies occurring from
time to time shall be filled so as to preserve and secure to such minority
and majority stockholders proportionate representation as herein provided."
Amend Article VI, by striking all of said Article and substituting in lieu
thereof as Article VI the following:
"Section 1. REGULAR ANNUAL MEETING. The first regular annual meeting of
the stockholders of this corporation shall be held in the year 1946 and all
subsequent annual meetings of the stockholders of this corporation shall be
held annually at such time and place and upon such notice as the board of
directors shall from time to time, fix and determine, provided such notice
is not less than ten days and such meeting shall be held at Des Moines,
Iowa.
Sec. 2. SPECIAL MEETINGS. Special meetings of the stockholders, except for
the election of directors, may be called at any time by the president, and
shall be called by the president or secretary of this corporation upon the
call of the board of directors by a resolution duly adopted so providing
and directing and notice thereof shall be given the stockholders by written
or printed notice stating the object, time and place of such meeting, and
shall be mailed to the last known address of each stockholder as shown by
the books and records of this corporation at least fifteen (15) days prior
to such meeting."
Sec. 3. VOTING PRIVILEGE. At all meetings of the stockholders each Common
stockholder shall be entitled to one vote for each share of stock owned and
held by him or it."
Amend Article IX, by striking all of said Article and substituting in lieu
thereof as Article IX the following:
"This corporation shall have a corporate seal and shall have inscribed
thereon 'Farm Bureau Life Insurance Company, Des Moines, Iowa, Corporate
Seal.'"
Amend Article X, by striking all of said Article and substituting in lieu
thereof as Article X the following:
"The board of directors may, at its pleasure, make and adopt By-Laws and
amend the same which do not conflict with the law of the Articles of
Incorporation, as amended from time to time,
<PAGE>
-9-
or the By-Laws adopted by the stockholders. No amendment shall be made to
any By-Law which has been adopted by the stockholders unless the proposed
amendment or alteration has been filed in writing with the president and
with the secretary of the corporation not less than sixty (60) days prior
to the meeting at which the amendment is to be offered and voted upon."
CERTIFICATE
The President and Secretary of this corporation were duly authorized and
directed to sign, acknowledge, record, and do all things which are by law
required to execute, complete and carry into effect the within and foregoing
amendment to the Articles of Incorporation. We, E. Howard Hill and Kenneth
Thatcher, Chairman and Secretary, respectively, of said meeting, do hereby
certify the above to be a true and correct statement of the proceedings of the
stockholders at the above named meeting.
/s/ E. Howard Hill
---------------------------------
Chairman
/s/ Kenneth Thatcher
---------------------------------
Secretary
In conformity with the above resolution we, the President and Secretary,
respectively, of said corporation, have executed this instrument, and do hereby
sign and acknowledge the same for and on behalf of the said corporation this 1st
day of August, A. D., 1958.
/s/ E. Howard Hill
---------------------------------
President
/s/ Kenneth Thatcher
---------------------------------
Secretary
[STAMP]
[STAMP]
<PAGE>
-10-
STATE OF IOWA
SS.
COUNTY OF POLK
BE IT REMEMBERED, that on this 1st day of August, A. D., 1958, before me, a
Notary Public in and for said county and state, personally appeared E. Howard
Hill and Kenneth Thatcher, each being to me personally known, who being by me
duly sworn did say, that they are the President and Secretary, respectively, of
the Iowa Life Insurance Company, and that the foregoing instrument was signed
and sealed on behalf of said corporation by authority of its stockholders, and
that they acknowledge said instrument to be the voluntary act and deed of said
corporation, by them voluntarily executed.
/s/
---------------------------------
Notary Public in and for
POLK COUNTY, IOWA
[SEAL]
<PAGE>
Adopted ANNUAL MEETING
May 28, 1969
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
ARTICLE I
CORPORATE NAME, LOCATION AND PURPOSE
Section 1. NAME. The name of this corporation shall be FARM BUREAU LIFE
INSURANCE COMPANY.
Section 2. LOCATION. The location of its principal or home office shall
be in Des Moines, Iowa.
Section 3. POWERS, OBJECTS AND PURPOSES. The corporate powers, objects
and purposes of this corporation are such as are provided in Article III of the
Articles of Incorporation of this corporation.
ARTICLE II
CORPORATE PERIOD
Section 1. CORPORATE PERIOD. The corporate period of this corporation
commenced on the 30th day of October, 1944, and shall have perpetual existence
thereafter unless changed as by law and the Articles of Incorporation required.
ARTICLE III
STOCK AND STOCKHOLDERS
(Authorized Capital- Eligibility to own stock- Conditions, etc.)
Section 1. AUTHORIZED CAPITAL. The authorized capital stock of this
corporation is Five Hundred Thousand Dollars ($500,000), divided into ten
thousand (10,000) shares, of which amount four thousand (4,000) shares of the
par value of Fifty Dollars ($50) per share, amounting to Two Hundred Thousand
Dollars ($200,000), is Common Stock, and six thousand (6,000) shares of the par
value of Fifty Dollars ($50) per share, amounting to Three Hundred Thousand
Dollars ($300,000), is seven and one-half per cent (7 1/2%) cumulative First
Preferred Stock.
Section 2. COMMON STOCK. The Common Stock shall have a par value of Fifty
Dollars ($50) per share, and the holders of record shall be entitled to one vote
per share at all meetings of
<PAGE>
the stockholders. The Common Stock shall be issued to and owned only by the
Iowa Farm Bureau Federation and shall be issued from time to time upon
application by it and upon tender of the purchase price as fixed by the Board of
Directors, which shall be not less than par. The holders of record of the
Common Stock shall be entitled to vote at all meetings of the stockholders by a
duly authorized representative or representatives.
If, after providing for the payment of full dividends for any fiscal year
on the First Preferred Stock and for any balance that remains due on the
cumulative dividends of such First Preferred Stock, there shall remain any
surplus net earnings or profits not in the opinion of the Board of Directors
required for the operation of the business of this corporation or for the
payment of its liabilities, it shall be applicable to dividends upon the Common
Stock for such fiscal year when and as from time to time the same shall be
declared by the Board of Directors, which dividends shall not be cumulative but
shall only be paid as surplus net earnings or profits are available and
dividends are declared. Such dividends shall be ratable in proportion to the
number of shares of Common Stock issued and outstanding until dividends have
been declared and set apart for the Common Stock to the extent of, but not in
excess of, seven and one-half (7 1/2 %) for any one fiscal year.
No Common stockholder shall be entitled to dividends unless it is a
stockholder of record at the time of the declaration of the same.
It is callable at the option of the Board of Directors at the selling
price, together with accrued dividends, if any, on thirty (30) days' prior
notice as provided in the Articles of Incorporation.
(b) FIRST PREFERRED STOCK. The holders of the First Preferred Stock shall
be entitled to receive when and as declared by the Board of Directors, dividends
from the net earnings of this corporation at the rate of seven and one-half per
cent (7 1/2 %) per annum on the par value, payable annually when and as
determined by the Board of Directors. Such dividends shall be payable before
any dividends shall be paid on or set apart for the common stockholders, and
shall be fully paid or set apart before any dividends shall be paid or declared
upon the Common Stock. It is to be sold at par and one-half per share, one-
third of which selling price shall be contributed surplus. It is callable at
the option of the Board of Directors at the selling price, together with any
accrued dividends, if any, on a thirty (30) day's prior notice, as provided in
the Articles of Incorporation. No first preferred stockholder shall be entitled
to dividends unless he or it is a stockholder of record at the time of the
declaration of the same.
Section 3. LIMITATION ON DIVIDENDS. No cash dividends on the capital
stock of the corporation in excess of the amount required to pay dividends at
the rate of six per cent (6%) per annum on the par value of the issued and
outstanding First Preferred Stock shall be paid in any calendar year prior to
January 1, 1946, unless the capital of the corporation, its surplus and
contingency reserves, shall aggregate ten per cent (10%) or more of all other
liabilities of the corporation, and no cash dividend in excess of the amount
required to pay dividends at the rate of six per cent (6%) per annum on the par
value of the issued and outstanding First Preferred Stock, shall be paid in any
calendar year between January 1, 1946 and January 1, 1951, unless the capital
surplus and contingency reserves shall equal or exceed eight and one-half (8
1/2%) of all
<PAGE>
other liabilities, nor shall any cash dividends in excess of the amount required
to pay dividends at the rate of seven and one-half per cent (7 1/2%) per annum
on the par value of the issued and outstanding First Preferred Stock be paid on
the capital stock in any calendar year after January 1, 1951, unless the capital
surplus and contingency reserves shall equal or exceed seven per cent (7%) of
all other liabilities.
