<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2000
FILE NO. 33-67538
FILE NO. 811-07974
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 8
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 9
---------------------
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 Principal Executive Office)
1-515-225-5400
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.
SECURITIES BEING OFFERED: FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
CONTRACTS
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485;
/X/ ON MAY 1, 2000 PURSUANT TO PARAGRAPH (b) OF RULE 485;
/ / DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) OF RULE 485;
/ / ON (DATE) PURSUANT TO PARAGRAPH (a) OF RULE 485.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FARM BUREAU LIFE ANNUITY ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACT
------------------------------------------------------------------------
PROSPECTUS
May 1, 2000
Farm Bureau Life Insurance Company (the "Company") is offering the individual
flexible premium deferred variable annuity contract (the "Contract") described
in this prospectus. It provides for accumulation of Cash Value and annuity
payments on a fixed and variable basis. The Company sells the Contract to
retirement plans, including those that qualify for special federal tax treatment
under the Internal Revenue Code.
The Owner of a Contract ("you" or "your") may allocate premiums and Cash Value
to 1) the Declared Interest Option, an account that provides a specified rate of
interest, and/or 2) Subaccounts of Farm Bureau Life Annuity Account, each of
which invests in one of the following Investment Options:
<TABLE>
<S> <C>
Value Growth Portfolio High Grade Bond Portfolio
High Yield Bond Portfolio Managed Portfolio
Blue Chip Portfolio Money Market Portfolio
Mid-Cap Growth Portfolio New America Growth Portfolio
Personal Strategy Balanced Portfolio International Stock Portfolio
Growth Portfolio Overseas Portfolio
Contrafund Portfolio Index 500 Portfolio
Growth & Income Portfolio
</TABLE>
The accompanying prospectus for each Investment Option describes the investment
objectives and attendant risks of each Investment Option. If you allocate
premiums to the Subaccounts, the amount of the Contract's Cash Value prior to
the retirement date will vary to reflect the investment performance of the
Investment Options you select.
Please note that the Contracts and Investment Options are not bank deposits, are
not federally insured, are not guaranteed to achieve their goals and are subject
to risks, including loss of the amount invested.
You may find additional information about your Contract and the Account in the
Statement of Additional Information, dated the same as this prospectus. To
obtain a copy of this document, please contact us at the address or phone number
shown on the cover of this prospectus. The Statement of Additional Information
(SAI) has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The SEC maintains a website
(http://www.sec.gov) that contains the SAI, material incorporated by reference
into this prospectus, and other information filed electronically with the SEC.
Please read this prospectus carefully and retain it for future reference. A
prospectus for each Investment Option must accompany this prospectus and you
should read it in conjunction with this prospectus.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Issued By
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
DEFINITIONS................................................. 3
EXPENSE TABLES.............................................. 5
SUMMARY OF THE CONTRACT..................................... 9
CONDENSED FINANCIAL INFORMATION............................. 11
THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS................. 13
Farm Bureau Life Insurance Company.................... 13
Iowa Farm Bureau Federation........................... 13
Farm Bureau Life Annuity Account...................... 13
Investment Options.................................... 13
Addition, Deletion or Substitution of Investments..... 17
DESCRIPTION OF ANNUITY CONTRACT............................. 17
Issuance of a Contract................................ 17
Premiums.............................................. 18
Free-Look Period...................................... 18
Allocation of Premiums................................ 18
Variable Cash Value................................... 19
Transfer Privilege.................................... 20
Partial Surrenders and Surrenders..................... 20
Special Transfer and Withdrawal Options............... 21
Death Benefit Before the Retirement Date.............. 22
Proceeds on the Retirement Date....................... 22
Payments.............................................. 23
Modification.......................................... 23
Reports to Owners..................................... 23
Inquiries............................................. 24
THE DECLARED INTEREST OPTION................................ 24
Minimum Guaranteed and Current Interest Rates......... 24
Transfers From Declared Interest Option............... 25
Payment Deferral...................................... 25
CHARGES AND DEDUCTIONS...................................... 25
Surrender Charge (Contingent Deferred Sales Charge)... 25
Annual Administrative Charge.......................... 26
Transfer Processing Fee............................... 26
Mortality and Expense Risk Charge..................... 26
Investment Option Expenses............................ 26
Premium Taxes......................................... 27
Other Taxes........................................... 27
PAYMENT OPTIONS............................................. 27
Description of Payment Options........................ 27
Election of Payment Options and Annuity Payments...... 28
YIELDS AND TOTAL RETURNS.................................... 31
FEDERAL TAX MATTERS......................................... 32
Introduction.......................................... 32
Tax Status of the Contract............................ 33
Taxation of Annuities................................. 34
Transfers, Assignments or Exchanges of a Contract..... 36
Withholding........................................... 36
Multiple Contracts.................................... 36
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Taxation of Qualified Plans........................... 36
Possible Charge for the Company's Taxes............... 38
Other Tax Consequences................................ 39
DISTRIBUTION OF THE CONTRACTS............................... 39
LEGAL PROCEEDINGS........................................... 39
VOTING RIGHTS............................................... 40
FINANCIAL STATEMENTS........................................ 40
CALCULATING VARIABLE ANNUITY PAYMENTS....................... Appendix A
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS....... SAI-TOC
</TABLE>
The Contract may not be available in all jurisdictions.
This prospectus constitutes an offering or solicitation only in those
jurisdictions where such offering or solicitation may lawfully be made.
2
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
ACCOUNT: Farm Bureau Life Annuity Account.
ANNUITANT: The person or persons whose life (or lives) determines the annuity
benefits payable under the Contract and whose death determines the death
benefit.
BENEFICIARY: The person to whom the Company pays the proceeds on the death of
the owner/annuitant.
BUSINESS DAY: Each day that the New York Stock Exchange is open for trading,
except: (1) any period when the Securities and Exchange Commission determines
that an emergency exists which makes it impracticable for a Fund to dispose of
its securities or to fairly determine the value of its net assets; or (2) such
other periods as the Securities and Exchange Commission may permit for the
protection of security holders of a Fund.
CASH VALUE: The total amount invested under the Contract, which 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.
CASH SURRENDER VALUE: The Cash Value less any applicable Surrender Charge.
THE CODE: The Internal Revenue Code of 1986, as amended.
THE COMPANY ("WE", "US" OR "OUR"): Farm Bureau Life Insurance Company.
CONTRACT: The individual flexible premium deferred variable annuity contract we
offer and describe in this prospectus, which term includes the Contract
described in this prospectus, the Contract application, any supplemental
applications and any endorsements or additional benefit riders or agreements.
CONTRACT ANNIVERSARY: The same date in each Contract Year as the Contract Date.
CONTRACT DATE: The date on which the Company receives a properly completed
application at the Home Office. It is the date set forth on the data page of the
Contract which the Company uses 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: Satisfactory documentation provided to the Company verifying
proof of death. This documentation may include the following:
(a) a certified copy of the death certificate;
(b) a certified copy of a court decree reciting a finding of death; or
(c) any other proof satisfactory to the Company.
FUND: An open-end diversified management investment company in which the Account
invests.
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.
INVESTMENT OPTION: A separate investment portfolio of a Fund.
NON-QUALIFIED CONTRACT: A Contract that is not a Qualified Contract.
3
<PAGE>
OWNER ("YOU" OR "YOUR"): The person who owns the Contract and who is entitled to
exercise all rights and privileges provided in the Contract.
QUALIFIED CONTRACT: A Contract the Company issues in connection with plans that
qualify for special federal income tax treatment under Sections 401, 403(a),
403(b), 408 or 408A of the Code.
RETIREMENT DATE: The date when the Company applies the Cash Value under a
payment option, if the annuitant is still living.
SEC: The U.S. Securities and Exchange Commission.
SUBACCOUNT: A subdivision of the Account which invests its assets in a
corresponding Investment Option.
VALUATION PERIOD: The period that starts at the close of business (3:00 p.m.
central time) on one Business Day and ends at the close of business on the next
succeeding Business Day.
WRITTEN NOTICE: A written request or notice signed by the owner in a form
satisfactory to the Company which the Company receives at the Home Office.
4
<PAGE>
- --------------------------------------------------------------------------------
EXPENSE TABLES
- --------------------------------------------------------------------------------
The following expense information assumes that the entire cash value is
variable cash value.
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charge Imposed on Premiums None
</TABLE>
Surrender Charge (contingent deferred sales charge) as a percentage of the
amount surrendered:
<TABLE>
<CAPTION>
CONTRACT YEAR* SURRENDER CHARGE
<S> <C>
1 6%
2 5
3 4
4 3
5 2
6 1
7 and after 0
</TABLE>
* You may annually surrender a maximum of 10% of the Cash Value without
incurring a Surrender Charge. The amount that you may surrender without
incurring a Surrender Charge is not cumulative from Contract Year to
Contract Year.
Under certain circumstances, a Surrender Charge may apply on the
Retirement Date. See "CHARGES AND DEDUCTIONS--Surrender Charge
(Contingent Deferred Sales Charge)--SURRENDER CHARGE AT THE RETIREMENT
DATE.")
<TABLE>
<S> <C>
Transfer Processing Fee None*
</TABLE>
* Fees are waived for the first twelve transfers during a Contract Year,
although the Company may charge $25 for each subsequent transfer during
the Contract Year.
<TABLE>
<S> <C>
Annual Administrative Charge $ 30
Annual Account Expenses (as a percentage of average net
assets)
Mortality and Expense Risk Charge 1.25%
Other Account Expenses None
Total Account Expenses 1.25%
</TABLE>
5
<PAGE>
ANNUAL INVESTMENT OPTION EXPENSES (as a percentage of average net assets after
waivers or reimbursements)
<TABLE>
<CAPTION>
ADVISORY OTHER TOTAL
INVESTMENT OPTION FEE EXPENSES EXPENSES
<S> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth 0.45% 0.12% 0.57%
High Grade Bond 0.30% 0.18% 0.48%
High Yield Bond 0.45% 0.15% 0.60%
Managed 0.45% 0.11% 0.56%
Money Market 0.25% 0.30% 0.55%
Blue Chip 0.20% 0.10% 0.30%
<CAPTION>
T. Rowe Price Equity Series, Inc.
<S> <C> <C> <C>
Mid-Cap Growth 0.85% 0.00% 0.85%(1)
New America Growth 0.85% 0.00% 0.85%(1)
Personal Strategy Balanced 0.90% 0.00% 0.90%(1)
<CAPTION>
T. Rowe Price International Series, Inc.
<S> <C> <C> <C>
International Stock 1.05% 0.00% 1.05%(1)
<CAPTION>
Fidelity Variable Insurance Products Funds
<S> <C> <C> <C>
VIP Growth 0.58% 0.08% 0.66%(2)
VIP Overseas 0.73% 0.18% 0.91%(2)
VIP II Contrafund 0.58% 0.09% 0.67%(2)
VIP II Index 500 0.24% 0.04% 0.28%(3)
VIP III Growth & Income 0.48% 0.12% 0.60%(2)
</TABLE>
(1) Total annual investment option expenses are an all-inclusive fee and
pay for investment management services and other operating costs.
(2) A portion of the brokerage commissions that certain Investment Options
pay is used to reduce Fund expenses. In addition, certain Investment
Options have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances are used to
reduce custodian expenses. The amounts shown in the table do not
include these reductions. Including these reductions, the total
Investment Option operating expenses presented in the preceding table
would have been: Growth 0.65%, Overseas 0.87%, Contrafund 0.65% and
Growth & Income 0.59%.
(3) The investment adviser has voluntarily agreed to reimburse the Index
500 Investment Option to the extent that total operating expenses (with
the exceptions noted in the prospectus for the Investment Option) as a
percentage of its average net assets exceed 0.28%. If this agreement
had not been in effect, total operating expenses for the fiscal year
ended December 31, 1999, as a percentage of the Index 500 Investment
Option's average net assets would have been 0.34%. The investment
adviser may terminate this reimbursement arrangement at any time.
The above tables are intended to assist you in understanding the costs and
expenses that you will bear directly or indirectly. The tables reflect the
expenses for the Account based on the actual expenses for each Investment Option
for the 1999 fiscal year. For a more complete description of the various costs
and expenses see "Charges and Deductions" and the prospectus for each Investment
Option which accompanies this Prospectus.
6
<PAGE>
EXAMPLES: You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
1. If you surrender or annuitize the Contract at the end of the applicable time
period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth $104 $186 $269 $511
High Grade Bond 103 184 264 501
High Yield Bond 104 187 270 514
Managed 104 186 268 509
Money Market 104 186 268 508
Blue Chip 101 178 255 482
<CAPTION>
T. Rowe Price Equity Series, Inc.
Mid-Cap Growth 107 194 282 539
<S> <C> <C> <C> <C>
New America Growth 107 194 282 539
Personal Strategy Balanced 107 196 285 544
<CAPTION>
T. Rowe Price International Series, Inc.
International Stock 109 200 292 560
<S> <C> <C> <C> <C>
<CAPTION>
Fidelity Variable Insurance Products Funds
VIP Growth 105 189 273 519
<S> <C> <C> <C> <C>
VIP Overseas 107 195 283 541
VIP II Contrafund 105 189 273 519
VIP II Index 500 101 178 254 480
VIP III Growth & Income 104 187 270 513
</TABLE>
7
<PAGE>
2. If you do not surrender or annuitize the Contract at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth $49 $147 $248 $511
High Grade Bond 48 144 243 501
High Yield Bond 49 148 249 514
Managed 48 147 247 509
Money Market 48 146 247 508
Blue Chip 46 139 234 482
<CAPTION>
T. Rowe Price Equity Series, Inc.
Mid-Cap Growth 51 155 262 539
<S> <C> <C> <C> <C>
New America Growth 51 155 262 539
Personal Strategy Balanced 52 157 265 544
<CAPTION>
T. Rowe Price International Series, Inc.
International Stock 53 162 272 560
<S> <C> <C> <C> <C>
<CAPTION>
Fidelity Variable Insurance Products Funds
VIP Growth 49 149 252 519
<S> <C> <C> <C> <C>
VIP Overseas 51 156 267 541
VIP II Contrafund 49 149 252 519
VIP II Index 500 46 138 233 480
VIP III Growth & Income 49 148 249 513
</TABLE>
Expenses assume that current fee waivers and expense reimbursement arrangements
for the Funds continue for the periods shown.
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 accumulated 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.
Please do not consider the examples a representation of past or future expenses.
The assumed 5% annual rate of return is hypothetical and is not a representation
of past or future annual returns, which may be greater or less than this assumed
rate.
8
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF THE CONTRACT
- --------------------------------------------------------------------------------
ISSUANCE OF A CONTRACT. The Contract is an individual flexible premium
deferred variable annuity contract with no maximum age required of owners on
the Contract Date (see "DESCRIPTION OF ANNUITY CONTRACT--Issuance of a
Contract"). The Contracts are:
- "flexible premium" because you do not have to pay premiums according to
a fixed schedule, and
- "variable" because, to the extent Cash Value is attributable to the
Account, Cash Value will increase and decrease based on the investment
performance of the Investment Options corresponding to the Subaccounts
to which you allocate your premiums.
FREE-LOOK PERIOD. You have the right to return the Contract within 10 days
after you receive it (certain states allow 20 days) (see "DESCRIPTION OF
ANNUITY CONTRACT--Free-Look Period"). If you return the Contract, it will
become void and you will receive either the greater of:
- premiums paid, or
- the Cash Value on the date the Company receives the returned Contract at
the Home Office, plus administrative charges and any other charges
deducted from the Account.
PREMIUMS. The minimum initial premium amount the Company accepts is $1,000.
You may make subsequent premium payments (minimum of $50 each) at any time.
(See "DESCRIPTION OF ANNUITY CONTRACT--Premiums.")
ALLOCATION OF PREMIUMS. You can allocate premiums to one or more Subaccounts,
the Declared Interest Option, or both (see "DESCRIPTION OF ANNUITY
CONTRACT--Allocation of Premiums").
- The Company will allocate the initial premium to the Money Market
Subaccount for 10 days from the Contract Date.
- At the end of that period, the Company will allocate those monies among
the Subaccounts and the Declared Interest Option according to the
instructions in your application.
TRANSFERS. You may transfer monies in a Subaccount or the Declared Interest
Option to another Subaccount or the Declared Interest Option on or before the
retirement date (see "DESCRIPTION OF ANNUITY CONTRACT--Transfer Privilege").
- The mimimum amount of each transfer is $100 or the entire amount in the
Subaccount or Declared Interest Option, if less.
- Only one transfer out of the Declared Interest Option is allowed each
Contract Year and must be for no more than 25% of the Cash Value in that
option.
- The Company waives fees for the first twelve transfers during a Contract
Year.
- The Company may assess a transfer processing fee of $25 for the 13th and
each subsequent transfer during a Contract Year.
PARTIAL SURRENDER. You may surrender part of the Cash Value upon written
notice at any time before the retirement date (see "DESCRIPTION OF ANNUITY
CONTRACT--Partial Surrenders and Surrenders--PARTIAL SURRENDERS"). A Partial
Surrender may have tax consequences. (See "FEDERAL TAX MATTERS.")
SURRENDER. You may surrender your Contract upon written notice on or before
the retirement date (see "DESCRIPTION OF ANNUITY CONTRACT--Partial Surrenders
and Surrenders--SURRENDERS"). A Surrender may have tax consequences. (See
"FEDERAL TAX MATTERS.")
9
<PAGE>
CHARGES AND DEDUCTIONS
Your Contract will be assessed the following charges and deductions:
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). We apply a charge if you
make a partial surrender from or surrender your Contract during the first six
Contract Years (see "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent
Deferred Sales Charge)--CHARGE FOR PARTIAL SURRENDER OR SURRENDER"). We deduct
this charge from the amount surrendered.
<TABLE>
<CAPTION>
YEAR CHARGE
<S> <C>
1 6%
2 5
3 4
4 3
5 2
6 1
7 and after 0
</TABLE>
You may annually surrender a maximum of 10% of the Cash Value without
incurring a Surrender Charge. (See "CHARGES AND DEDUCTIONS--Surrender Charge
(Contingent Deferred Sales Charge)--AMOUNTS NOT SUBJECT TO SURRENDER CHARGE.")
We reserve the right to waive the Surrender Charge as provided in the
Contract. (See "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent Deferred
Sales Charge)--WAIVER OF SURRENDER CHARGE.")
ANNUAL ADMINISTRATIVE CHARGE. We deduct an annual administrative charge of $30
on the Contract Date and on each Contract Anniversary prior to the retirement
date (see "CHARGES AND DEDUCTIONS--Annual Administrative Charge"). We
currently waive this charge:
- with an initial premium payment of $50,000 or greater, or
- if you have a Cash Surrender Value of $50,000 or greater on your
Contract Anniversary.
We may terminate this waiver at any time.
TRANSFER PROCESSING FEE. We may assess a $25 fee for the 13th and each
subsequent transfer in a Contract Year.
MORTALITY AND EXPENSE RISK CHARGE. We apply a daily mortality and expense risk
charge, calculated at an annual rate of 1.25% (approximately 0.86% for
mortality risk and 0.39% for expense risks) (see "CHARGES AND
DEDUCTIONS--Mortality and Expense Risk Charge").
INVESTMENT OPTION EXPENSES. The assets of the Account will reflect the
investment advisory fee and other operating expenses incurred by each
Investment Option. The table on page 6 titled "Annual Investment Option
Expenses" lists these fees.
ANNUITY PROVISIONS
On your retirement date, you may choose to have the Cash Surrender Value
distributed to you as follows:
- under a payment option, or
- in a lump sum (see "PAYMENT OPTIONS").
10
<PAGE>
FEDERAL TAX MATTERS
The Contract's earnings are generally not taxed until you take a distribution.
If you are under age 59 1/2 when you take a distribution, the earnings may
also be subject to a penalty tax. Different tax consequences apply to
distributions from Qualified Contracts. (See "FEDERAL TAX MATTERS.")
OTHER CONTRACTS
We offer other variable annuity contracts that invest in the same Investment
Options of the Funds. These contracts may have different charges that could
affect Subaccount performance, and may offer different benefits more suitable
to your needs. You may contact the Company to obtain more information about
these contracts.
- --------------------------------------------------------------------------------
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, 1999.*
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS AT
SUBACCOUNT BEGINNING OF YEAR END OF YEAR END OF YEAR
<S> <C> <C> <C>
Value Growth
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
1998 14.351888 10.708359 1,798,954.440607
1999 10.708359 9.903134 1,698,985.167791
<CAPTION>
High Grade Bond
1994 $ 10.000000 $ 9.814168 76,901.476870
<S> <C> <C> <C>
1995 9.814168 11.081686 111,363.527645
1996 11.081686 11.598221 157,246.624168
1997 11.598221 12.638724 246,715.778945
1998 12.638724 13.424249 478,226.393161
1999 13.424249 13.200202 610,691.272284
<CAPTION>
High Yield Bond
1994 $ 10.000000 $ 9.694750 121,183.181173
<S> <C> <C> <C>
1995 9.694750 11.030995 204,375.618302
1996 11.030995 12.279317 259,711.686337
1997 12.279317 13.599893 318,387.884067
1998 13.599893 14.357539 574,791.394312
1999 14.357539 14.074203 645,218.673657
<CAPTION>
Managed
1994 $ 10.000000 $ 9.391586 399,444.197239
<S> <C> <C> <C>
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
1998 14.812821 13.353071 2,135,009.594475
1999 13.353071 12.732614 1,655,918.646748
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS AT
SUBACCOUNT BEGINNING OF YEAR END OF YEAR END OF YEAR
<S> <C> <C> <C>
Money Market
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
1998 11.490613 11.918652 196,131.265936
1999 11.918652 12.311317 277,902.542187
<CAPTION>
Blue Chip
1994 $ 10.000000 $ 9.894181 79,759.631145
<S> <C> <C> <C>
1995 9.894181 12.994267 166,613.068180
1996 12.994267 15.598591 420,198.490583
1997 15.598591 19.644248 865,517.558301
1998 19.644248 23.076586 1,405,038.490515
1999 23.076586 27.550162 1,605,404.332352
<CAPTION>
Mid-Cap Growth
1999 $ 10.000000 $ 11.558106 148,116.601103
<S> <C> <C> <C>
<CAPTION>
New America Growth
1999 $ 10.000000 $ 10.618750 148,260.057146
<S> <C> <C> <C>
<CAPTION>
Personal Strategy Balanced
1999 $ 10.000000 $ 10.190662 204,868.486876
<S> <C> <C> <C>
<CAPTION>
International Stock
1999 $ 10.000000 $ 12.594365 37,855.933511
<S> <C> <C> <C>
<CAPTION>
Growth
1999 $ 10.000000 $ 12.470481 463,699.762973
<S> <C> <C> <C>
<CAPTION>
Overseas
1999 $ 10.000000 $ 13.059675 63,176.428061
<S> <C> <C> <C>
<CAPTION>
Contrafund
1999 $ 10.000000 $ 11.412001 268,419.718536
<S> <C> <C> <C>
<CAPTION>
Index 500
1999 $ 10.000000 $ 10.978394 364,582.667227
<S> <C> <C> <C>
<CAPTION>
Growth & Income
1999 $ 10.000000 $ 10.215613 256,006.036822
<S> <C> <C> <C>
</TABLE>
* The Mid-Cap Growth, New America Growth, Personal Strategy Balanced,
International Stock, Growth, Overseas, Contrafund, Index 500 and Growth &
Income Subaccounts became available on May 1, 1999.
12
<PAGE>
- --------------------------------------------------------------------------------
THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
FARM BUREAU LIFE INSURANCE COMPANY
The Company was incorporated on October 30, 1944 as a stock life insurance
company in the State of Iowa and is principally engaged in the offering of
life insurance policies, disability income insurance policies and annuity
contracts. One hundred percent of our outstanding voting shares are owned by
FBL Financial Group, Inc., of which Iowa Farm Bureau Federation owned 56.47%
of the outstanding voting stock at December 31, 1999. We are admitted to do
business in 18 states: Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota,
Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South
Dakota, Utah, Washington, Wisconsin and Wyoming. Our Home Office is at
5400 University Avenue, West Des Moines, Iowa 50266.
- --------------------------------------------------------------------------------
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
On July 26, 1993, we established the Account pursuant to the laws of the
State of Iowa. The Account:
- will receive and invest premiums paid to it under the Contract;
- will receive and invest premiums for other variable annuity
contracts we issue;
- meets the definition of a "separate account" under the federal
securities laws;
- is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Such registration does
not involve supervision by the SEC of the management or investment
policies or practices of the Account, us or the Funds.
We own the Account's assets. However, we cannot charge the Account with
liabilities arising out of any other business we may conduct. The Account's
assets are available to cover the general liabilities of the Company only to
the extent that the Account's assets exceed its liabilities. We may transfer
assets which exceed these reserves and liabilities to our General Account.
All obligations arising under the Contracts are general corporate
obligations of the Company.
- --------------------------------------------------------------------------------
INVESTMENT OPTIONS
There are currently fifteen Subaccounts available under the Account, each of
which invests exclusively in shares of a single corresponding Investment
Option. Each of the Investment Options was formed as an investment vehicle
for insurance company separate accounts. Each Investment Option has its own
investment objectives and separately determines the income and losses for
that Investment Option. While you may be invested in all Subaccounts, we
only permit you to "actively participate" in a maximum of 10 Investment
Options at any one time.
The investment objectives and policies of certain Investment Options are
similar to the investment objectives and policies of other portfolios that
the same investment adviser, sub-investment adviser or manager may manage.
The investment results of the Investment Options, however, may be higher or
lower than the results of such other portfolios. There can be no assurance,
and no representation is made, that the investment results of any of the
Investment Options will be comparable to the
13
<PAGE>
investment results of any other portfolio, even if the other portfolio has
the same investment adviser, sub-investment adviser or manager.
We have summarized below the investment objectives and policies of each
Investment Option. There is no assurance that any Investment Option will
achieve its stated objectives. You should also read the prospectus for each
Investment Option, which must accompany or precede this Prospectus, for more
detailed information, including a description of risks and expenses.
EQUITRUST VARIABLE INSURANCE SERIES FUND. EquiTrust Investment Management
Services, Inc. is the investment adviser to the Fund.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
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 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 (commonly
known as "junk bonds"). As a secondary objective, the
Portfolio seeks capital appreciation when consistent with
its primary objective. The Portfolio pursues these
objectives by investing primarily in fixed-income
securities rated Baa or lower by Moody's Investors
Service, Inc. and/or BBB or lower by Standard & Poor's,
or in unrated securities of comparable quality. AN
INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK. (See the Fund Prospectus "HIGHER
RISK SECURITIES AND INVESTMENT STRATEGIES--Lower Rated
Debt Securities.")
Managed Portfolio - This Portfolio seeks the highest total investment return
of income and capital appreciation. The Portfolio pursues
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.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
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 F.D.I.C. OR ANY GOVERNMENT AGENCY. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Blue Chip Portfolio - This Portfolio seeks growth of capital and income. 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.