No cash dividend in any one calendar year in excess of the amount required
to pay dividends at the rate of seven and one-half per cent ( 7 1/2%) per
annum, on the issued and outstanding First Preferred Stock, shall be paid on the
capital stock unless the policyholders' dividend scale of the corporation in
effect for said calendar year results in an average net cost equal to or less
than the average net cost to the ten legal reserve companies other than the Farm
Bureau Life Insurance Company, having the most insurance in force in the State
of Iowa as of the preceding December 31st.
For the purpose of this comparison the average net cost shall be computed
on the Whole Life Plan for ages at issued 25, 35, and 45, and for a policy
issued in the amount of One Thousand Dollars ($1,000). Cost for the above ages
shall be determined from the information provided annually by recognized life
insurance publications. Companies doing primarily a mail order business or
operating through lodges or as fraternal organizations, as well as United States
Government Insurance, shall not be included in the comparison.
Section 4. REGISTERED OWNER. This corporation shall be entitled to treat
the person or corporation in whose name any share of stock is registered as the
owner thereof for all purposes, and shall not be bound to recognize any
equitable right or claim to any interest in such share on the part of any other
person or corporation, whether or not the corporation shall have notice thereof,
save as expressly provided by the laws of the State of Iowa or as may hereafter
be provided.
Section 5. TRANSFER OF STOCK. The shares of First Preferred Stock and
Common Stock shall be transferable.
Section 6. STOCKHOLDERS' CONTRACTS. All persons who shall acquire stock
in this corporation shall acquire the same subject to the provisions of the
Articles of Incorporation and these By-Laws, and by the acceptance of a
certificate or certificates of stock in said corporation, agree to be bound by
the Articles of Incorporation and By-Laws and all amendments thereto.
Section 7. ISSUANCE OF STOCK. So long as Chapter 492, Code of Iowa, 1966,
is the law of the State of Iowa, no stock of this corporation shall be issued
until this corporation has first received payment in full therefor at par, in
cash or property, provided, however, that when stock is issued for anything
other than money, it must be in accordance with the statutes of the State of
Iowa in force at the time said stock is issued.
ARTICLE IV
MEETINGS OF STOCKHOLDERS
<PAGE>
Section 1. ANNUAL MEETING. The first regular annual meeting of the
stockholders of this corporation shall be held in the year of 1946 and all
subsequent annual meetings of the stockholders of this corporation shall be held
annually at Des Moines, Iowa, at such time and place as the Board of Directors
shall fix and determine, provided not less than ten (10) days' notice in
writing is given each stockholder entitled to vote, by mailing the same to his
last known address.
Section 2. SPECIAL MEETINGS. Special meetings of the stockholders, except
for the election of directors, may be called at any time by the president, and
shall be called by the president or secretary of this corporation upon the call
of the Board of Directors by a resolution duly adopted so providing and
directing and notice thereof shall be given the stockholders by written or
printed notice stating the object, time and place of such meeting, and shall be
mailed to the last known address of each stockholder, as shown by the books and
records of this corporation at least fifteen (15) days prior to such meeting.
Section 3. VOTING PRIVILEGE. At all meetings of the stockholders each
Common stockholder shall be entitled to one vote for each share of stock owned
and held by him or it.
Section 4. QUORUM. At annual and special meetings of the stockholders,
the stockholders of this corporation represented in person or by duly authorized
representative shall constitute a quorum at all meetings of the stockholders.
Section 5. ORDER OF BUSINESS. The order of business at all stockholders'
meetings insofar as possible and appropriate shall be as follows:
a. Call of Roll.
b. Reading and disposing of any unapproved minutes.
c. Reports of officers and committees.
d. Unfinished business.
e. New business.
f. Election of directors.
g. Adjournment.
ARTICLE V
(Stockholders' By-Law)
BOARD OF DIRECTORS
(Classification - Qualification - Nomination - Terms and Election)
Section 1. MANAGEMENT. The business and affairs of this corporation shall
be managed by a Board of Directors of not less than twelve (12) nor more than
twenty-one (21), divided into two classes, district directors and directors at
large, and the district directors shall be elected to serve for terms of three
(3) years and until their successors are elected and qualified, and the
<PAGE>
directors at large shall be elected to serve for terms of two (2) years and
until their successors are elected and qualified.
Section 2. NUMBER, QUALIFICATION AND ELECTION OF DIRECTORS. The board of
directors shall be constituted, as follows: There shall be twelve (12)
directors who shall be residents of the State of Iowa and active members of the
board of directors of the Iowa Farm Bureau Federation, nine (9) of whom shall be
district directors, and three (3) of whom shall be directors at large elected to
serve for a term of two (2) years and until their successors are elected and
qualified; plus one (1) director at large elected to serve for a term of two (2)
years and until his successor is elected and qualified from each state, other
than the state of the domicile of the corporation, in which this corporation is
licensed and authorized to transact and conduct its insurance business, other
than for the purpose of investments or reinsurance, who shall be an active
member of the board of directors of the Farm Bureau corporation of each such
state; at such time as the premium volume in any state other than the state of
domicile equals or exceeds one-sixth (1/6) of the premium volume in Iowa, such
other state shall be entitled to one (1) district director and shall be further
entitled to an additional district director each time such state attains an
additional premium volume equal to one-twelfth (1/12) of the premium volume in
Iowa. The number of district directors in each such state, if any, shall be
reduced whenever the premium volume in such state is less than the premium
volume required above to attain such director and the difference is greater than
one twenty-fourth (1/24) of the premium volume in Iowa. Adjustments in the
number of district directors shall be made at the time of the regular annual
meeting of this corporation based upon premium volume defined as the direct-
business premiums and annuity considerations received less dividends allowed in
the preceding fiscal year. In the event there is to be a downward adjustment in
board representation, as provided for above, then and in that event the board of
directors' nominating committee for such state, as hereinafter provided for,
shall determine and designate which district director or directors are to be
continued in office and the board of directors upon receiving such determination
and designation shall forthwith accept the resignation of the board member who
is not continuing, said resignation to be effective as of the date of the board
meeting held in connection with the annual meeting of the company, and in the
event said board of directors' nominating committee for said state fails to act
and so designate then and in that event the board of directors shall accept the
resignation of the district director from said state whose term has the least
number of years to run, and if there be more than one such district director,
then said terminating director shall be chosen by lot among them. All district
directors shall be elected to serve for a term of three (3) years and until
their successors are elected and qualified from districts and in the manner
hereinafter in these ByLaws provided, except that a district director newly
qualified from a state, other than the state of domicile of this corporation,
may at the discretion of the nominating committee of his state, be elected for a
term of one (1) or two (2) years in order to provide for staggered terms of
district directors from said state.
Each district director must be an active member of the board of directors
of the Farm Bureau corporation of his state of residence and whenever he ceases
to be a director of the board of directors of such state Farm Bureau
corporation, there shall be a vacancy in the office of director of this
corporation.
Section 3. DISTRICTS DEFINED.
<PAGE>
(a) The State of Iowa shall be divided into nine (9) districts numbered
from one (1) to nine (9), which districts shall be defined, as
follows:
DISTRICT 1- Alameda, Black Hawk, Bremer, Buchanan, Chickasaw, Clayton,
Delaware, Dubuque, Fayette, Howard, Winneshiek;
DISTRICT 2- Butler, Cerro Gordo, Floyd, Franklin, Hancock, Humboldt,
Kossuth, Mitchell, Winnebago, Worth, Wright;
DISTRICT 3- Cherokee, Clay, Buena Vista, Dickinson, Emmet, Lyon, O'Brien,
Osceola, Palo Alto, Plymouth, Pocahontas, Sioux;
DISTRICT 4- Audubon, Calhoun, Carroll, Crawford, Guthrie, Harrison, Ida,
Monona, Sac, Woodbury, Shelby;
DISTRICT 5- Boone, Dallas, Greene, Grundy, Hamilton, Hardin, Jasper,
Marshall, Polk, Story, Webster;
DISTRICT 6- Benton, Cedar, Clinton, Iowa, Jackson, Johnson, Jones, Linn,
Poweshiek, Scott, Tama;
DISTRICT 7- Davis, Des Moines, Henry, Jefferson, Lee, Louisa, Keokuk,
Muscatine, Van Buren, Wapello, Washington;
DISTRICT 8- Appanoose, Clarke, Decatur, Lucas, Mahaska, Marion, Monroe,
Madison, Warren, Wayne;
DISTRICT 9- Adams, Adair, Cass, Fremont, Mills, Montgomery, Pottawattamie,
Page, Ringgold, Taylor, Union.