</TABLE>
T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Associates, Inc. is the
investment adviser to the Fund. The Fund is comprised of four portfolios, the
following three of which are available under the Contract.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Mid-Cap Growth Portfolio - This Portfolio seeks to provide long-term capital
appreciation by investing primarily in mid-cap stocks
with the potential for above-average earnings growth. The
investment adviser defines mid-cap companies as those
whose market capitalization falls within the range of
companies in the Standard & Poor's Mid-Cap 400 Index.
New America Growth Portfolio - This Portfolio seeks growth of capital by investing
primarily in the common stocks of companies operating in
sectors the investment adviser believes will be the
fastest growing in the U.S. Fast-growing companies can be
found across an array of industries in today's "new
America".
Personal Strategy Balanced Portfolio - This Portfolio seeks the highest total return over time
consistent with an emphasis on both capital appreciation
and income.
</TABLE>
T. ROWE PRICE INTERNATIONAL SERIES, INC. Rowe Price-Fleming International, Inc.
is the investment adviser to the Fund.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
International Stock Portfolio - This Portfolio seeks to provide capital appreciation
through investments primarily in established companies
based outside the United States.
</TABLE>
15
<PAGE>
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS. Fidelity Management & Research
Company serves as the investment adviser to these Funds. Bankers Trust Company
serves as sub-investment adviser to the Index 500 Portfolio. The following
portfolios are available under the Policy.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Fidelity VIP Growth Portfolio - This Portfolio seeks capital appreciation by investing
primarily in common stocks. The Portfolio, however, is
not restricted to any one type of security and may pursue
capital appreciation through the purchase of bonds and
preferred stocks. The Portfolio does not place any
emphasis on dividend income from its investments, except
when the adviser believes this income will have a
favorable influence on the market value of the security.
Growth may be measured by factors such as earnings or
gross sales.
Fidelity VIP Overseas Portfolio - This Portfolio seeks long-term growth of capital by
investing primarily in foreign securities. The Portfolio
defines foreign securities as securities of issuers whose
principal activities are located outside the United
States. Normally, at least 65% of the Portfolio's total
assets will be invested in foreign securities. The
Portfolio may also invest in U.S. issuers.
Fidelity VIP II Contrafund Portfolio - This Portfolio seeks capital appreciation by investing in
securities of companies whose value the adviser believes
is not fully recognized by the public. The Portfolio
normally invests primarily in common stocks and
securities convertible into common stock, but it has the
flexibility to invest in other types of securities.
Fidelity VIP II Index 500 Portfolio - This Portfolio seeks to provide investment results that
correspond to the total return of a broad range of common
stocks publicly traded in the United States. To achieve
this objective, the Portfolio attempts to duplicate the
composition and total return of the S&P 500.
Fidelity VIP III Growth & Income - This Portfolio seeks high total return through a
Portfolio combination of current income and capital appreciation by
investing mainly in equity securities. The Portfolio
expects to invest the majority of its assets in domestic
and foreign equity securities, with a focus on those that
pay current dividends and show potential earnings growth.
However, the Portfolio may buy debt securities as well as
equity securities that are not currently paying
dividends, but offer prospects for capital appreciation
or future income.
</TABLE>
The Funds currently sell shares: (a) to the Account as well as to separate
accounts of insurance companies that may or may not be affiliated with the
Company or each other; and (b) to separate accounts to serve as the
underlying investment for both variable insurance policies and variable
annuity contracts. We currently do not foresee any disadvantages to owners
arising from the sale of shares to support variable annuity contracts and
variable life insurance policies, or from shares being sold to separate
accounts of insurance companies that may or may not be affiliated with the
Company. However, we will monitor events in order to identify any material
irreconcilable conflicts that might possibly arise. In that event, we would
determine what action, if any, should be taken in response to the conflict.
In addition, if we believe that a Fund's response to any of those events or
conflicts insufficiently protects owners, we will take appropriate action on
our own, which may include withdrawing the Account's investment in that
Fund. (See the Fund prospectuses for more detail.)
We may receive compensation from an affiliate(s) of one or more of the Funds
based upon an annual percentage of the average assets we hold in the
Investment Options. These amounts are intended to compensate us for
administrative and other services we provide to the Funds and/or
affiliate(s).
16
<PAGE>
Each 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 Funds by the SEC.
- --------------------------------------------------------------------------------
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from or substitutions for the shares that are held
in the Account or that the Account may purchase. We reserve the right to
eliminate the shares of any Investment Option and to substitute any shares
of another Investment Option. We will not substitute any shares attributable
to your 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.
We also reserve the right to establish additional subaccounts of the
Account, each of which would invest in a new Investment Option, or in shares
of another investment company with a specified investment objective. We may
establish new subaccounts when, in our sole discretion, marketing needs or
investment conditions warrant, and we will make any new subaccounts
available to existing Contract Owners on a basis we determine. We may also
eliminate one or more Subaccounts if, in our sole discretion, marketing,
tax, regulatory requirements or investment conditions warrant.
In the event of any such substitution, deletion or change, we may make
appropriate changes in this and other contracts to reflect such
substitution, deletion or change. If you allocated all or a portion of your
premiums to any of the current Subaccounts that are being substituted for or
deleted, you may surrender the portion of the Cash Value funded by such
Subaccount without paying the associated Surrender Charge. You may also
transfer the portion of the Cash Value affected without paying a transfer
charge.
If we deem it to be in the best interest of persons having voting rights
under the Contracts, we may:
- operate the Account as a management investment company under the
1940 Act,
- deregister the Account under that Act in the event such registration
is no longer required, or
- combine the Account with our other separate accounts.
In addition, we may, when permitted by law, restrict or eliminate your
voting rights under the Contract.
- --------------------------------------------------------------------------------
DESCRIPTION OF ANNUITY CONTRACT
- --------------------------------------------------------------------------------
ISSUANCE OF A CONTRACT
You must complete an application in order to purchase a Contract, which can
be obtained through a licensed representative of the Company, who is also a
registered representative of EquiTrust Marketing Services, LLC ("EquiTrust
Marketing"), a broker-dealer having a selling agreement with EquiTrust
Marketing or a broker-dealer having a selling agreement with such
broker-dealer. Your Contract Date will be the date the properly completed
application is received at our Home Office. (If this date is the 29th, 30th
or 31st of any month, the Contract Date will be the 28th of such month.) The
Company sells the Contract to retirement plans that qualify for special
federal tax treatment under the Code. We do not apply a maximum age for
owners on the Contract Date.
- --------------------------------------------------------------------------------
PREMIUMS
The minimum initial premium amount the Company will accept is $1,000. You
may make mimimum subsequent premium payments of $50 at any time during the
annuitant's lifetime and before the retirement date.
17
<PAGE>
You may select to receive a premium reminder notice schedule based on an
annual, semi-annual or quarterly payment, for which you may change the
amount and frequency of the notice at any time. Also, under the Automatic
Payment Plan, you can select a monthly payment schedule for premium payments
to be automatically deducted from a bank account or other source. Your
Contract will not necessarily lapse even if premiums are not paid.
- --------------------------------------------------------------------------------
FREE-LOOK PERIOD
We provide for an initial "free-look" period during which time you have the
right to return the Contract within 10 days after you receive it. (If you
reside in Idaho, North Dakota or Wisconsin, you are allowed to return the
Contract within 20 days after you receive it. Certain states may provide for
a 30 day free-look period in a replacement situation.) If you return the
Contract, it will become void and you will receive the greater of:
- premiums paid, or
- the Cash Value on the date we receive the returned Contract at the
Home Office, plus administrative charges and any other charges
deducted from the Account.
- --------------------------------------------------------------------------------
ALLOCATION OF PREMIUMS
Upon receipt at our Home Office of your properly completed Contract
application and initial premium payment, we will allocate the initial
premium to the Money Market Subaccount within two business days. If your
application is not properly completed, we reserve the right to retain your
initial premium for up to five business days while we attempt to complete
the application. At the end of this 5-day period, if the application is not
complete, we will inform you of the reason for the delay and we will return
the initial premium immediately, unless you specifically provide us your
consent to retain the premium until the application is complete.
You can allocate premiums paid to one or more Subaccounts, the Declared
Interest Option, or both. Each allocation must be in whole percentages for a
minimum of 10% of your premium payment.
- We will allocate the initial premium to the Money Market Subaccount
for 10 days from the Contract Date.
- At the end of that period, we will allocate those monies among the
Subaccounts and the Declared Interest Option according to the
instructions in your application.
- We will allocate subsequent premiums in the same manner at the end
of the valuation period when we receive them at our Home Office,
unless the allocation percentages are changed.
- You may change your allocation schedule at any time by sending
written notice to the Home Office. If you change your allocation
percentages, we will allocate subsequent premium payments in
accordance with the allocation schedule in effect. Changing your
allocation schedule will not alter the allocation of your existing
Cash Values among the Subaccounts or the Declared Interest Option.
- You may, however, direct individual payments to a specific
Subaccount, the Declared Interest Option, or any combination
thereof, without changing the existing allocation schedule.
Because the Cash Values in each Subaccount will vary with that Subaccount's
investment experience, you bear the entire investment risk for amounts
allocated to the Subaccount. You should periodically review your premium
allocation schedule in light of market conditions and your overall financial
objectives.
18
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE CASH VALUE
The variable cash value of your Contract will reflect the investment
experience of your selected Subaccounts, any premiums paid, surrenders or
partial surrenders, transfers and charges assessed. The Company does not
guarantee a minimum variable cash value, and, because your Contract's
variable cash value on any future date depends upon a number of variables,
it cannot be predetermined.
CALCULATION OF VARIABLE CASH VALUE. Your Contract's variable cash value is
determined at the end of each valuation period and is the aggregate of the
values in each of the Subaccounts under your Contract. These values are
determined by multiplying each Subaccount's unit value by the number of
units allocated to that Subaccount.
DETERMINATION OF NUMBER OF UNITS. The amounts you allocate to your selected
Subaccounts are converted into Subaccount units. The number of units
credited to each Subacount in your Contract is calculated at the end of the
valuation period by dividing the dollar amount allocated by the unit value
for that Subaccount. At the end of the valuation period, we will increase
the number of units in each Subaccount by:
- any premiums paid, and
- any amounts transferred from another Subaccount or the Declared
Interest Option.
We will decrease the number of units in each Subaccount by:
- any amounts withdrawn,
- applicable charges assessed, and
- any amounts transferred to another Subaccount or the Declared
Interest Option.
DETERMINATION OF UNIT VALUE. We have set the unit value for each
Subaccount's first valuation period at $10. We calculate the unit value for
a Subaccount 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 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 operation or maintenance of the
Subaccount; minus
5. the daily amount charged for mortality and expense risks
for each day of the current valuation period.
(b) is the number of units outstanding at the end of the preceding
valuation period.
- --------------------------------------------------------------------------------
TRANSFER PRIVILEGE
You may transfer monies in a Subaccount or the Declared Interest Option to
another Subaccount or the Declared Interest Option on or before the
retirement date. We will process all transfers based on the net asset value
next determined after we receive your written request at the Home Office.
- The minimum amount of each transfer is $100 or the entire amount in
that Subaccount or the Declared Interest Option, if less.
19
<PAGE>
- Transfers out of the Declared Interest Option must be for no more
than 25% of the Cash Value in that option.
- If a transfer would reduce the Cash Value in the Declared Interest
Option below $1,000, you may transfer the entire amount in that
option.
- The Company waives fees for the first twelve transfers during a
Contract Year.
- The Company may assess a transfer processing fee of $25 for the 13th
and each subsequent transfer during a Contract Year.
- We allow an unlimited number of transfers among or between the
Subaccounts or the Declared Interest Option. (See "DECLARED INTEREST
OPTION--Transfers from Declared Interest Option.")
All transfer requests received in a valuation period will be considered to
be one transfer, regardless of the Subaccounts or Declared Interest Option
affected. We will deduct the transfer processing fee on a pro-rata basis
from the Subaccounts or Declared Interest Option to which the transfer is
made unless it is paid in cash.
You may also transfer monies via telephone request if you selected this
option on your initial application or have provided us with proper
authorization. We reserve the right to suspend telephone transfer privileges
at any time.
- --------------------------------------------------------------------------------
PARTIAL SURRENDERS AND SURRENDERS
PARTIAL SURRENDERS. You may surrender part of the Cash Value upon written
notice at any time before the Retirement Date.
- The minimum amount which you may partially surrender is $500.
- The maximum amount which you may partially surrender is that which
would leave the remaining Cash Value equal to or less than $2,000.
If your partial surrender reduces your Cash Value to $2,000 or less,
it may be treated as a full surrender of the Contract.
We will process your partial surrender based on the net asset value next
determined after we receive your written request at the Home Office. You may
annually surrender a maximum of 10% of the Cash Value without incurring a
Surrender Charge. You may elect to have any applicable Surrender Charge
deducted from your remaining Cash Value or the amount partially surrendered.
(See "Surrender Charge.")
You may specify the amount of the partial surrender to be made from selected
Subaccounts or the Declared Interest Option. If you do not so specify, or if
the amount in the designated Subaccount(s) or Declared Interest Option is
insufficient to comply with your request, we will make the partial surrender
from each Subaccount or the Declared Interest Option based on the proportion
that these values bear to the total Cash Value on the date we receive your
request at the Home Office.
SURRENDER. You may fully surrender your Contract upon written notice on or
before the retirement date. We will determine your Cash Surrender Value
based on the net asset value next determined
20
<PAGE>
after we receive your written request and your Contract at the Home Office.
You may choose to have the Cash Surrender Value distributed to you as
follows:
- under a payment option, or
- in a lump sum.
SURRENDER AND PARTIAL SURRENDER RESTRICTIONS. Your right to make partial
surrenders and full surrenders is subject to any restrictions imposed by
applicable law or employee benefit plan and you may realize adverse federal
income tax consequences, including a penalty tax, upon utilization of these
features. (See "FEDERAL TAX MATTERS--Taxation of Annuities" and "--Taxation
of Qualified Contracts.")
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS. Surrenders
and partial surrenders of Qualified Contracts are subject to certain
restrictions. (See "FEDERAL TAX MATTERS--Taxation of Qualified Contracts.")
- --------------------------------------------------------------------------------
SPECIAL TRANSFER AND WITHDRAWAL OPTIONS
You may elect the following options on your initial application or at a
later date by completing the applicable Request Form and returning it to the
Home Office. The options selected will remain in effect until we receive a
written termination request from you at the Home Office. The use of
Automatic Rebalancing or Dollar Cost Averaging does not guarantee profits,
nor protect you against losses.
AUTOMATIC REBALANCING. You may automatically reallocate your Cash Value
among the Subaccounts and Declared Interest Option each year to return your
Cash Value to your most recent premium allocation percentages.
- We will reallocate monies according to the percentage allocation
schedule in effect on your Contract Anniversary.
- The maximum number of Subaccounts which you may select at any one
time is ten.
- This feature is not considered in the twelve free transfers during a
Contract Year.
- Rebalancing will occur on the fifth Business Day of the month
following your Contract Anniversary.
- This feature cannot be utilized in combination with Dollar Cost
Averaging.
DOLLAR COST AVERAGING. You may periodically transfer a specified amount
among the Subaccounts or the Declared Interest Option.
- The minimum amount of each transfer is $100.
- The maximum number of Subaccounts which you may select at any one
time is ten, including the Declared Interest Option.
- You select the date to implement this program which will occur on
the same date each month, or on the next Business Day.
- We will terminate this option when monies in the source account are
inadequate.
- This feature is considered in the twelve free transfers during a
Contract Year.
- This feature cannot be utilized in combination with Automatic
Rebalancing or Systematic Withdrawals.
SYSTEMATIC WITHDRAWALS. You may elect to receive automatic partial
withdrawals.
- You specify the amount of the partial withdrawals to be made from
selected Subaccounts or the Declared Interest Option.
21
<PAGE>
- You specify the allocation of the withdrawals among the Subaccounts
and Declared Interest Option, and the frequency (monthly, quarterly,
semi-annually or annually).
- The minimum amount which you may withdraw is $500.
- The maximum amount which you may withdraw is that which would leave
the remaining Cash Value equal to or less than $2,000.
- You may annually withdraw a maximum of 10% of Cash Value without
incurring a Surrender Charge.
- Distributions will take place on the same date each month as the
Contract Date.
- You may change the amount and frequency upon written request to the
Home Office.
- This feature cannot be utilized in combination with Dollar Cost
Averaging.
We may terminate these privileges at any time.
- --------------------------------------------------------------------------------
DEATH BENEFIT BEFORE THE RETIREMENT DATE
If an annuitant (who is always the owner) dies prior to the retirement date,
we will pay the death benefit to the beneficiary. The death benefit will be
determined as of the date we receive Due Proof of Death and is equal to the
greater of:
- premiums paid, less any partial surrenders (including applicable
Surrender Charges), or
- the Cash Value.
We will pay the death benefit to the beneficiary in a lump sum unless the
owner or beneficiary elects a payment option.
There is no death benefit payable if the owner dies after the retirement
date.
We are required, by federal tax law applicable to Non-Qualified Contracts,
to distribute the Cash Value to the beneficiary within five years of the
deceased owner's death. This requirement is considered satisfied if proceeds
are distributed over the life of the beneficiary (or a period not exceeding
the life expectancy of the beneficiary), provided they begin within one year
of the owner's death. However, if the deceased owner's spouse is the
designated beneficiary, he or she may continue the Contract as the new
owner.
If the owner dies on or after the retirement date, any remaining payments
will be distributed under the payment option in effect on the owner's date
of death.
Other rules may apply to a Qualified Contract.
- --------------------------------------------------------------------------------
PROCEEDS ON THE RETIREMENT DATE
You select the retirement date. 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.
On the retirement date, we will apply the proceeds under the life income
annuity payment option with ten years guaranteed, unless you choose to have
the proceeds paid under another option or in a lump sum. (See "Payment
Options.") If a payment option is elected, we will apply the Cash Value less
any applicable Surrender Charge. If a lump sum payment is chosen, we will
pay the Cash Surrender Value on the retirement date.
You may change the retirement date subject to these limitations:
- we must receive a written notice at the Home Office at least
30 days before the current retirement date;
22
<PAGE>
- 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
We will usually pay any surrender, partial surrender or death benefit within
seven days of receipt of a written request at the Home Office. We also
require any information or documentation necessary to process the request,
and in the case of a death benefit, we must receive Due Proof of Death. We
may postpone payments if:
- 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;
- the SEC permits by an order the postponement for the protection of
owners; or
- 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 you have submitted a recent check or draft, we have the right to delay
payment until we are assured that the check or draft has been honored.
We have the right to defer payment of any surrender, partial surrender or
transfer from the Declared Interest Option for up to six months. If payment
has not been made within 30 days after receipt of all required
documentation, or such shorter period as necessitated by a particular
jurisdiction, we will add interest at the rate of 3% (or a higher rate if
required by a particular state) to the amount paid from the date all
documentation was received.
- --------------------------------------------------------------------------------
MODIFICATION
You may modify your Contract only if one of our officers agrees in writing
to such modification.
Upon notification to you, we may modify your Contract if:
- necessary to make your Contract or the Account comply with any law
or regulation issued by a governmental agency to which the Company
is subject;
- necessary to assure continued qualification of your Contract under
the Code or other federal or state laws relating to retirement
annuities or variable annuity contracts;
- necessary to reflect a change in the operation of the Account; or
- the modification provides additional Subaccount and/or fixed
accumulation options.
We will make the appropriate endorsement to your Contract in the event of
most such modifications.
- --------------------------------------------------------------------------------
REPORTS TO OWNERS
We will mail to you, at least annually, a report containing the Cash Value
of your Contract (reflecting each Subaccount and the Declared Interest
Option), premiums paid, partial surrenders taken and charges deducted since
your last report, and any other information required by any applicable law
or regulation.
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<PAGE>
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INQUIRIES
You may contact the Company in writing at our Home Office if you have any
questions regarding your Contract
- --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
You may allocate some or all of your premium payments, and transfer some or
all of your 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 Declared Interest Option has not been, and is not required to be,
registered with the SEC under the Securities Act of 1933 (the "1933 Act"),
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 your 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 your 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, we assume 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.
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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%. While we intend to credit the
Declared Interest Option cash value with current rates in excess of the
minimum guarantee, we are not obligated to do so. These current interest
rates are influenced by, but do not necessarily correspond to, prevailing
general market interest rates, and any interest credited on your amounts in
the Declared Interest Option in excess of the minimum guaranteed rate will
be determined in the sole discretion of the Company. You, therefore, assume
the risk that interest credited may not exceed the guaranteed rate.
Occasionally, we establish new current interest rates for the Declared
Interest Option. The rate applicable to your Contract is the rate in effect
on your most recent Contract Anniversary. This rate will remain unchanged
until your next Contract Anniversary (i.e., for your entire Contract Year).
During each Contract Year, your entire Declared Interest Option cash value
(including amounts allocated or transferred to the Declared Interest Option
during the year) is credited with the interest rate in effect for that
period and becomes part of your Declared Interest Option cash value.
We reserve the right to change the method of crediting interest, provided
that such changes do not have the effect of reducing the guaranteed interest
rate below 3% per annum, or shorten the period for which the current
interest rate applies to less than a Contract Year.
CALCULATION OF DECLARED INTEREST OPTION CASH VALUE. The Declared Interest
Option cash value is equal to:
- amounts allocated and transferred to it, plus
- interest credited, less
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<PAGE>
- amounts deducted, transferred or surrendered.
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TRANSFERS FROM DECLARED INTEREST OPTION
Only one transfer from the Declared Interest Option is allowed to any or all
of the Subaccounts in each Contract Year. The amount you transfer may not
exceed 25% of the Declared Interest Option Cash Value on the date of
transfer. However, if the balance after the transfer is less than $1,000,
you may transfer the entire amount.
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PAYMENT DEFERRAL
We have the right to defer payment of any surrender, partial surrender or
transfer from the Declared Interest Option for up to six months.
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
CHARGE FOR PARTIAL SURRENDER OR SURRENDER. We apply a charge if you make a
partial surrender from or surrender your Contract during the first six
Contract years.
<TABLE>
<CAPTION>
CONTRACT YEAR IN WHICH CHARGE AS PERCENTAGE OF
SURRENDER OCCURS AMOUNT SURRENDERED
<S> <C>
1 6%
2 5
3 4
4 3
5 2
6 1
7 and after 0
</TABLE>
If 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 Company will retain the excess. In no event
will the total Surrender Charges assessed under a Contract exceed 8.5% 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 from the amount of the surrender requested.
AMOUNTS NOT SUBJECT TO SURRENDER CHARGE. You may annually surrender a
maximum of 10% of the Cash Value without incurring a Surrender Charge. (This
right is not cumulative from Contract Year to Contract Year.)
SURRENDER CHARGE AT THE RETIREMENT DATE. We may assess a Surrender Charge
against your Cash Value at the retirement date. We do not apply a Surrender
Charge if you elect to receive a life contingent payment option. If you
select fixed annuity payments under payment options 2 or 4, we assess a
Surrender Charge by adding the number of years for which payments will be
made to the number of
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<PAGE>
Contract Years since your Contract inception and applying this sum in the
table of Surrender Charges.
WAIVER OF SURRENDER CHARGE. We reserve the right to waive the Surrender
Charge after your first Policy Year if the annuitant is terminally ill (as
defined in your Contract), stays in a qualified nursing center for 90 days,
or is required to satisfy minimum distribution requirements in accordance
with the Code. We must receive written notification, before the retirement
date, at the Home Office in order to activate this waiver.
- --------------------------------------------------------------------------------
ANNUAL ADMINISTRATIVE CHARGE
We apply an annual administrative charge of $30 on the Contract Date and on
each Contract Anniversary prior to the retirement date. We deduct this
charge from your Cash Value and use it to reimburse us for administrative
expenses relating to your Contract. We will make the withdrawal from each
Subaccount and the Declared Interest Option based on the proportion that
each Subaccount's value bears to the total Cash Value. We do not assess this
charge during the annuity payment period.
We currently waive the annual administrative charge:
- with an initial premium payment of $50,000 or greater, or
- upon a Cash Surrender Value of $50,000 or greater on your Contract
Anniversary.
We may terminate this privilege at any time.
- --------------------------------------------------------------------------------
TRANSFER PROCESSING FEE
We waive the transfer processing fee for the first twelve transfers during a
Contract Year, but may assess a $25 charge for each subsequent transfer. We
will deduct this fee on a pro-rata basis from the Subaccounts or Declared
Interest Option to which the transfer is made unless it is paid in cash.
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE
We apply a daily mortality and expense risk charge at an annual rate of
1.25% (daily rate of 0.0034035%) (approximately 0.86% for mortality risk and
0.39% for expense risk). This charge is used to compensate the Company for
assuming mortality and expense risks.
The mortality risk we assume is that annuitants may live for a longer period
of time than estimated when the guarantees in the Contract were established.
Through these guarantees, each payee is assured that longevity will not have
an adverse effect on the annuity payments received. The mortality risk also
includes a guarantee to pay a death benefit if the owner/annuitant dies
before the retirement date. The expense risk we assume is that the annual
administrative and transfer processing fees may be insufficient to cover
actual future expenses.
We may realize a profit from this charge and we may use such profit for any
lawful purpose including paying distribution expenses.
- --------------------------------------------------------------------------------
INVESTMENT OPTION EXPENSES
The assets of the Account will reflect the investment advisory fee and other
operating expenses incurred by each Investment Option. (See the Expense
Tables in this prospectus and the accompanying Investment Option
prospectuses.)
- --------------------------------------------------------------------------------
26
<PAGE>
PREMIUM TAXES
Currently, we do not charge for premium taxes levied by various states and
other governmental entities on annuity contracts issued by insurance
companies. These taxes range up to 3.5% and are subject to change. We
reserve the right, however, to deduct such taxes from Cash Value.
- --------------------------------------------------------------------------------
OTHER TAXES
Currently, we do not charge for any federal, state or local taxes incurred
by the Company which may be attributable to the Account or the Contracts. We
reserve the right, however, to make such a charge in the future.
- --------------------------------------------------------------------------------
PAYMENT OPTIONS
- --------------------------------------------------------------------------------
The accumulation phase of your Contract ends on the retirement date you
select (see "DESCRIPTION OF ANNUITY CONTRACT--Proceeds On Retirement Date").
At that time, your proceeds will be applied under a payment option, unless
you elect to receive this amount in a single sum. Should you not elect a
payment option on the retirement date, proceeds will be paid as a life
income variable annuity with payments guaranteed for ten years. The proceeds
are the amount you apply to a payment option. The amount of proceeds will
equal either: (1) the Cash Surrender Value if you are surrendering the
Contract; or (2) the death benefit if the annuitant dies; or (3) the amount
of any partial withdrawal you apply to a payment option.
Prior to the retirement date, you may elect to have your proceeds applied
under a payment option, or a beneficiary can have the death benefit applied
under a payment option. In either case, the Contract must be surrendered for
a lump sum payment to be made, or a supplemental agreement to be issued for
the payment option.