(b) DISTRICTS DEFINED IN STATES OTHER THAN THE STATE OF THE DOMICILE OF
THIS CORPORATION. On and after the date any state, other than the
state of the domicile of this corporation, is entitled to one (1)
district director, said state shall constitute one (1) district, and
when such state is entitled to more than one district director as
herein provided said state may, if its nominating committee so
determines, divide itself into such number of districts as there are
district directors, or, in the alternative, said state may elect its
district directors on a state-wide basis and said directors shall
serve for the same terms as all other district directors. When a
state, other than the state of domicile of this corporation, is
entitled to an additional director, as hereinbefore provided, the
secretary of this corporation shall in writing so advise the
nominating committee of said state (the board of directors of the
state Farm Bureau corporation) and said committee shall then nominate
an eligible person, as defined in this Article, and file in writing
with the secretary of this corporation the name of such nominee
properly certified in the manner and in accordance with the terms of
Section 4 of this Article. The Board of Directors of this corporation
shall at its next meeting elect said nominee
<PAGE>
as a district director of this corporation to serve until the next
regular annual meeting of this corporation and until his successor is
elected and qualified.
SECTION 4. NOMINATION OF DIRECTORS- NOMINATING COMMITTEES. The Board of
Directors of the state Farm Bureau corporation of the state of the domicile of
this corporation and of any other state in which this corporation is licensed
and is authorized to transact its insurance business shall each, respectively,
constitute and be a stockholders' nominating committee for each state. Each
such state's nominating committee shall nominate the person or persons who are
eligible and qualified to be elected as directors of this corporation from such
state, as hereinbefore provided, and shall submit and file in writing with the
secretary of this corporation the names of such nominees, including the name of
the nominee, if any, who has been nominated and elected by the Board of
Directors as a district director since the date of the last annual meeting of
the stockholders of this corporation, not less than thirty (30) days prior to
the date of the meeting of the stockholders of this corporation at which they
are to be elected, and the secretary of this corporation shall submit the names
of such nominees to a nominating committee appointed by the president of this
corporation which said committee shall report and submit to the stockholders for
election only the names of those so nominated, if eligible, and no one else
shall be eligible for election to the Board of Directors of this corporation.
Section 5. MEMBERS OF BOARD OF DIRECTORS. The following named persons
shall constitute the Board of Directors of this corporation and shall serve for
the terms set opposite their names and until their successors are elected and
qualified. At the annual meeting of the stockholders of this corporation to be
held in the year 1970, and at each annual meeting thereafter, there shall be
elected such number of district directors as terms expire as of the date of such
annual meeting for a term of three (3) years and until their successors are
elected and qualified, and such number of directors at large as terms expire as
of the date of such annual meeting for a term of two (2) years and until their
successors are elected and qualified.
<TABLE>
<CAPTION>
(Directors at Large)
Name Address Expiration Date of Term
---- ------- -----------------------
<S> <C> <C>
J. Merrill Anderson RFD #1, Newton, Iowa 1970
Dean Kleckner Rudd, Iowa 1971
Mrs. Herbert Johnson RFD #1, Charles City, Iowa 1971
P. Dillon Hempstead Houston, Minnesota 1970
Roland G. Nelson Mead, Nebraska 1970
Kenneth McIntyre Harwood, North Dakota 1971
(District Directors)
District Name Address Expiration Date of Term
- -------- ---- ------- -----------------------
1 K. H. Hoppenworth RFD #1, Tripoli, Iowa 1971
2 Edward Engstrom RFD #1, Kanawha, Iowa 1970
3 Lyle R. Stephens LeMars, Iowa 1971
<PAGE>
4 T. Selmer Hodne Box 103, Manilla, Iowa 1972
5 R. N. Burt RFD #1, Marshalltown, Iowa 1971
6 Robert Joslin RFD #2, Clarence, Iowa 1972
7 Fred Holsteen RFD #1, West Point, Iowa 1970
8 Lawrence W. Everett RFD, New Sharon, Iowa 1972
9 William E. McGrew Emerson, Iowa 1970
</TABLE>
Section 6. ELIGIBILITY OF OFFICERS. No person shall be eligible to be
elected by the Board of Directors of this corporation to the offices of
president and vice-president of this corporation unless he is a resident of the
State of Iowa, an active member of the board of directors of the Iowa Farm
Bureau Federation. No person shall be eligible to be elected by the Board of
Directors of this corporation to the offices of secretary and treasurer of this
corporation unless he is a resident of the State of Iowa and the active
secretary and active treasurer of the Iowa Farm Bureau Federation.
Section 7. MEETINGS. The regular organization meeting of the Board of
Directors shall be held immediately after each annual meeting of the
stockholders, or as soon thereafter as a quorum of the Board of Directors can
be obtained for the election of officers and the transaction of any other
business which may properly be brought before the meeting and no notice of said
organization meeting shall be required.
Regular meetings of the Board of Directors shall be held quarterly at such
time and place and upon such notice as the directors may fix by resolution.
Special meetings may be called upon the order of the president. Notice of the
time, place and purpose of special meetings shall be given at least two (2) days
previous thereto by oral or written notice delivered personally or mailed to the
several directors at their last known address. Any director may waive notice of
any meeting of the Board of Directors. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting.
Section 8. QUORUM. A majority of the entire number of the Board of
Directors shall constitute a quorum of the board for the transaction of business
at any meeting of the Board of Directors. A majority vote of the members
present in quorum shall determine any matters not herein or in the Articles and
ByLaws requiring a different vote. If less than a majority of the directors may
be present at any meeting, a majority of the members present may adjourn the
meeting from time to time without further notice.
Section 9. VACANCIES. The Board of Directors shall fill all vacancies
occurring in its membership and that of the officers of this corporation by the
election of a person eligible to serve as such, as in these ByLaws authorized
and provided, and a director or officer so elected to fill a vacancy shall serve
for the unexpired term of the director or officer whose vacancy he was elected
to fill and/ or until his successor is elected and qualified. Whenever a member
of the Board of Directors of this corporation ceases to be eligible by reason of
the termination of his membership as an active member of the Board of Directors
of the Iowa Farm Bureau Federation , or of a state Farm Bureau corporation of a
state in which this corporation is licensed and authorized to transact its
insurance business, there shall be a vacancy in the office of said director as a
member of the Board of Directors of this corporation, and the Board of Directors
of this
<PAGE>
corporation shall fill such vacancy by electing the person nominated and
eligible to be elected as a director of this corporation, as in these ByLaws
provided, to serve until the next regular annual meeting of the stockholders of
this corporation and until his successor is elected and qualified, and his name
shall be placed in nomination for election as a director of this corporation by
the nominating committee and elected to serve for the remainder of a two-year
term if a director at large, and a three-year term if a district director, and
until his successor is elected and qualified.
Section 10. This Article V of the ByLaws of this corporation is a bylaw
adopted by the stockholders of this corporation in accordance with the laws of
this state and the Articles of Incorporation, as amended, of this corporation,
and may be amended only as authorized and provided in Article XI of these
ByLaws.
ARTICLE V-A
BOARD OF DIRECTORS- GENERAL PROVISIONS
Section 1. RULES AND REGULATIONS. The Board of Directors may from time
to time adopt rules and regulations and such rules and regulations shall
constitute by reference a part of these ByLaws, and shall be binding upon the
stockholders of this corporation and upon anyone doing business with this
corporation.
Section 2. COMMITTEES.