You can choose whether to apply any portion of your proceeds to provide
either fixed annuity payments (available under all payment options),
variable annuity payments (available under options 3 and 7 only), or a
combination of both. If you elect to receive variable annuity payments, then
you also must select the Subaccounts to which we will apply your proceeds.
The annuity payment date is the date you select as of which we compute
annuity payments. If you elect to receive variable annuity payments, the
annuity payment date may not be the 29th, 30th or 31st day of any month. We
compute the first annuity payment as of the initial annuity payment date you
select. All subsequent annuity payments are computed as of annuity payment
dates. These dates will be the same day of the month as the initial annuity
payment date.
Monthly annuity payments will be computed as of the same day each month as
the initial annuity payment date. Quarterly annuity payments will be
computed as of the same day in the 3rd, 6th, 9th, and 12th month following
the initial annuity payment date and on the same days of such months in each
successive year. Semi-annual annuity payment dates will be computed as of
the same day in the 6th and 12th month following the initial annuity payment
date and on the same days of such months in each successive year. Annual
annuity payments will be computed as of the same day in each year as the
initial annuity payment date. If you do not select a payment frequency, we
will make monthly payments.
- --------------------------------------------------------------------------------
DESCRIPTION OF PAYMENT OPTIONS
OPTION 1--INTEREST INCOME. The proceeds are left with the Company to earn a
set interest rate. The payee may elect to have the interest paid monthly,
quarterly, semi-annually or annually. Under this option, the payee may
withdraw part or all of the proceeds at any time.
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<PAGE>
OPTION 2--INCOME FOR A FIXED TERM. The proceeds are paid in equal
installments for a fixed number of years.
OPTION 3--LIFE INCOME OPTION WITH TERM CERTAIN. The proceeds are 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 specified
number of years.
OPTION 4--INCOME FOR FIXED AMOUNT. The proceeds are paid in equal
installments (at intervals elected by the payee) for a specific amount and
will continue until all the proceeds plus interest are exhausted.
OPTION 5--JOINT AND TWO-THIRDS TO SURVIVOR MONTHLY LIFE INCOME. The proceeds
are paid in equal installments while two joint payees live. When one payee
dies, future proceeds equal to two-thirds of the initial payment will be
made to the survivor for their lifetime.
OPTION 6--JOINT AND ONE-HALF TO SURVIVING SPOUSE. The proceeds are paid in
equal monthly installments while two payees live. When the principal payee
dies, the payment to the surviving spouse is reduced by 50%. If the spouse
of the principal payee dies first, the payment to the principal payee is not
reduced.
OPTION 7--JOINT AND 100% TO SURVIVOR MONTHLY LIFE INCOME OPTION. The
proceeds are paid in monthly installments while two joint payees live. When
one payee dies, future proceeds will be made to the survivor for his or her
lifetime.
ALTERNATE PAYMENT OPTION. The Company may make available alternative payment
options.
- --------------------------------------------------------------------------------
ELECTION OF PAYMENT OPTIONS AND ANNUITY PAYMENTS
While the annuitant is living, you may elect, revoke or change a payment
option at any time before the retirement date. Upon an annuitant's death, if
a payment option is not in effect or if payment will be made in one lump sum
under an existing option, the beneficiary may elect one of the options after
the death of the owner/annuitant.
We will initiate an election, revocation or change of a payment option upon
receipt of your written request at the Home Office.
We have provided a description of the available payment options above. The
term "effective date" means the date as of which the proceeds are applied to
a payment option. The term "payee" means a person who is entitled to receive
payment under a payment option.
FIXED ANNUITY PAYMENTS. Fixed annuity payments are periodic payments we make
to the designated payee. The dollar amount of each payment does not change.
We calculate the amount of each fixed annuity payment based on:
- the form and duration of the payment option chosen;
- the annuitant's age and sex;
- the amount of proceeds applied to purchase the fixed annuity
payments, and
- the applicable annuity purchase rates.
We use a minimum annual interest rate of 3% to compute fixed annuity
payments. We may, in our sole discretion, make fixed annuity payments based
on a higher annual interest rate.
The payee may elect to receive fixed annuity payments under each of the
payment options. We reserve the right to refuse the election of a payment
option, and to make a lump sum payment to the payee if:
(1) the total payments would be less than $2,000;
(2) the amount of each payment would be less than $20; or
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<PAGE>
(3) the payee is an assignee, estate, trustee, partnership,
corporation, or association.
Under Option 1 (Interest Income), the proceeds earn a set interest rate and
the payee may elect to receive some or all of the interest in equal periodic
payments. Under Option 4 (Income for Fixed Amount), proceeds are paid in
amounts and at intervals specified by the payee. For each other payment
option, we determine the dollar amount of the first fixed annuity payment
for the remaining payment options by multiplying the dollar amount of
proceeds being applied to purchase fixed annuity payments by the annuity
purchase rate for the selected payment option. Subsequent fixed annuity
payments are of the same dollar amount unless we make payments based on an
interest rate different from the interest rate we use to compute the first
payment.
VARIABLE ANNUITY PAYMENTS. Variable annuity payments are periodic payments
we make to the designated payee, the amount of which varies from one annuity
payment date to the next as a function of the investment performance of the
Subaccounts selected to support such payments. The payee may elect to
receive variable annuity payments only under Option 3 (Life Income Option
with Term Certain) and Option 7 (Joint and 100% to Survivor Monthly Life
Income Option). We determine the dollar amount of the first variable annuity
payment by multiplying the dollar amount of proceeds being applied to
purchase variable annuity payments on the effective date by the annuity
purchase rate for the selected payment option. Therefore, the dollar amount
of the first variable annuity payment will depend on:
- the dollar amount of proceeds being applied to a payment option;
- the payment option selected;
- the age and sex of the annuitant; and
- the assumed interest rate used in the variable payment option tables
(5% per year).
We calculate the dollar amount of the initial variable annuity payment
attributable to each Subaccount by multiplying the dollar amount of proceeds
to be allocated to that Subaccount on the effective date by the annuity
purchase rate for the selected payment option. The dollar value of the total
initial variable annuity payment is equal to the sum of the payments
attributable to each Subaccount.
An "annuity unit" is a measuring unit we use to monitor the value of the
variable annuity payments. We determine the number of annuity units
attributable to a Subaccount by dividing the initial variable annuity
payment attributable to that Subaccount by the annuity unit value (described
below) for that Subaccount for the Valuation Period ending on the effective
date or during which the effective date falls if the Valuation Period does
not end on such date. The number of annuity units attributable to each
Subaccount remains constant unless there is an exchange of annuity units
(see "EXCHANGING ANNUITY UNITS" below).
We calculate the dollar amount of each subsequent variable annuity payment
attributable to each Subaccount by multiplying the number of annuity units
of that Subaccount by the annuity unit value for that Subaccount for the
Valuation Period ending as of the annuity payment date. The dollar value of
each subsequent variable annuity payment is equal to the sum of the payments
attributable to each Subaccount.
The annuity unit value for each Valuation Period is equal to (a) multiplied
by (b) multiplied by (c) where:
(a) is the annuity unit value for the immediately preceding Valuation
Period;
(b) is the net investment factor for that Valuation Period (described
below); and
(c) is the daily assumed interest factor for each day in that
Valuation Period. The assumed interest rate we use for variable
annuity payment options is 5% per year. The daily assumed
interest factor derived from an assumed interest rate of 5% per
year is 0.9998663.
29
<PAGE>
We calculate the net investment factor for each Subaccount for each
Valuation Period by dividing (x) by (y) and subtracting (z) from the result
where:
(x) is the net result of:
1. the value of the net assets in the Subaccount as of the end
of the current Valuation Period; PLUS
2. the amount of investment income and capital gains, realized
or unrealized, credited to the net assets of the Subaccount during
the current Valuation Period; MINUS
3. the amount of capital losses, realized or unrealized, charged
against the net assets of the Subaccount during the current Valuation
Period; PLUS or MINUS
4. any amount charged against or credited to the Subaccount for
taxes, or any amount set aside during the Valuation Period as a
provision for taxes attributable to the operation or maintenance of
the Subaccount.
(y) is the net asset value of the Subaccount for the immediately
preceding Valuation Period
(z) is the daily amount charged for mortality and expense risks for
each day of the current Valuation Period.
If the annualized net investment return of a Subaccount for an annuity
payment period is equal to the assumed interest rate, then the variable
annuity payment attributable to that Subaccount for that period will equal
the payment for the prior period. If the annualized net investment return of
a Subaccount for an annuity payment period exceeds the assumed interest
rate, then the variable annuity payment attributable to that Subaccount for
that period will be greater than the payment for the prior period. To the
extent that such annualized net investment return is less than the assumed
interest rate, the payment for that period will be less than the payment for
the prior period.
For variable annuity payments, we reserve the right to:
(1) refuse the election of a payment option if total payments would
be less than $5,000;
(2) refuse to make payments of less than $50 each; or
(3) make payments at less frequent intervals if payments will be less
than $50 each.
EXCHANGING ANNUITY UNITS. By making a written or telephone request to us at
any time after the effective date, the payee may exchange the dollar value
of a designated number of annuity units of a particular Subaccount for an
equivalent dollar amount of annuity units of another Subaccount. The
exchange request will take effect as of the end of the Valuation Period when
we receive the request. On the date of the exchange, the dollar amount of a
variable annuity payment generated from the annuity units of either
Subaccount would be the same. The payee may exchange annuity units of one
Subaccount for annuity units of another Subaccount an unlimited number of
times. We only permit exchanges of annuity units between the Subaccounts.
SURRENDERS. By written request, a payee may make a full surrender of the
payments remaining in a payment option and receive the surrender value. We
do not allow any partial withdrawals of the dollar amounts allocated to a
payment option. The surrender value is equal to:
(a) the commuted value of remaining payments in a payment option;
MINUS
(b) a commutation fee that varies by year since the retirement date.
The commuted value is the present value of the remaining stream of payments
in a payment option, computed using the assumed interest rate and the
annuity unit value(s) calculated as of the date we receive your surrender
request. We assume that each payment under a variable payment option would
be equal to the sum of the number of annuity units in each Subaccount
multiplied by the applicable annuity unit value for each Subaccount.
We will deduct a commutation fee (surrender charge) on any full surrenders
requested during the first six years of a payment option. We assess the
commutation fee as a percentage of the original proceeds. The commutation
fee begins at 6% during the first year of a payment option and declines
30
<PAGE>
by 1% in each of the next five years. Full surrenders requested after the
sixth year of a payment option are not subject to a commutation fee. In
addition, if you elect to receive variable annuity payments, then we do not
assess a Surrender Charge against the proceeds applied to a variable payment
option on the retirement date, and we will calculate any commutation fee
based on the Contract Date. See "FEDERAL TAX MATTERS" for a discussion on
the tax consequences of Surrenders.
Please refer to APPENDIX A for more information on variable annuity
payments.
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YIELDS AND TOTAL RETURNS
- --------------------------------------------------------------------------------
We 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 also advertise, or include in sales literature, performance relative to
certain performance rankings and indices compiled by independent rating
organizations. You may refer to the Statement of Additional Information for
more detailed information relating to performance.
The effective yield and total return calculated for each Subaccount is based
on the investment performance of the corresponding Investment Option, which
includes the Investment Option's total operating expenses. (See the
accompanying Investment Option prospectuses.)
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. This yield is calculated by assuming
that the income generated during that 30-day or one-month period is
generated each period over 12-months and is shown as a percentage of the
investment.
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. This yield is calculated by assuming that the income generated for
that seven-day period is generated each period for 52-weeks 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 total return of a Subaccount refers to return quotations of an
investment in a Subaccount for various periods of time. Total return figures
are provided for each Subaccount for one, five and ten year periods,
respectively. For periods prior to the date the Account commenced
operations, performance information is calculated based on the performance
of the Investment Options and the assumption that the Subaccounts were in
existence for those same periods, with the level of Contract charges which
were in effect at inception of the Subaccounts.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
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 you terminated your Contract at the end of each period
indicated, but excluding any deductions for premium taxes).
In addition to standardized average annual total return, non-standardized
total return information may be used in advertisements or sales literature.
Non-standardized return information will be computed on the same basis as
described above, but does not include a surrender charge. In addition, the
Company may disclose cumulative total return for Contracts funded by
Subaccounts.
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<PAGE>
Each Investment Option's yield, and standardized and non-standardized
average annual total returns may also be disclosed, which may include
investment periods prior to the date the Account commenced operations.
Non-standardized performance data will only be disclosed if standardized
performance data is also disclosed. Please refer to the Statement of
Additional Information for additional information regarding the calculation
of other performance data.
In advertising and sales literature, Subaccount performance may be compared
to the performance of other issuers of variable annuity contracts which
invest in mutual fund portfolios with similar investment objectives. 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 according to investment objectives
on an industry-wide basis.
The rankings provided by Lipper include variable life insurance issuers as
well as variable annuity issuers, whereas the rankings provided by VARDS
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 deductions for operating
expenses. Other independent ranking services and indices may also be used as
a source of performance comparison.
We 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 based on 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 these current tax laws and interpretations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
A 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"). A 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), 408 or 408A of the Internal Revenue Code of 1986,
as amended (the "Code"). The effect of federal income taxes on 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, the tax and employment status of the individual concerned, and the
Company's tax status. In addition, an individual must satisfy certain
requirements in connection with:
- purchasing a Qualified Contract with proceeds from a tax-qualified
plan, and
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<PAGE>
- receiving distributions from a Qualified Contract
in order to continue to receive favorable tax treatment.