(a) AUDIT AND BUDGET. The audit and budget committee shall consist of
three (3) members who shall be members of the Board of Directors and shall be
appointed by the president and approved by the Board of Directors. The chairman
thereof shall be designated by the president. This committee shall review at
periodic intervals, all receipts received and all disbursements made from the
funds of the corporation and perform such other duties as may be delegated to it
by the Board of Directors.
(b) INVESTMENT. The investment policy of the corporation shall be
determined by the Board of Directors, which shall have the power to determine
the classes of investments and the percentage of investment to be made within
each of said classifications, subject to and in accordance with the provisions
of Section 515.35, Code of Iowa, 1966. The investment committee shall consist
of the president, secretary, treasurer, general counsel and the general manager
of the corporation, all of whom shall serve by virtue of their office. The
president shall serve as chairman of said committee and in the absence of the
president, those present shall designate an acting chairman. The committee
shall elect its secretary. The secretary of the committee shall keep a complete
record of the proceedings thereof. The investment committee shall make a report
to the Board of Directors each month, which report shall show the investments
purchased, sold or retired during the month immediately preceding, and in
addition, said committee shall, annually, make a full report to the Board of
Directors, covering all investment activities with particular reference to
purchases and sales during the preceding fiscal year. The Board of Directors
may call for special reports on investments at any time they so desire.
<PAGE>
The investment committee shall have the duty and the power to authorize and
direct the mode, manner and time of making and calling in investments, and the
sale or transfer of investments and the reinvestment of the proceeds thereof,
and to examine all funds and securities as often as they deem necessary or when
required to do so by the Board of Directors. The investment committee shall
have the duty and authority from time to time and whenever necessary to
authorize the execution of all contracts, deeds, conveyances and any other
instruments of the corporation necessary for the assignment, transfer and sale
of investments of the corporation requiring corporate signature. A majority of
the members of the committee shall constitute a quorum. There shall also be a
purchasing committee, which said committee shall consist of this corporation,
all of whom shall serve by virtue of their office. The treasurer shall serve as
chairman of said committee and in the absence of the treasurer, those present
shall designate an acting chairman. The purchasing committee shall select its
secretary who shall keep a complete record of the proceedings thereof. The
purchasing committee shall have the same power and authority, relative to the
handling, acquisition and disposition of investments of every kind and nature,
coextensive with the investment committee. A majority of the members of the
committee shall constitute a quorum. The purchasing committee shall make a
detailed report to the investment committee quarterly, covering the activities
of the purchasing committee for the preceding three months' period.
The investment of the funds of the corporation and the deposit of the
reserve on all policies and contracts issued by the corporation shall comply
with the laws of the State of Iowa.
Section 3. FIDELITY BONDS. The Board of Directors shall require the
officers, agents and employees having custody of any of its funds or property to
give the corporation a bond conditioned for the faithful discharge of the duties
of such person and in such amount and with such company as surety as the Board
of Directors shall require or approve. The cost of such bond shall be borne by
the corporation.
Section 4. AUDITS. The Board of Directors shall have an annual audit made
of the records of the corporation for submission to the members at the annual
meeting. The Board of Directors may have other audits made from time to time
whenever they shall deem such additional audits necessary.
ARTICLE VI
OFFICERS
(Officers - Election - Term - Duties)
Section 1. OFFICERS. The officers of this corporation shall be a
president, vice president, secretary and treasurer, and the office of secretary
and treasurer may be held by the same person. The Board of Directors may also
elect or appoint a general manager, an assistant general manager, assistant
secretaries, an assistant treasurer, a general counsel, an assistant general
counsel, an underwriting secretary, a medical director, an actuary and such
other officers as the interests of the company may require. The Board of
Directors shall have power to prescribe
<PAGE>
additional powers and duties for the officers and employees herein provided for,
and to change such powers and duties whenever the board may deem best.
Section 2. ELECTION AND TERM OF OFFICE. The president, vice president,
treasurer, and secretary shall be elected at the organization meeting of the
Board of Directors and all other officers shall be appointed or elected at such
time as the Board of Directors in its discretion shall determine. The term of
office of the president, vice president, treasurer and secretary shall be for
one (1) year, or until their successors are elected and qualified. The term of
office of all other elected or appointed officers shall be at the will and
pleasure of the Board of Directors.
Section 3. DUTIES OF OFFICERS.
(a) PRESIDENT. The president shall preside over all meetings of the Board
of Directors and meetings of the stockholders; shall execute personally or
through an agent duly authorized by the Board of Directors, in behalf of the
corporation, all contracts, deeds or other instruments which have been approved
by the Board of Directors; shall be a member ex-officio of all committees of the
Board of Directors; and shall have general supervision and administrative
control over all of the affairs of the corporation.
(b) VICE PRESIDENT. In the absence or the inability or disability of the
president, or his refusal to act, his duties shall devolve upon and be
discharged by the vice president.
(c) SECRETARY. The secretary shall be the custodian of all books, papers,
records, documents, official seal and property of the corporation, except as
otherwise authorized by the Board of Directors. He shall conduct by himself or
through such assistant secretaries and other subordinates such business as shall
be authorized by the Board of Directors; he shall serve or cause to be served,
printed and published, such notice as shall be required by law, by these ByLaws
and by resolutions of the Board of Directors; he shall keep the corporate
records, carry on all proper correspondence and shall act as secretary in the
meetings of the stockholders and the Board of Directors, and shall perform such
other administrative duties as shall be assigned to him from time to time by the
Board of Directors.
(d) TREASURER. The treasurer shall have charge of the funds of the
corporation and shall pay them out as ordered by the Board of Directors. He
shall keep an accurate account of receipts and disbursements and submit a
monthly report thereof to the Board of Directors at their regular meeting and
oftener as required; he shall also give a full and complete report at the annual
meeting of the stockholders.
(e) GENERAL MANAGER. Subject to the business and administrative policies
adopted by the Board of Directors from time to time and under the supervision
and direction of the Iowa Farm Administrative Board, the corporate manager, the
general manager shall be responsible for the supervision and direction of the
business and affairs of this corporation and its employees and agents.
(f) ASSISTANT GENERAL MANAGER. The assistant general manager shall, in
the absence of the general manager, perform the duties of the general manager;
he shall at other times have such
<PAGE>
duties and authority as shall be delegated to him and shall assist the general
manager and be subject to the supervision and direction of the general manager.
(g) ASSISTANT SECRETARY. The assistant secretary or secretaries shall
perform the duties of the secretary in the absence of the secretary and shall
perform such other duties as may from time to time be required by the Board of
Directors.
(h) ASSISTANT TREASURER. Such of the powers and duties vested in the
treasurer may be delegated by the Board of Directors to an assistant treasurer
or assistant treasurers as the Board of Directors in its discretion may deem
necessary or desirable. The assistant treasurer or assistant treasurers shall
be vested only such powers and duties as are so delegated. Assistant treasurers
shall, in the performance of their duties as delegated, be subject to the
direction, supervision and control of the treasurer.
(i) GENERAL COUNSEL. The general counsel, subject to the supervision of
the Board of Directors, shall be responsible for all matters of legal import
concerning the company.
(j) ASSISTANT GENERAL COUNSEL. The assistant general counsel shall, in
the absence of the general counsel, perform the duties of the general counsel;
he shall at other times have such duties and authority as shall be delegated to
him and shall assist the general counsel and be subject to the supervision and
direction of the general counsel.
(k) UNDERWRITING SECRETARY. It shall be the duty of the underwriting
secretary to have general supervision of the underwriting and acceptance of
risks and applications for insurance. No policy shall be issued unless the
application shall have first been approved by either the Underwriting Secretary
or an underwriter designated by him.
(l) MEDICAL DIRECTOR. It shall be the duty of the medical director to
have general supervision of medical underwriting and he shall be under the
general supervision of the underwriting secretary. He shall have supervision
over all medical examiners and cause to be kept such records as may be required
by the business of the company, and perform such other duties relating to the
underwriting of the company as shall from time to time be delegated to him.
(m) ACTUARY. The actuary shall be directly responsible to the general
manager and through him to the Iowa Farm Administrative Board, and through it to
the Board of Directors of this corporation for the performance and carrying out
of his responsibilities. It shall be the duty of the actuary to supervise the
compilation of all statistics and calculation of premium rates and the
allocation and distribution of surplus, and the performance of such other duties
as shall be assigned to him from time to time by the general manager.
ARTICLE VII
Section 1. KINDS OF INSURANCE. The Board of Directors shall determine the
kinds of insurance and the nature of the risks to be covered, subject and
pursuant to the provisions of the Articles of Incorporation, as amended, and the
applicable laws of the State of Iowa.
<PAGE>
Section 2. FORM OF POLICIES. The policies of insurance issued by the
company shall be in such form and upon such terms and conditions as may be
determined and authorized by the Board of Directors.
Section 3. PREMIUM. The Board of Directors shall fix the amount of the
premium and valuations for each policy and contract of insurance, with said
premiums to be paid monthly, quarterly, semi-annually or annually.
Section 4. REINSURANCE. The company may contract for reinsurance on its
own risks and may make and issue reinsurance contracts on the risks of others.
Such contracts may be on a participating or on a non-participating basis and may
be with or without contingent liability.
ARTICLE VIII
FISCAL YEAR
Section 1. FISCAL YEAR. The fiscal year of the company shall commence
with the first day of January of each year and terminate with the 31st day of
December each year.
ARTICLE IX
CORPORATE SEAL
Section 1. CORPORATE SEAL. The corporate seal of the corporation shall be
in the form of a circle and shall have inscribed therein the name of the
corporation and the words "Corporate Seal, Iowa."
ARTICLE X
EMPLOYEES
Section 1. EMPLOYEES. No person who is a member of the Board of
Directors, other than the president, and no person who is a relative of any
member of the Board of Directors or any officer of this corporation shall be
eligible for employment by the corporation.
ARTICLE XI
(Stockholders' By-Law)
AMENDMENTS TO BY-LAWS
Section 1. AMENDMENTS TO BYLAWS. The Board of Directors may, at its
pleasure, make and adopt ByLaws and amend the same which do not conflict with
the law or the Articles of Incorporation, as amended from time to time, or the
ByLaws adopted by the stockholders. No amendment shall be made to any ByLaw
which has been adopted by the stockholders unless the proposed amendment or
alteration has been filed in writing with the president and with the secretary
<PAGE>
of the corporation not less than sixty (60) days prior to the meeting at which
the amendment is to be offered and voted upon.
<PAGE>
AMENDMENTS TO THE
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
Adopted August 26, 1975
AMEND ARTICLE I of the By-Laws, entitled CORPORATE NAME, LOCATION AND
PURPOSES, by striking Section 2 thereof in its entirety and by substituting in
lieu thereof the following:
"Section 2. LOCATION. The location of its principal or home office shall
be in West Des Moines, Polk County, Iowa."
AMEND ARTICLE IV, entitled MEETINGS OF STOCKHOLDERS, by striking Section 1
in its entirety and by substituting in lieu thereof the following:
"Section 1. REGULAR ANNUAL MEETING. The regular annual meeting of the
stockholders and of this corporation held in the year 1975, and all subsequent
annual meetings of the stockholders of this corporation shall be held annually
at such time and place and upon such notice as the Board of Directors shall from
time to time fix and determine. Such notice shall be given in writing and
mailed to the stockholders' last known address as shown by the books and records
of the corporation not less than ten (10) days prior to such meeting, informing
the stockholders of the place, date and hour of said stockholders' meeting, and
said meeting shall be held in West Des Moines, Iowa, or at such other place in
Polk County, Iowa, as the Board of Directors may fix and determine, providing
notice of any such meeting at a place other than West Des Moines, Iowa, shall be
given to the stockholders in writing and mailed to the stockholders' last known
address as shown by the books and records of the corporation at least twenty
(20) days prior to such meeting, informing the stockholders of the place, date
and hour of said stockholders' meeting."
AMEND ARTICLE V-A, entitled BOARD OF DIRECTORS - GENERAL PROVISIONS, by
striking Section 2(a) in its entirety and by substituting in lieu thereof the
following:
"(a) BUDGET AND FINANCE. The budget and finance committee shall consist
of three (3) members who shall be members of the Board of Directors and shall be
appointed by the president and approved by the Board of Directors. The chairman
thereof shall be designated by the president. This committee shall review at
periodic intervals, all receipts and all disbursements made from the funds of
the corporation and perform such other duties as may be delegated to it by the
Board of Directors."
FURTHER AMEND ARTICLE V-A, by striking from Section 2(b), entitled
INVESTMENT, the figures and words "515.35, Code of Iowa, 1966" appearing in line
five thereof and by substituting in lieu thereof the figures and words "511.8,
Code of Iowa, 1975."
AMEND ARTICLE IX, entitled CORPORATE SEAL, by striking said Article in its
entirety and by substituting in lieu thereof the following:
<PAGE>
"ARTICLE IX
CORPORATE SEAL
Section 1. CORPORATE SEAL. The corporation shall have a corporate seal
and shall have inscribed thereon, "Farm Bureau Life Insurance Company, Corporate
Seal, Iowa."
<PAGE>
AMENDMENT TO
AMENDED AND SUBSTITUTED BY-LAWS
FARM BUREAU LIFE INSURANCE COMPANY
26 November, 1975
ARTICLE XII
INDEMNIFICATION - OFFICERS, DIRECTORS AND EMPLOYEES
This corporation shall make indemnification to the following extent and
under the following circumstances:
a. To indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right or the corporation) by reason of the fact that
he is or was a director, officer, employee, or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
enterprise, against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
b. To indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue, or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of this duty to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
<PAGE>
c. To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in paragraphs "a" and "b," or in defense
of any claim, issue, or matter herein, he shall be indemnified against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection therewith.
d. Any indemnification under paragraphs "a" and "b" (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the director, officer,
employee, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs "a" and "b." Such
determination shall be made (1) by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit, or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the shareholders.
e. Expenses, including attorney fees, incurred in defending a civil or
criminal action, suit, or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit, or proceeding as authorized in
the manner provided in paragraph "d" upon receipt of an undertaking by or on
behalf of the director, officer, employee, or agent to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this section.
f. The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
g. The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this section.
<PAGE>
Section 9. VACANCIES. The Board of Directors shall fill all vacancies
occurring in its membership and that of the officers of this corporation by the
election of a person eligible to serve as such, as in these ByLaws authorized
and provided, and a director or officer so elected to fill a vacancy shall serve
for the unexpired term of the director or officer whose vacancy he was elected
to fill and/ or until his successor is elected and qualified.
Whenever a member of the Board of Directors of this corporation ceases to
be eligible by reason of the termination of his membership as an active member
of the Board of Directors of the Iowa Farm Bureau Federation, or of a state Farm
Bureau corporation of a state in which this corporation is licensed and
authorized to transact its insurance business, there shall be a vacancy in the
office of said director as a member of the Board of Directors of this
corporation, and the Board of Directors of this corporation shall fill such
vacancy by electing the person nominated and eligible to be elected as a
director of this corporation, as in these ByLaws provided, to serve for the
unexpired term of the director whose vacancy he was elected to fill and/ or
until his successor is elected and qualified.
<PAGE>
Adopted: September 30, 1980
AMENDMENTS TO THE
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
AMEND ARTICLE V-A, Section 2(b), entitled "Investment," by striking it in
its entirety and substituting in lieu thereof the following:
"(b) INVESTMENT AND PURCHASE COMMITTEE. The investment policy of the
Corporation shall be determined by the Board of Directors, which shall have the
power to determine the classes of investments and the percentage of investment
to be made within each of said classifications, subject to and in accordance
with the provisions of Section 511.8 of the 1979 Code of Iowa. The Investment
and Purchase Committee shall consist of the secretary, treasurer and general
counsel and the general manager of the Corporation and the head of the
Investment Department shall be an ex officio member of this Committee without
portfolio, all of whom shall serve by virtue of their office. The treasurer
shall serve as chairman of said Committee and in his absence the general counsel
shall act as chairman; the Committee shall elect its secretary. The secretary
of the Committee shall keep a complete record of the proceedings thereof. The
Investment and Purchase Committee shall make a report to the Board of Directors
each month, which report shall show the investments purchased, sold, or retired
during the month immediately preceding, and in addition, said Committee shall,
annually, make a full report to the Board of Directors, covering all investment
activities with particular reference to purchases and sales during the preceding
fiscal year. The Board of Directors may call for special reports on investments
at any time they so desire.