Therefore, purchasers of Qualified Contracts are encouraged to seek
competent legal and tax advice regarding the suitability and tax
considerations specific to their situation. 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 Cash
Value will not be taxable until monies are received from the Contract,
either in the form of annuity payments or in some other form. The following
Code requirement must be met in order to be subject to annuity contract
treatment for tax purposes:
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code provides that
separate account investments must be "adequately diversified" in accordance
with Treasury regulations in order for the Contract to qualify as an annuity
contract for federal tax purposes. The Account, through each Investment
Option, intends to comply with the diversification requirements prescribed
in regulations under Section 817(h) of the Code, which affect how the assets
in each Subaccount may be invested. Although the investment adviser of
EquiTrust Variable Insurance Series Fund is an affiliate of the Company, we
do not have control over the Fund or its investments. Nonetheless, the
Company believes that each Investment Option 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
includable in the variable annuity contract owner's gross income. The IRS
has stated in published rulings that a variable annuity contract owner will
be considered the owner of separate account assets if the contract owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. The Treasury Department also
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 stated 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 IRS in rulings in which it was
determined that contract owners were not owners of separate account assets.
For example, the contract owner has additional flexibility in allocating
premium payments and Cash Values. These differences could result in a
contract owner being treated as the owner of a pro rata potion of the assets
of the Account. In addition, the Company 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:
- if any owner dies on or after the retirement date but before the
interest in the contract has been fully 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
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- if any owner dies prior to the date annuity payments begin, the
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 designated
beneficiary is the surviving spouse of the owner, the Contract may be
continued with the surviving spouse as the new owner.
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.
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TAXATION OF ANNUITIES
THE FOLLOWING DISCUSSION ASSUMES THAT THE CONTRACTS WILL QUALIFY AS ANNUITY
CONTRACTS FOR FEDERAL INCOME TAX PURPOSES.
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 through a
partial withdrawal, surrender or annuity payment. 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. A non-natural owner of an annuity contract generally must
include any excess of cash value over the "investment in the contract" as
income during the taxable year. However, there are some exceptions to this
rule. Certain Contracts will generally be treated as held by a natural
person if:
- 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);
- the Contract is acquired by an estate of a decedent by reason of the
death of the decedent;
- the Contract is issued in connection with certain Qualified Plans;
- the Contract is purchased by an employer upon the termination of
certain Qualified Plans;
- the Contract is used in connection with a structured settlement
agreement; or
- the Contract is purchased with a single payment within a year of the
annuity starting date 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 should discuss these
exceptions with their tax adviser.
THE FOLLOWING DISCUSSION GENERALLY APPLIES TO CONTRACTS OWNED BY NATURAL
PERSONS.
PARTIAL SURRENDERS. Under Section 72(e) of the Code, if a partial surrender
is taken from a Qualified Contract, 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
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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, and special rules apply to
distributions from Roth IRAs.
Under Section 72(e) of the Code, if a partial surrender is taken from a
Non-Qualified Contract, 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 surrendered is not taxable.
In the case of a 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 and the contract
received is treated as a new contract for purposes of the penalty and
distribution-at-death rules. Special rules and procedures apply to
Section 1035 transactions and prospective owners wishing to take advantage
of Section 1035 should consult their tax adviser.
ANNUITY PAYMENTS. Although tax consequences may vary depending on the payout
option elected under an annuity contract, a portion of each annuity payment
is generally not taxed and the remainder is taxed as ordinary income. The
non-taxable portion of an annuity payment is generally determined in a
manner that is designed to allow you to recover your investment in the
contract ratably on a tax-free basis over the expected stream of annuity
payments, as determined when annuity payments start. Once your investment in
the contract has been fully recovered, however, the full amount of each
annuity payment is subject to tax as ordinary income.
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:
- if distributed in a lump sum, they are taxed in the same manner as a
surrender of the contract, or
- if distributed under a payment option, they are taxed in the same
way as annuity payments.
For these purposes, 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 from a
Non-Qualified Contract, a 10% federal tax penalty may be imposed. However,
generally, there is no penalty applied on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of the holder (or if the holder is not an
individual, the death of the primary annuitant);
- attributable to the taxpayer becoming disabled;
- 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;
- made under certain annuities issued in connection with structured
settlement agreements;
- 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
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- 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. Contract owners should consult their tax adviser.
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TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
Certain tax consequences may result upon:
- 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.
An owner contemplating any of these actions should consult their tax
adviser.
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WITHHOLDING
Generally, distributions from a Contract are subject to withholding of
federal income tax at a rate which varies according to the type of
distribution and the owner's tax status. The Owner generally can elect not
to have withholding apply.
Eligible rollover distributions from section 401(a) plans, section 403(a)
annuities 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.
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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
Department may conclude that it would be appropriate to aggregate two or
more annuity contracts purchased by the same owner. Accordingly, a Contract
owner should consult a competent tax adviser before purchasing more than one
annuity contract.
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TAXATION OF QUALIFIED CONTRACTS
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
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<PAGE>
- 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) and 403(b), the Code requires that distributions
generally must commence no later than 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 April 1 of the calendar year following
the calendar year in which the owner (or plan participant) reaches age
70 1/2. For Roth IRAs under Section 408A, distributions are not required
during the owner's (or plan participant's) lifetime. 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 amount of compensation
includible in the owner's 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.
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 IRAS. Section 408(p) of the Code permits small employers to establish
SIMPLE IRAs under which employees may elect to defer a percentage of their
compensation up to $6,000 (as increased for cost of living adjustments). The
sponsoring employer is required to make a matching contribution on behalf of
contributing employees. Distributions from a SIMPLE IRA are subject to the
same restrictions that apply to IRA distributions and are taxed as ordinary
income. Subject to certain
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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.
ROTH IRAS. 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 conversion 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. Such conversions are subject to a 10% penalty tax
if they are distributed before five years have passed since the year of the
conversion. 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:
- before age 59 1/2 (subject to certain exceptions), or
- during the five taxable years starting with the year in which the
first contribution is made to any 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:
- elective contributions made in years beginning after December 31,
1988;
- earnings on those contributions; and
- 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.
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POSSIBLE CHARGE FOR THE COMPANY'S TAXES
The Company currently 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. We reserve 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 the Company determines to be properly
attributable to the Subaccounts or to the Contracts.
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OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences
under these Contracts are not exhaustive, and special rules are provided
with respect to other tax situations not discussed in the Prospectus.
Further, the Federal income tax consequences discussed herein reflect our
understanding of current law. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or otherwise. 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. You should
consult your tax adviser for further information.
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DISTRIBUTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
The Contracts will be offered to the public on a continuous basis. We do not
anticipate discontinuing the offering of the Contracts, but reserve the
right to do so. Applications for Contracts are solicited by agents, who in
addition to being licensed by applicable state insurance authorities to sell
the variable annuity contracts and variable life insurance policies for the
Company, 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 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. ("NASD").
EquiTrust Marketing serves 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 and 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 representatives commissions. We may also
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."
Under the Public Disclosure Program, NASD Regulation ("NASDR") provides
certain information regarding the disciplinary history of NASD member
broker-dealers and their associated persons in response to written,
electronic or telephonic inquiries. NASDR's toll-free Public Disclosure
Program Hotline telephone number is 1-800-289-9999 and their Web site
address is www.nasdr.com. An investor brochure that includes information
describing the Public Disclosure Program is available from NASDR.
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LEGAL PROCEEDINGS
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The Company, like other life insurance companies, is involved in lawsuits.
Currently, there are no class action lawsuits naming the Company as a
defendant or involving the Account. In some lawsuits involving other
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, the Company believes that at the present time,
there are no pending or threatened lawsuits that are reasonably likely to
have a material adverse impact on the Account or the Company.
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VOTING RIGHTS
- --------------------------------------------------------------------------------
To the extent required by law, the Company will vote the Fund shares held in
the Account at regular and special shareholder meetings of the Funds, in
accordance with instructions received from persons having voting interests
in the corresponding Subaccounts. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present interpretation
thereof should change, and, as a result, the Company determines that it is
permitted to vote the Fund shares in its own right, it may elect to do so.
The number of votes you have the right to instruct will be calculated
separately for each Subaccount to which you have Cash Value, and may include
fractional votes. (You only have voting interest prior to the retirement
date.) The number of votes attributable to a Subaccount is determined by
dividing your Cash Value in that Subaccount by the net asset value per share
of the Investment Option of the corresponding Subaccount.
The number of votes of an Investment Option which are available to you is
determined as of the date coincident with the date established by that
Investment Option for determining shareholders eligible to vote at the
relevant meeting for that Fund. Voting instructions will be solicited by
written communication prior to such meeting in accordance with procedures
established by each Fund. For each Subaccount in which you have a voting
interest, you will receive proxy materials and reports relating to any
meeting of shareholders of the Investment Option in which that Subaccount
invests.
The Company will vote Fund shares attributable to Contracts as to which no
timely instructions are received (as well as any Fund shares held in the
Account which are not attributable to Contracts) in proportion to the voting
instructions received with respect to all Contracts participating in each
Investment Option. Voting instructions to abstain on any item to be voted
upon will be applied on a pro rata basis to reduce the votes eligible to be
cast on a matter.
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FINANCIAL STATEMENTS
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The audited consolidated balance sheets of the Company as of December 31,
1999 and 1998, and the related consolidated statements of income, changes in
stockholder's equity and cash flows for each of the three years in the
period ended December 31, 1999, as well as the related Report of Independent
Auditors are contained in the Statement of Additional Information. Likewise,
the audited statements of net assets for the Account as of December 31, 1999
and the related statements of operations and changes in net assets for the
periods disclosed in the financial statements, as well as the related Report
of Independent Auditors are contained in the Statement of Additional
Information.
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APPENDIX A
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CALCULATING VARIABLE ANNUITY PAYMENTS
The following chart has been prepared to show how investment performance could
affect variable annuity payments over time. It illustrates the variable annuity
payments under a supplemental agreement issued in consideration of proceeds from
a non-qualified Contract. The chart illustrates certain variable annuity
payments under five hypothetical rate of return scenarios. Of course, the
illustrations merely represent what such payments might be under a HYPOTHETICAL
supplemental agreement issued for proceeds from a HYPOTHETICAL Contract.
WHAT THE CHART ILLUSTRATES. The chart illustrates the first monthly payment in
each of 25 years under a hypothetical variable payment supplemental agreement
issued in consideration of proceeds from a hypothetical non-qualified Contract
assuming a different hypothetical rate of return for a single Subaccount
supporting the agreement. The chart assumes that the first monthly payment in
the initial year shown is $1,000.
HYPOTHETICAL RATES OF RETURN. The variable annuity payments reflect five
different assumptions for a constant investment return before fees and expenses:
0.00%, 3.45%, 6.90%, 9.45%, and 12.00%. Net of all expenses, these constant
returns are: -1.90%, 1.55%, 5.00%, 7.55%, and 10.1%. The first variable annuity
payment for each year reflects the 5% Assumed Interest Rate net of all expenses
for the Subaccount (and the underlying Funds) pro-rated for the month shown.
Fund management fees and operating expenses are assumed to be at an annual rate
of 0.65% of their average daily net assets. This is the average of Fund expenses
shown in the Annual Investment Option Expenses table on page 6. The mortality
and expense risk charge is assumed to be at an annual rate of 1.25% of the
illustrated Subaccount's average daily net assets.
THE FIRST MONTHLY VARIABLE ANNUITY PAYMENTS DEPICTED IN THE CHART ARE BASED ON
HYPOTHETICAL SUPPLEMENTAL AGREEMENTS AND HYPOTHETICAL INVESTMENT RESULTS AND ARE
NOT PROJECTIONS OR INDICATIONS OF FUTURE RESULTS. THE COMPANY DOES NOT GUARANTEE
OR EVEN SUGGEST THAT ANY SUBACCOUNT, CONTRACT OR AGREEMENT ISSUED BY IT WOULD
GENERATE THESE OR SIMILAR MONTHLY PAYMENTS FOR ANY PERIOD OF TIME. THE CHART IS
FOR ILLUSTRATION PURPOSES ONLY AND DOES NOT REPRESENT FUTURE VARIABLE ANNUITY
PAYMENTS OR FUTURE INVESTMENT RETURNS. The first variable annuity payment in
each year under an actual agreement issued in connection with an actual Contract
may be more or less than those shown if the actual returns of the Subaccount(s)
selected by an owner are different from the hypothetical returns. Because it is
likely that a Subaccount's investment return will fluctuate over time, variable
annuity payments actually received by a payee may be more or less than those
shown in this illustration. Also, in an actual case, the total amount of
variable annuity payments ultimately received will depend upon the payment
option selected, and, for the life contingent options, upon the life of the
payee. See the prospectus section titled "PAYMENT OPTIONS--Election of Payment
Options and Annuity Payments."
ASSUMPTIONS ON WHICH THE HYPOTHETICAL AGREEMENT AND CONTRACT ARE BASED. The
chart reflects a hypothetical supplemental agreement and Contract. These, in
turn, are based on the following assumptions:
- The hypothetical Contract is a Non-Qualified Contract
- The supplemental agreement is issued in consideration of proceeds from
the hypothetical Contract
- The proceeds applied under the agreement represents the entire Cash
Surrender Value of the Contract and is allocated to a single Subaccount
- The single Subaccount has annual constant rates of return before fees
and expenses of 0.00%, 3.45%, 6.90%, 9.45%, and 12.00%
- Assumed Interest Rate is 5% per year
A-1
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- The payee elects to receive monthly variable annuity payments
- The proceeds applied to the purchase of annuity units as of the
effective date of the agreement under the annuity payment option
selected results in an initial variable annuity payment of $1,000
For a discussion of how a Contract Owner or payee may elect to receive
monthly, quarterly, semi-annual or annual variable annuity payments, see
"PAYMENT OPTIONS."