The Investment and Purchase Committee shall have the duty and the power to
authorize and direct the mode, manner and time of making and calling in
investments, and the sale or transfer of investments and the reinvestment of the
proceeds thereof, and to examine all funds and securities as often as they deem
necessary or when required to do so by the Board of Directors. The Investment
and Purchase Committee shall have the duty and authority from time to time and
whenever necessary to authorize the execution of all contracts, deeds,
conveyances and any other instruments of the Corporation necessary for the
assignment, transfer and sale of investments of the Corporation requiring
corporate signature. A majority of the members of the Committee shall
constitute a quorum.
The investment of the funds of the Corporation and the deposit of the
reserve on all policies and contracts issued by the Corporation shall comply
with the laws of the State of Iowa."
<PAGE>
AMENDMENTS
TO THE
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
West Des Moines, Iowa
AMEND ARTICLE III, Section 1, entitled "AUTHORIZED CAPITAL", by striking
the first paragraph in its entirety and by substituting in lieu thereof the
following:
"Section 1. AUTHORIZED CAPITAL. The authorized capital stock of this
corporation is One Million Five Hundred Fifty Thousand Dollars ($1,550,000.00),
divided into thirty one thousand (31,000) shares, of which amount twenty-five
thousand (25,000) shares of the par value of Fifty Dollars ($50.00) per share,
amounting to One Million Two Hundred Fifty Thousand Dollars ($1,250,000) is
Common Stock, and six thousand (6,000) shares of the par value of Fifty Dollars
($50.00) per share, amounting to Three Hundred Thousand Dollars ($300,000) is
seven and one-half per cent (7 1/2%) cumulative First Preferred Stock."
AMEND ARTICLE III, Section 2 (a)., entitled "COMMON STOCK", by striking the
second paragraph in its entirety and substituting in lieu thereof the following:
"If, after providing for the payment of full dividends for any fiscal year
on the First Preferred Stock and for any balance that remains due on the
cumulative dividends of such First Preferred Stock, there shall remain any
surplus net earnings or profits not in the opinion of the board of directors
required for the operation of the business of this corporation or for the
payment of its liabilities, it shall be applicable to dividends upon the Common
Stock for such fiscal year when and as from time to time the same shall be
declared by the board of directors, which dividend shall not be cumulative but
shall only be paid as surplus net earnings or profits are available and
dividends are declared. Such dividends shall be ratable in proportion to the
number of shares of Common stock issued and outstanding."
AMEND ARTICLE III, Section 3, entitled "LIMITATION ON DIVIDENDS" by
striking the Section in its entirety.
<PAGE>
Adopted March 1, 1984
AMENDMENTS TO THE
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
AMEND ARTICLE V-A, Section 2(b), entitled "Investment," by striking it in
its entirety and substituting in lieu thereof the following:
(b) INVESTMENT COMMITTEE. The investment policy of the Corporation shall
be determined by the Board of Directors, which shall have the power to determine
the classes of investments and the percentage of investment to be made within
each of said classifications, subject to and in accordance with the provisions
of Section 511.8 of the Code of Iowa, as amended. The Investment Committee
shall consist of the Secretary, Treasurer, General Counsel, General Manager,
Assistant General Manager, Controller and Financial Planning Officer, Vice
President Life and Health Insurance, and Vice President Investments of the
Corporation, all of whom shall serve by virtue of their office. The Treasurer
shall serve as chairman of said Committee and in his absence the General Counsel
shall act as chairman; the Committee shall elect its Secretary. The secretary
of the Committee shall keep a complete record of the proceedings thereof. The
Investment Committee shall make a report to the Board of Directors each month,
which report shall show the investments purchase, sold or retired during the
month immediately preceding, and in addition, said Committee shall, annually,
make a full report to the Board of Directors, covering all investment activities
with particular reference to purchases and sales during the preceding fiscal
year. The Board of Directors may call for special reports on investments at any
time they so desire.
The Investment Committee shall have the duty and the power to authorize
and direct the mode, manner and time of making and calling in investments, and
the sale or transfer of investments and the reinvestment of the proceeds
thereof, and to examine all funds and securities as often as they deem necessary
or when required to do so by the Board of Directors. The Investment Committee
shall have the duty and authority from time to time and whenever necessary to
authorize the execution of all contracts, deeds, conveyances and any other
instruments of the Corporation necessary for the assignment, transfer and sale
of investments of the Corporation requiring corporate signature. A majority of
the members of the Committee shall constitute a quorum.
The investment of the funds of the Corporation and the deposit of the
reserve on all policies and contracts issued by the Corporation shall comply
with the laws of the State of Iowa.
AMEND ARTICLE III, Section 4., entitled "REGISTERED OWNER" by renumbering
as Section 3.
AMEND ARTICLE III, Section 5., entitled "TRANSFER OF STOCK" by renumbering
as Section 4.
<PAGE>
AMEND ARTICLE III, Section 6., entitled "STOCKHOLDERS' CONTRACTS" by
renumbering as Section 5.
AMEND ARTICLE III, Section 7., entitled "ISSUANCE OF STOCK" by renumbering
as Section 6.
<PAGE>
PARTICIPATION AGREEMENT
AMONG
FBL VARIABLE INSURANCE SERIES FUND,
FBL INVESTMENT ADVISORY SERVICES, INC.,
AND
FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 4th day of January, 1994, by and
between FARM BUREAU LIFE INSURANCE COMPANY, (hereinafter the "Company") on its
own-behalf and on behalf of FARM BUREAU LIFE ANNUITY ACCOUNT (hereinafter the
"VA Account"), a segregated asset account of the Company, and FBL VARIABLE
INSURANCE SERIES FUND, an unincorporated business trust organized under the laws
of the Commonwealth of Massachusetts (hereinafter the "Fund" and FBL INVESTMENT
ADVISORY SERVICES, INC. (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively referred to herein as "Variable Insurance Products") to be offered
by insurance companies which have entered into participation agreements
substantially identical to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed Portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated November 2, 1987 (File No. 812-6855), granting Participating
Insurance Companies and variable life insurance separate accounts exemptions
from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life insurance
companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered under the 1933 Act certain variable
life insurance policies and/or variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated herein
by this reference, as such Schedule A may be amended from time to time hereafter
by mutual written agreement of all the parties hereto (hereinafter the
"Contracts"); and
<PAGE>
WHEREAS, the VA Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company on July 26, 1993, to set aside and invest assets attributable to the
Contracts; and
WHEREAS, the Company has registered or will register the VA Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission (hereinafter the "Commission") under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (hereinafter "NASD"); and
WHEREAS, the Underwriter is also registered as an investment adviser with
the Commission under the Investment Advisors Act of 1940 and serves as an
investment advisor to the Fund pursuant to an agreement dated as of April 6,
1987 (the Underwriter when serving in such capacity is referred to herein as the
"Adviser");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of the VA Account to fund the Contracts and the Underwriter is authorized to
sell such shares at net asset value to unit investment trusts as the VA Account;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants hereinafter set forth, the Company, the Fund and the Underwriter
agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which the VA Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from the VA Account
and receipt by such designee shall constitute receipt by the Fund, provided that
the Fund receives notice of such order from the Company by 10:30 a.m. central
time on the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its VA
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the Commission; provided, however, that the Board of Trustees of the
Fund (hereinafter the "Trustees") may refuse to sell shares of any Portfolio to
any person, or suspend or terminate the offering of shares of any Portfolio, if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Trustees acting in good faith and in light
of their fiduciary duties under Federal and any applicable state laws, necessary
in the best interests of the shareholders of any Portfolio.
<PAGE>
1.3 The Fund and the Underwriter agree that the shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4 The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this Agreement are in
effect to govern such sales.
1.5 The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from the Account and receipt by such designee shall
constitute receipt by the Fund, provided that the Fund receives notice of such
request for redemption from the Company by 10:30 a.m. central time on the next
following Business Day.
1.6 The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund in accordance with the
provisions of the prospectus. The Company agrees that all net amounts available
under the Contracts shall be invested in the Fund, in such other Funds advised
by the Adviser as may be mutually agreed to in writing by the parties hereto, or
in the Company's general account, provided that such amounts may also be
invested in an investment company other than the Fund or such other Funds
advised by the Adviser as may be mutually agreed to in writing by the parties
hereto if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days' written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement; or (d)
the Fund or Underwriter consents to the use of such other investment company.