ASSUMED INTEREST RATE. Among the most important factors that determines the
amount of each variable annuity payment is the Assumed Interest Rate. Under
supplemental agreements available as of the date of this prospectus, the
Assumed Interest Rate is 5%. Variable annuity payments will increase in size
from one annuity payment date to the next if the annualized net rate of
return during that time is greater than the Assumed Interest Rate, and will
decrease if the annualized net rate of return over the same period is less
than the Assumed Interest Rate. (The Assumed Interest Rate is an important
component of the net investment factor.) For a detailed discussion of the
Assumed Interest Rate and net investment factor, see "PAYMENT OPTIONS."
THE $1,000 INITIAL MONTHLY VARIABLE ANNUITY PAYMENT. The hypothetical
supplemental agreement has an initial monthly variable annuity payment of
$1,000. The dollar amount of the first variable annuity payment under an
actual agreement will depend upon:
- the amount of proceeds applied
- the annuity payment option selected
- the annuity purchase rates in the agreement on the effective date
- the Assumed Interest Rate under the agreement on the effective date
- the age of the annuitant
- in most cases, the sex of the annuitant
For each column in the chart, the entire proceeds is allocated to a
Subaccount having a constant rate of return as shown at the top of the
column. However, under an actual agreement, proceeds are often allocated
among several Subaccounts. The dollar amount of the first variable annuity
payment attributable to each Subaccount is determined under an actual
agreement by dividing the dollar value of the proceeds applied to that
Subaccount as of the effective date by $1,000, and multiplying the result by
the annuity purchase rate in the agreement for the payment option selected.
The amount of the first variable annuity payment is the sum of the first
payments attributable to each Subaccount to which proceeds were allocated.
For a detailed discussion of how the first variable annuity payment is
determined, see "PAYMENT OPTIONS." For comparison purposes, hypothetical
monthly fixed annuity payments are shown in the column using a 5% net
Assumed Interest Rate.
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INITIAL MONTHLY PAYMENTS FOR EACH YEAR SHOWN,
ASSUMING A CONSTANT RATE OF RETURN
<TABLE>
0.00% 3.45% 6.90% 9.45% 12.00%
CONTRACT GROSS GROSS GROSS GROSS GROSS
YEAR -1.90% NET 1.55% NET 5.00% NET 7.55% NET 10.10% NET
<S> <C> <C> <C> <C> <C>
1 $1,000 $1,000 $1,000 $1,000 $1,000
2 934 967 1,000 1,024 1,049
3 873 935 1,000 1,049 1,100
4 816 905 1,000 1,075 1,153
5 762 875 1,000 1,101 1,209
6 712 846 1,000 1,127 1,268
7 665 818 1,000 1,155 1,329
8 621 791 1,000 1,183 1,394
9 581 765 1,000 1,212 1,461
10 542 740 1,000 1,241 1,532
11 507 716 1,000 1,271 1,607
12 473 692 1,000 1,302 1,685
13 442 670 1,000 1,334 1,767
14 413 648 1,000 1,366 1,853
15 386 626 1,000 1,399 1,943
16 361 606 1,000 1,433 2,037
17 337 586 1,000 1,468 2,136
18 315 567 1,000 1,504 2,240
19 294 548 1,000 1,540 2,348
20 275 530 1,000 1,578 2,462
21 257 513 1,000 1,616 2,582
22 240 496 1,000 1,655 2,707
23 224 480 1,000 1,695 2,839
24 209 464 1,000 1,737 2,977
25 196 449 1,000 1,779 3,121
</TABLE>
A-3
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS........................................... 1
The Contract....................................................... 1
Incontestability................................................... 1
Misstatement of Age or Sex......................................... 1
Non-Participation.................................................. 1
CALCULATION OF YIELDS AND TOTAL RETURNS.................................. 1
Money Market Subaccount Yields..................................... 1
Other Subaccount Yields............................................ 2
Average Annual Total Returns....................................... 3
Other Total Returns................................................ 5
Effect of the Administrative Charge on Performance Data............ 6
LEGAL MATTERS............................................................ 6
EXPERTS.................................................................. 6
OTHER INFORMATION........................................................ 6
FINANCIAL STATEMENTS..................................................... 7
</TABLE>
SAI-TOC
<PAGE>
TEAR AT PERFORATION
If you would like a copy of the Statement of Additional Information, please
complete the information below and detach and mail this card to the Company at
the address shown on the cover of this prospectus.
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
- -------------------------------------------------------------------------------
<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 additional information to 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 the selected
Investment Options of EquiTrust Variable Insurance Series Fund, T. Rowe Price
Equity Series, Inc., T. Rowe Price International Series, Inc. and Fidelity
Variable Insurance Products Funds. The Prospectus for the Contract is dated the
same as this Statement of Additional information. You may obtain a copy of the
Prospectuses by writing or calling us at our address or phone number shown
above.
May 1, 2000
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS............................................. 1
The Contract......................................................... 1
Incontestability..................................................... 1
Misstatement of Age or Sex........................................... 1
Non-Participation.................................................... 1
CALCULATION OF YIELDS AND TOTAL RETURNS.................................... 1
Money Market Subaccount Yields....................................... 1
Other Subaccount Yields.............................................. 2
Average Annual Total Returns......................................... 3
Other Total Returns.................................................. 5
Effect of the Administrative Fee On Performance Data................. 6
LEGAL MATTERS.............................................................. 6
EXPERTS.................................................................... 6
OTHER INFORMATION.......................................................... 6
FINANCIAL STATEMENTS....................................................... 7
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT
The Contract includes the application and all other attached papers. The
statements made in the application are deemed representations and not
warranties. We will not use any statement in defense of a claim or to void
the Contract unless it is contained in the application.
- --------------------------------------------------------------------------------
INCONTESTABILITY
We 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, we will pay that
amount 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
- --------------------------------------------------------------------------------
The Company may disclose yields, total returns and other performance data
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
Advertisements and sales literature may quote the current annualized yield
of the Money Market Subaccount for a seven-day period. This figure is
computed by determining the net change (exclusive or realized gains and
losses on the sale of securities, unrealized appreciation and depreciation
and income other than investment income) at the end of the seven-day period
in the value of a hypothetical account under a Contract with a balance of 1
unit at the beginning of the period, dividing this net change 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.
The net change in account value reflects:
- net income from the Investment Option attributable to the
hypothetical account; and
- charges and deductions imposed under the Contract attributable to
the hypothetical account.
The charges and deductions include per unit charges for the hypothetical
account for:
- the annual administrative fee and
- the mortality and expense risk charge.
1
<PAGE>
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 Investment Option (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.
Effective Yield = (1 + ((NCS - ES)/UV))365/7 - 1
Where:
NCS = the net change in the value of the Investment Option (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>
The yield for the Money Market Subaccount will be lower than the yield for
the Money Market Investment Option due to the charges and deductions imposed
under the Contract.
The current and effective yields of the Money Market Subaccount normally
fluctuate on a daily basis and SHOULD NOT ACT AS AN INDICATION OR
REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. The actual yield is
affected by:
- changes in interest rates on money market securities,
- the average portfolio maturity of the Money Market Investment
Option,
- the quality of portfolio securities held by this Investment Option,
and
- the operating expenses of the Money Market Investment Option.
Yields may also be presented for other periods of time.
- --------------------------------------------------------------------------------
OTHER SUBACCOUNT YIELDS
Advertisements and sales literature 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 of a
Subaccount refers to income generated by that Subaccount during a 30-day or
one-month period which is assumed to be generated each period over a
12-month period.
2
<PAGE>
The yield is computed by:
1) dividing net investment income of the Investment Option 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.
The annual administrative fee (deducted at the beginning of each Contract
Year) and mortality and expense risk charge are included in expenses of the
Subaccounts. For purposes of calculating the 30-day or one-month yield, an
average administrative fee per dollar of Contract value is used 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) TO THE POWER OF 6 - 1
Where:
NI = net income of the Investment Option 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.
UV = the unit value at the close of the last day in the 30-day or one-month
period.
</TABLE>
The yield for each Subaccount will be lower than the yield for the
corresponding Investment Option due to the various charges and deductions
imposed under the Contract.
The yield for each Subaccount normally will fluctuate over time and SHOULD
NOT ACT AS AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF
RETURN. A Subaccount's actual yield is affected by the quality of portfolio
securities held by the corresponding Investment Option and its operating
expenses.
The Surrender Charge is not considered in the yield calculation.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Advertisements and sales literature may also quote average annual total
returns for the Subaccounts for various periods of time, including periods
before the Subaccounts were in existence. Total return figures are provided
for each Subaccount for one, five and ten year periods. Average annual total
returns may also be disclosed for other periods of time.
Adjusted historic average annual total return quotations represent the
average annual compounded rates of return that would equate an initial
investment of $1,000 to the redemption value of that investment as of the
last day of each of the periods for which total return quotations are
provided. The last date of each period is the most recent month-end
practicable.
Adjusted historic average annual total returns for each Subaccount are
calculated based on the assumption that the Subaccounts were in existence
during the stated periods with the level of Contract charges which were in
effect at the inception of each Subaccount (see four columns under
"Investment Option" heading below). For purposes of calculating average
annual total return, an average annual administrative fee per dollar of
Contract value is used. The calculation also assumes
3
<PAGE>
surrender of the Contract at the end of the period. The total return will
then be calculated according to the following formula:
<TABLE>
<S> <C> <C>
TR = (ERV/P)TO THE POWER OF 1/N - 1
Where:
TR = the average annual total return net of subaccount recurring charges.
ERV = 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>
The following chart provides the adjusted historic average annual total
return information for the Subaccounts. When a Subaccount has been in
existence for at least one year, the chart below provides the actual
adjusted average annual total return for the Subaccount as of the end of the
period indicated or from the date of inception (i.e., since the first dollar
was funded to the Subaccount) calculated according to the formula described
above (see the three columns to the right of the chart under the heading
"Subaccount").
<TABLE>
<CAPTION>
INVESTMENT OPTION SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE
PERIOD
FROM DATE
FOR THE PERIOD OF
FOR THE FOR THE FOR THE FROM DATE OF FOR THE FOR THE INCEPTION
1-YEAR 5-YEAR 10-YEAR INCEPTION OF 1-YEAR 5-YEAR OF
PERIOD PERIOD PERIOD INVESTMENT PERIOD PERIOD SUBACCOUNT
ENDED ENDED ENDED OPTION ENDED ENDED TO
SUBACCOUNT (INCEPTION DATE) 12/31/99 12/31/99 12/31/99 TO 12/31/99 12/31/99 12/31/99 12/31/99
EquiTrust Variable Insurance Series Fund
Value Growth(1) (1/17/94) (13.42)% 0.23% 4.46% 3.09% (13.33)% 0.39% (0.47)%
High Grade Bond(1) (1/18/94) (7.89) 5.41 6.29 7.03 (7.85) 5.47 4.48
High Yield Bond(1) (1/17/94) (8.16) 7.07 8.38 8.58 (8.13) 7.07 5.62
Managed(1) (1/17/94) (10.70) 5.57 7.45 6.93 (10.64) 5.56 3.85
Money Market(2) (1/4/94) (3.20) 3.02 -- 3.19 (3.19) 3.05 3.26
Blue Chip(3) (1/17/94) 12.14 22.14 -- 18.08 11.89 22.06 18.23
T. Rowe Price Equity Series, Inc.
Mid-Cap Growth(5) (5/6/99) 14.85 -- -- 18.37 -- -- 8.32
New America Growth(4) (5/4/99) 4.53 22.00 -- 19.11 -- -- (0.48)
Personal Strategy Balanced(6) (5/4/99) 0.45 14.29 -- 14.54 -- -- (4.50)
T. Rowe Price International Series, Inc.
International Stock(4) (5/12/99) 23.86 13.21 -- 11.73 -- -- 18.03
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT OPTION SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE
PERIOD
FROM DATE
FOR THE PERIOD OF
FOR THE FOR THE FOR THE FROM DATE OF FOR THE FOR THE INCEPTION
1-YEAR 5-YEAR 10-YEAR INCEPTION OF 1-YEAR 5-YEAR OF
PERIOD PERIOD PERIOD INVESTMENT PERIOD PERIOD SUBACCOUNT
ENDED ENDED ENDED OPTION ENDED ENDED TO
SUBACCOUNT (INCEPTION DATE) 12/31/99 12/31/99 12/31/99 TO 12/31/99 12/31/99 12/31/99 12/31/99
Fidelity Variable Insurance Products Funds
VIP Growth(7) (5/5/99) 27.74 27.67 18.39 17.23 -- -- 16.87
VIP Overseas(8) (5/5/99) 32.54 15.35 9.88 9.35 -- -- 22.39
VIP II Contrafund(9) (5/5/99) 15.34 -- -- 25.65 -- -- 6.95
VIP II Index 500(10) (5/5/99) 11.83 26.10 -- 19.58 -- -- 2.89
VIP III Growth & Income(11) (5/5/99) 1.16 -- -- 18.95 -- -- (4.26)
</TABLE>
The actual Subaccount total return information and the Investment Option
total return information will vary because of the method used to deduct the
mortality and expense risk charge from the returns. For Subaccount total
return information, the mortality and expense risk charge is calculated
based on the daily net assets multiplied by a daily factor and reduced on a
daily basis. For Investment Option total return information, the mortality
and expense risk charge is calculated as a single charge applied at the end
of the period on an annualized basis.