1.7 The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. The Funds shall pay redemption proceeds on the next
Business Day after a request to redeem shares is made in accordance with the
provisions of Section 1.5 hereof. Payment shall be in federal funds transmitted
by wire.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Fund will be recorded in an appropriate title for the Account
or the appropriate subaccount of the Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such dividends and distributions as
<PAGE>
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
dividends and distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10 The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practicable
after the net asset value per share is calculated and shall use its best efforts
to make such net asset value per share available by 4:30 p.m. central time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that each Contract owner shall be duly qualified and suitable under
applicable state insurance laws to purchase such Contract. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established the Account as a segregated asset account under Section 508A.1 of
the Iowa Code (1985) and has registered the Account as a unit investment trust
in accordance with the provisions of the 1940 Act to serve as a segregated asset
account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration Statement
for its shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund represents that it believes, in good faith, that it is
currently qualified as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986 (hereinafter the "Code"), and that it will make
every effort to maintain such qualification (under Subchapter M or any successor
or similar provision) and that it will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or that
it might not so qualify in the future.
2.4 The Company represents that it believes, in good faith, that the
Contracts are currently treated as annuity contracts or life insurance policies,
whichever is appropriate, under applicable provisions of the Code, and that it
will make every effort to maintain such treatment and that it will notify the
Fund and the Underwriter immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
<PAGE>
2.5 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the insurance laws
of the State of Iowa and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the insurance laws of the State of Iowa to the extent required to perform
this Agreement.
2.7 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the Commission.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with all applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.9 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with applicable state and federal securities laws.
2.10 The Fund and Underwriter represent and warrant that all of their
respective directors, trustees, officers, employees, investment advisers, and
other individuals/ entities dealing with the money and/ or securities of the
Fund are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less than
$500,000. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonable request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonable necessary
in order for the Company once a year (or more frequently if the prospectus for
the Fund is amended) to have the new prospectus for the Contracts and the Fund's
new prospectus printed together in one document (such printing to be at the
Company's expense).
<PAGE>
3.2 The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or, in the Fund's
discretion, the Prospectus shall state that such statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall provide such
Statement free of charge to the Company and to any owner of or participant under
a Contract or prospective owner or participant who requests such Statement.
3.3 The Fund shall provide the Company with one copy of its proxy material,
reports to shareholders and other communications to shareholders.
3.4 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners or
participants;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners or participants; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for which
instructions have been received;
so long as and to the extent that the Commission continues to interpret the
1940 Act to require pass-through voting privileges for variable contract
owners. The Company reserves the right to vote Fund shares held in any
segregated asset account or in its general account in its own right, to the
extent permitted by law. Participating Insurance Companies shall be
responsible for assuring that each of their separate accounts participating
in the Fund calculates voting privileges in a manner consistent with other
Participating Insurance Companies.
3.5 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of the Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the Commission's interpretation of the requirements of
Section 16(a) with respect to periodic elections of trustees and with whatever
rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund, Adviser, or the Underwriter is named, at least fifteen business
days prior to its use. No such material shall be used if the Fund or its
designee object to such use within fifteen business days after receipt of such
material.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
<PAGE>
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account(s) is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company or its designee object to such use within fifteen
business days after receipt of such material.
4.4 The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement or prospectus for the Contracts, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
published reports for the Account which are in the public domain or approved by
the Company for distribution to Contract owners or participants, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the Commission or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Contracts or
the VA Account, promptly after the filing of any such document with the
Commission.
4.7 For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan
<PAGE>
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to the underwriter for the Contracts if and
in amounts agreed to by the Underwriter in writing. Currently, no such payments
are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, all taxes on the issuance or
transfer of the Fund's shares, and any expenses permitted to be paid or assumed
by the Fund pursuant to a plan, if any, under Rule 12b-1.
5.3 The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners and participants of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to such Contract
owners or participants.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund at all times will invest its assets in such a manner as to
ensure compliance with Section 817(h) of the Code and the regulations issued
thereunder, and with any amendments or other modifications to such Section or
regulations.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Board") will monitor the Fund
for the existence of any material irreconcilable conflict between the interests
of the contract owners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2 The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for
<PAGE>
the Board to consider any issues raised. This includes, but is not limited to,
an obligation by the Company to inform the Board whenever Contract owner voting
instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (a)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account. A
majority of the disinterested members of the Board shall determine whether any
action proposed by the Participating Insurance Companies adequately remedies any
irreconcilable material conflict, but in no event will the Fund be required to
establish a new funding medium for the Contracts. The Company shall not be
required by this Section 7.3 to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Board determines that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination may, at
the Company's option, be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority positions or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement; provided, however, that such withdrawal
and termination may, at the Company's election, be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six months after the Fund gives written
notice that this provision is being implemented, and, until the end of that
six-month period, the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board gives written notice to the Company that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
<PAGE>
that such withdrawal and termination may, at the Company's option, be limited to
the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Until the
end of that six-month period, the Underwriter and Fund shall continue to accept
and implement orders by the company for the purchase (and redemption) of shares
of the Fund.
7.6 If and to the extent that Rule 6e-2 and Rule 6e3(T) under the 1940 Act
are amended, or rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Shared Funding Exemptive Order) on
terms and conditions materially different from those contained in the Shared
Funding Exemptive Order, then (a) the Fund and/ or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such rule(s) as so amended or adopted."
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund and each
of its Trustees and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act (collectively "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
Registration Statement or prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund Shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by the
Company or persons under its control) or
<PAGE>
wrongful conduct of the Company or persons under its control, with respect
to the sale or distribution of the Contracts or Fund Shares: or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/ or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company; as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof
8.1(b) The Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to the Fund.
8.1(c) The Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or ale of the Fund Shares or Contracts or the operation of the
Fund.
<PAGE>
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any stature,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on behalf of the
Company for use in the Registration Statement or prospectus for the Fund or
in sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund Shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful conduct of the
Fund or Underwriter or persons under their control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus, or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by or on behalf of
the Fund: or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the diversification requirements specified in Article VI
hereof or the representations of the Fund set forth in Section 2.3 hereof);
(v) arise out of or result from any material breach of any
representation and/ or warranty made by the Underwriter in this Agreement
or arise out or result from any other material breach of this Agreement by
the Underwriter;
<PAGE>
as limited by an in accordance with the provision of Sections 8.2(b) and
8.2(c) hereof
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company or the Account.
8.2(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this Indemnification Provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of the Contracts or the operation of the Account.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Iowa.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulation as the Commission may
grant (including, but not limited to, the Shared Funding Exemptive Order) and
the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall terminate:
<PAGE>
(a) at the option of any party upon one year's advance written
notice to the other parties; provided, however, that such notice shall not
be given earlier than one year following the date that the Company first
purchases shares of the Fund pursuant to this Agreement; or
(b) at the option of the Company to the extent that shares of one or
more Portfolios are not reasonable available to meet the requirements of
the Contracts as determined by the Company; provided, however, that such
termination shall apply only to the Portfolio(s) the shares of which are
not reasonably available. Prompt notice of the election to terminate for
such cause shall be furnished by the Company; or
(c) at the option of the Fund upon 90 days' advance written notice to
the Company in the event that formal administrative proceedings are
instituted against the Company by the NASD, the Commission, any insurance
department or any other regulatory body regarding the Company's duties
under this Agreement or related to the sale of the Contracts, the operation
of the Account, or the purchase of the Fund shares, but only if the Fund
determines, in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the
ability of the Company to perform its obligations under this Agreement; or
(d) at the option of the Company upon 90 days' advance written notice
to the Fund in the event formal administrative proceedings are instituted
against the Fund or the Underwriter by the NASD, the Commission, or any
state securities or insurance department or any other regulatory body, but
only if the Company determines, in its sole judgment exercised in good
faith, that any such administration proceedings will have a material
adverse effect upon the ability of the Fund or the Underwriter to perform
its obligations under this Agreement; or
(e) upon requisite vote of the Contract owners having an interest in
the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares
had been selected to serve as the underlying investment media. The Company
will give 30 days' prior written notice to the Fund of the date of any
proposed vote to replace the Fund's shares; or
(f) at the option of the Company upon written notice to the Fund in
the event any of the Fund's shares are not registered, issued or sold in
accordance with applicable state and/ or federal law or such law precludes
the use of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; or
(g) by either the Fund or the Company pursuant to the termination
provisions set forth in Article VII hereto; or
(h) at the option of the Company upon written notice to the Fund if
the Fund ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code, or under any successor or similar provision, or
if the Company reasonably believes that the Fund may fail to so qualify; or
(i) at the option of the Company upon written notice to the Fund if
the Fund fails to meet the diversification requirements specified in
Article VI hereof; or
(j) at the option of either the Fund or the Underwriter if (1) the
Fund or the Underwriter, respectively, shall determine, in its sole
judgment reasonable exercised in good faith, that the Company shall have
suffered a material adverse change in its business or financial condition
or is the subject of material adverse publicity and such material adverse
<PAGE>
publicity will have a material adverse impact upon the business and
operations of either the Fund or the Underwriter, (2) the Fund or the
Underwriter shall notify the Company in writing of such determination and
its intent to terminate this Agreement, and (3) after considering the
actions taken by the Company and any other changes in circumstances since
the giving of such notice, such determination of the Fund or the
Underwriter shall continue to apply on the sixtieth (60th) day following
the giving of such notice, which sixtieth day shall be the effective date
of termination; or
(k) at the option of the Company, if (1) the Company shall determine,
in its sole judgment reasonable exercised in good faith, that either the
Fund or the Underwriter has suffered a material adverse change in its
business or financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse publicity
will have a material adverse impact upon the business and operations of the
Company, (2) the Company shall notify the Fund and the Underwriter in
writing of such determination and its intent to terminate this Agreement,
and (3) after considering the actions taken by the Funds and/ or the
Underwriter and any other changes in circumstances since the giving of such
notice such determination shall continue to apply on the sixtieth (60th)
day following the giving of such notice, which sixtieth day shall be the
effective date of termination; or
(l) at the option of either the Fund or the Underwriter upon 60 days'
written notice to the Company if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.6(b) hereof.
10.2 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason. In particular, and without limiting the generality of
the foregoing, it is further specifically understood and agreed that, while the
Company is not required to sell any particular number of Contracts and while a
specific number or dollar value of Fund shares need not be purchased pursuant to
Section 10.1(a) if the Company does not purchase a dollar value of shares
satisfactory to the Fund and the Underwriter.
10.3 Except as necessary to implement Contractowner initiated transactions,
or as required by state insurance laws or regulations, the Company shall not
redeem Fund shares attributable to the Contracts (as opposed to Fund shares
attributable to the Company's assets held in the Account), and the Company shall
not prevent Contract owners from allocating payments to a Portfolio that was
otherwise available under the Contracts, until 90 days after the Company shall
have notified the Fund or the Underwriter of its intention to do so.
10.4 NOTICE REQUIREMENT. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives the prior
written notice of its intent to terminate specified in the applicable subsection
of Section 10.1 or Section of Article VII, which notice shall set forth the
subsection of Section 10.1 or the Section of Article VII, respectively, which is
the basis for such termination.
10.5. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement pursuant to Section 10.1 hereof, the Fund and the Underwriter shall,
at the option of the Company, continue to make available additional shares of
the Fund pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
<PAGE>
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund, and/ or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The effect of any termination pursuant to Article VII
hereof shall be governed by such Article. The agreements with respect to
indemnification set forth in Article VIII hereof shall survive the termination
of this Agreement.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other parties at the addresses of such parties set forth below or at
such other addresses as such parties may from time to time specify in writing to
the other parties.
If to the Fund:
FBL Variable Insurance Series Fund
5400 University Avenue
West Des Moines, Iowa 50266
If to the Company:
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
If to the Underwriter:
FBL Investment Advisory Services, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Trustees, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to law and regulatory authority, each party hereto shall treat
as confidential all information reasonable identified as such in writing by any
other party hereto (including without limitation the names and addresses of the
owners of the Contracts) and, except as contemplated by this Agreement, shall
not disclose, disseminate or utilize such confidential information until such
time as it may come into the public domain without the express prior written
consent of the affected party.
<PAGE>
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitle to under state and
federal laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this agreement to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
Company: FARM BUREAU LIFE INSURANCE COMPANY
Seal By: [signature] Merlin D. Plagge
Title: President
Date: January 4, 1994
Company: FBL VARIABLE INSURANCE SERIES FUND
Seal By: [signature] Merlin D. Plagge
Title: President
Date: January 4, 1994
Company: FBL INVESTMENT ADVISORY SERVICES, INC.
Seal By: [signature] Richard D. Warming
Title: President
Date: January 4, 1994
<PAGE>
Farm Bureau Life letterhead
April 27, 1998
Board of Directors
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Statement of Additional Information filed as part of Post-Effective
Amendment No. 5 to the Registration Statement on Form N-4 filed by Farm Bureau
Life Insurance Company and Farm Bureau Life Annuity Account with the Securities
and Exchange Commission.
Very truly yours,
/s/ Stephen M. Morain
Stephen M. Morain
Senior Vice President & General Counsel
<PAGE>
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, NW
Washington, DC 20004-2415
Tel: (202) 383-0100
Fax: (202) 637-3593
April 28, 1998
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the statement of additional information filed as part of the
Post-Effective Amendment No. 5 to the Registration Statement on Form N-4 filed
by Farm Bureau Life Annuity Account. In giving this consent, we do not admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By /s/ Stephen E. Roth
-------------------------------------
Stephen E. Roth
<PAGE>
Ernst & Young LLP
801 Grand Avenue
Des Moines, Iowa 50309-2764
Suite 3400
Phone: 515 243 2727
Consent of Independent Auditors
The Board of Directors and Participants
Farm Bureau Life Insurance Company
We consent to the reference to our firm under the captions "Financial
Statements" and "Experts" and to the use of our reports dated March 18, 1998
with respect to Farm Bureau Life Annuity Account and February 16, 1998 with
respect to Farm Bureau Life Insurance Company, in this Post-Effective Amendment
No. 5 to the Registration Statement under the Securities Act of 1933 (Form N-4
No. 33-67538) and this Amendment No. 6 to the Registration Statement under the
Investment Company Act of 1940 (No. 811-7974) and related Prospectus of Farm
Bureau Life Annuity Account dated May 1, 1998.
/s/ Ernst & Young LLP
Des Moines, Iowa
April 28, 1998
<PAGE>
April 27, 1998
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by Farm Bureau
Life Insurance Company of a flexible premium deferred variable annuity contract
("Contract") under the Securities Act of 1933, as amended. The prospectus
included in Post-Effective Amendment No. 5 to the Registration Statement on Form
N-4 (File No. 33-67538) describes the Contract. I have provided actuarial
advice concerning the preparation of the contract form described in the
Registration Statement, and I am familiar with the Registration Statement and
exhibits thereto.
It is my professional opinion that the fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred and the risks assumed by the insurance
company.
I hereby consent to the use of this opinion as an exhibit to Post-Effective
Amendment No. 5 to the Registration Statement.
Sincerely,
/s/ Christopher G. Daniels
Christopher G. Daniels, FSA, MSAA
Life Product Development and Pricing Vice
President
Farm Bureau Life Insurance Company
<PAGE>
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Stephen M. Morain
as his attorney-in-fact and file on his behalf individually and in the capacity
stated below such registration statements (including post-effective amendments,
for Farm Bureau Life Variable Account (Form S-6) and Farm Bureau Life Annuity
Account (Form N-4)), exhibits, applications and other documents with the
Securities and Exchange Commission or any other regulatory authority as may be
desirable or necessary in connection with the public offering of Flexible
Premium Variable Life Insurance Policies and Flexible Premium Deferred Variable
Annuity Contracts.
Signature Title Date
/s/ Kenneth R. Ashby Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
/s/ Al Christopherson Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
/s/ Ernest A. Glienke Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
/s/ Craig D. Hill Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
/s/ Craig A. Lang Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
/s/ Lindsey D. Larson Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
/s/ Donald O. Narigon Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
/s/ Bryce P. Neidig Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
<PAGE>
/s/ Howard D. Poulson Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
/s/ Bennett M. Osmonson Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
/s/ Beverly Schnepel Director, 11/2/93
- ------------------------- Farm Bureau Life -----------------
Insurance Company