(1) The Value Growth, High Grade Bond, High Yield Bond and Managed
Portfolios commenced operations on October 17, 1987.
(2) The Money Market Portfolio commenced operations on February 20,
1990.
(3) The Blue Chip Portfolio commenced operations on October 15, 1990.
(4) The New America Growth and International Stock Portfolios
commenced operations on March 31, 1994.
(5) The Mid-Cap Growth Portfolio commenced operations on December 31,
1996.
(6) The Personal Strategy Balanced Portfolio commenced operations on
December 30, 1994.
(7) The Growth Portfolio commenced operations on October 9, 1986.
(8) The Overseas Portfolio commenced operations on January 28, 1987.
(9) The Contrafund Portfolios commenced operations on January 3, 1995.
(10) The Index 500 Portfolio commenced operations on August 27, 1992.
(11) The Growth & Income Portfolio commenced operations on
December 31, 1996.
- --------------------------------------------------------------------------------
OTHER TOTAL RETURNS
Advertisements and sales literature may also quote average annual total
returns which do not reflect the Surrender Charge. These figures are
calculated in the same manner as average annual total returns described
above, however, the Surrender Charge is not taken into account at the end of
the period.
5
<PAGE>
We 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
We apply an annual administrative charge of $30 on the Contract Date and on
each Contract Anniversary prior to the retirement date. This charge is
deducted from each Subaccount and the Declared Interest Option based on the
proportion that each Subaccount's value bears to the total Cash Value. For
purposes of reflecting the administrative fee in yield and total return
quotations, this annual charge is converted into a per-dollar per-day charge
based on the average value of all contracts in the Account on the last day
of the period for which quotations are provided. The per-dollar per-day
average charge is then 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, Washington D.C. has provided advice on certain matters relating to the
federal securities laws.
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
The Account's statements of net assets as of December 31, 1999 and the
related statements of operations and changes in net assets for the periods
disclosed in the financial statements, and the consolidated balance sheets
of the Company at December 31, 1999 and 1998 and the related consolidated
statements of income, changes in stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1999, appearing
herein, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their respective reports thereon appearing elsewhere herein, 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 Contract 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 as to the contents of the
Contract and other legal instruments are
6
<PAGE>
summaries. For a complete statement of the terms of these documents,
reference is made to such instruments as filed.
- --------------------------------------------------------------------------------
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>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Farm Bureau Life Insurance Company
We have audited the accompanying consolidated balance sheets of Farm Bureau Life
Insurance Company as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Farm
Bureau Life Insurance Company at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 14, 2000
1
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
------------- ------------------
(RESTATED--NOTE 1)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost
(market: 1999--$337,794; 1998--$516,729) $ 339,362 $ 492,288
Available for sale, at market (amortized cost:
1999--$2,063,560; 1998--$1,874,170) 1,988,225 1,961,353
Equity securities, at market (cost:
1999--$38,147; 1998--$39,589) 35,345 35,287
Mortgage loans on real estate 314,523 299,372
Investment real estate, less allowances for
depreciation of $2,300 in 1999 and $4,223 in
1998 20,119 40,679
Policy loans 123,717 123,328
Other long-term investments 4,822 6,236
Short-term investments 78,101 78,445
------------ ------------
Total investments 2,904,214 3,036,988
Cash and cash equivalents 5,889 2,006
Securities and indebtedness of related parties 61,309 65,291
Accrued investment income 34,796 34,340
Accounts and notes receivable 155 331
Amounts receivable from affiliates 2,458 3,635
Reinsurance recoverable 4,812 4,711
Deferred policy acquisition costs 237,306 204,629
Value of insurance in force acquired 15,894 14,533
Property and equipment, less allowances for
depreciation of $3,682 in 1999 and $4,080 in
1998 12,004 9,991
Current income taxes recoverable -- 11,777
Deferred income taxes 7,128 --
Goodwill, less accumulated amortization of $4,181
in 1999 and $3,484 in 1998 9,251 9,948
Other assets 7,122 11,410
Assets held in separate accounts 256,028 190,111
------------ ------------
Total assets $ 3,558,366 $ 3,599,701
============ ============
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
------------- ------------------
(RESTATED--NOTE 1)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive products $ 1,626,042 $ 1,596,471
Traditional life insurance and accident and
health products 752,733 731,873
Unearned revenue reserve 27,650 25,373
Other policy claims and benefits 10,019 10,625
------------ ------------
2,416,444 2,364,342
Other policyholders' funds:
Supplementary contracts without life
contingencies 160,848 147,755
Advance premiums and other deposits 83,258 84,206
Accrued dividends 13,554 13,797
------------ ------------
257,660 245,758
Amounts payable to affiliates 668 3,326
Long-term debt 40,000 71
Current income taxes payable 2,304 --
Deferred income taxes -- 44,858
Other liabilities 66,237 76,751
Liabilities related to separate accounts 256,028 190,111
------------ ------------
Total liabilities 3,039,341 2,925,217
Commitments and contingencies
Redeemable preferred stock, par value $20.00 per
share, redemption value $200.00 per share--1999:
none authorized, issued or outstanding; 1998:
authorized 100,000 shares, issued 25,739 shares,
outstanding 22,517 shares -- 4,503
Stockholder's equity:
Preferred stock, 7 1/2% cumulative, par value
$50.00 per share--authorized 6,000 shares -- --
Common stock, par value $50.00 per
share--authorized 994,000 shares, issued and
outstanding 50,000 shares 2,500 2,500
Additional paid-in capital 66,273 66,273
Accumulated other comprehensive income (loss) (49,882) 50,050
Retained earnings 500,134 551,158
------------ ------------
Total stockholder's equity 519,025 669,981
------------ ------------
Total liabilities and stockholder's equity $ 3,558,366 $ 3,599,701
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
(RESTATED--NOTE 1)
<S> <C> <C> <C>
Revenues:
Interest sensitive product charges $ 55,363 $ 52,157 $ 47,979
Traditional life insurance and accident and
health premiums 95,930 93,473 92,528
Net investment income 225,040 228,494 220,332
Realized gains (losses) on investments (1,976) (4,878) 40,948
Realized gain on dividend of home office
properties -- 5,097 --
Other income 623 2,100 5,353
------------ ------------ ------------
Total revenues 374,980 376,443 407,140
Benefits and expenses:
Interest sensitive product benefits 123,231 122,527 122,729
Traditional life insurance and accident and
health benefits 57,941 55,880 56,369
Increase in traditional life and accident and
health future policy benefits 19,556 21,264 27,173
Distributions to participating policyholders 25,360 25,818 25,852
Underwriting, acquisition and insurance expenses 71,377 64,735 62,402
Interest expense 830 8 9
Other expenses 1,045 1,324 1,151
------------ ------------ ------------
Total benefits and expenses 299,340 291,556 295,685
------------ ------------ ------------
75,640 84,887 111,455
Income taxes (25,686) (27,235) (38,110)
Equity income, net of related income taxes 3,972 1,258 2,088
------------ ------------ ------------
Net income $ 53,926 $ 58,910 $ 75,433
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME (LOSS) EARNINGS EQUITY
-------- ---------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997:
As previously reported $2,500 $55,285 $ 26,327 $406,892 $491,004
Impact of merger of Western Farm Bureau
Life Insurance Company -- 11,048 860 107,896 119,804
------ ------- -------- -------- --------
As restated 2,500 66,333 27,187 514,788 610,808
Comprehensive income:
Net income for 1997 -- -- -- 75,433 75,433
Change in net unrealized investment
gains/losses -- -- 19,935 -- 19,935
Total comprehensive income 95,368
Dividends paid to preferred stockholders -- -- -- (335) (335)
Cash dividends paid to parent -- -- -- (36,950) (36,950)
Other -- -- -- (1,259) (1,259)
------ ------- -------- -------- --------
Balance at December 31, 1997 2,500 66,333 47,122 551,677 667,632
Comprehensive income:
Net income for 1998 -- -- -- 58,910 58,910
Change in net unrealized investment
gains/losses -- -- 2,928 -- 2,928
Total comprehensive income 61,838
Adjustment resulting from capital
transactions of equity investee -- (60) -- -- (60)
Dividends paid to preferred stockholders -- -- -- (335) (335)
Dividend of home office properties to
parent -- -- -- (45,650) (45,650)
Cash dividends paid to parent -- -- -- (13,444) (13,444)
------ ------- -------- -------- --------
Balance at December 31, 1998 2,500 66,273 50,050 551,158 669,981
Comprehensive income (loss):
Net income for 1999 -- -- -- 53,926 53,926
Change in net unrealized investment
gains/losses -- -- (99,932) -- (99,932)
--------
Total comprehensive loss (46,006)
Dividend paid to preferred stockholders -- -- -- (155) (155)
Dividend of short-term and fixed
maturity securities to parent -- -- -- (75,000) (75,000)
Cash dividends paid to parent -- -- -- (29,795) (29,795)
------ ------- -------- -------- --------
Balance at December 31, 1999 $2,500 $66,273 $(49,882) $500,134 $519,025
====== ======= ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(RESTATED--NOTE 1)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 53,926 $ 58,910 $ 75,433
Adjustments to reconcile net income to net cash provided by
operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances 105,121 105,604 107,238
Charges for mortality and administration (54,229) (52,050) (48,468)
Deferral of unearned revenues 2,456 2,607 2,417
Amortization of unearned revenue reserve (1,318) (888) (775)
Provision for depreciation and amortization 5,687 1,111 8,065
Net gains related to investments held by investment
company subsidiary -- -- (1,223)
Realized losses (gains) on investments 1,976 4,878 (40,948)
Realized gain on dividend of home office properties -- (5,097) --
Increase in traditional life and accident and health
benefit accruals 20,552 22,305 26,921
Policy acquisition costs deferred (34,275) (31,196) (30,425)
Amortization of deferred policy acquisition costs 12,439 10,175 8,492
Provision for deferred income taxes 1,824 2,580 (7,184)
Other (1,865) 22,902 (11,423)
--------- --------- ---------
Net cash provided by operating activities 112,294 141,841 88,120
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities--held for investment 154,700 151,298 49,961
Fixed maturities--available for sale 224,530 301,770 293,250
Equity securities 10,391 24,843 115,742
Mortgage loans on real estate 53,922 75,887 48,059
Investment real estate 20,080 1,349 1,191
Policy loans 28,401 28,423 27,513
Other long-term investments 68 278 52
Short-term investments--net -- -- 41,061
--------- --------- ---------
492,092 583,848 576,829
Acquisition of investments:
Fixed maturities--available for sale (469,608) (541,978) (431,379)
Equity securities (6,663) (5,644) (50,368)
Mortgage loans on real estate (69,606) (51,883) (78,703)
Investment real estate (726) (3,096) (10,208)
Policy loans (28,790) (29,810) (30,458)
Other long-term investments -- -- (1,936)
Short-term investments--net (24,696) (48,012) (1,919)
--------- --------- ---------
(600,089) (680,423) (604,971)
Proceeds from disposal, repayments of advances and other
distributions from equity investees 11,395 6,254 16,519
Investments in and advances to equity investees (6,654) (5,505) (41,018)
Net cash paid for acquisitions -- -- (9,694)
Net purchases of property and equipment and other (2,403) (6,480) (121)
--------- --------- ---------
Net cash used in investing activities (105,659) (102,306) (62,456)
</TABLE>
6
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(RESTATED--NOTE 1)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Receipts from interest sensitive and variable products
credited to policyholder account balances $ 255,931 $ 260,949 $ 258,919
Return of policyholder account balances on interest
sensitive and variable products (264,159) (286,469) (247,823)
Proceeds from long-term debt 40,000 -- --
Repayments of long-term debt (71) (6) (4)
Redemption of redeemable preferred stock (4,503) -- --
Dividends paid (29,950) (13,779) (37,285)
--------- --------- ---------
Net cash used in financing activities (2,752) (39,305) (26,193)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 3,883 230 (529)
Cash and cash equivalents at beginning of year 2,006 1,776 2,305
--------- --------- ---------
Cash and cash equivalents at end of year $ 5,889 $ 2,006 $ 1,776
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 725 $ 7 $ 8
Income taxes 11,919 24,484 55,491
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Farm Bureau Life Insurance Company (we or the Company), a wholly-owned
subsidiary of FBL Financial Group, Inc., operates predominantly in the life
insurance industry. We currently market individual life insurance policies and
annuity contracts to Farm Bureau members and other individuals and businesses in
14 midwestern and western states. Variable insurance and annuity contracts are
also marketed in these and other states through alliances with other insurance
companies and a regional broker/dealer.
CONSOLIDATION
Our consolidated financial statements include the financial statements of the
Company and its subsidiaries. All significant intercompany transactions have
been eliminated.
MERGER AND RESTRUCTURING
On July 1, 1999, we merged with Western Farm Bureau Life Insurance Company
(Western Life), another wholly-owned subsidiary of FBL Financial Group, Inc. The
merger, which was completed through the contribution of Western Life to us by
FBL Financial Group, Inc., has been accounted for like a pooling of interests.
Accordingly, all prior period financial statements have been restated to include
the combined financial position, results of operations and cash flows of Western
Life as though it had always been a part of the Company.
The following information presents certain income statement data of the separate
companies for the periods preceding the merger:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, ------------------------
1999 1998 1997
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Farm Bureau Life Insurance Company $145,405 $286,199 $317,847
Western Life 47,364 93,539 89,338
-------- -------- --------
192,769 379,738 407,185
Eliminations (35) (3,295) (45)
-------- -------- --------
Consolidated $192,734 $376,443 $407,140
======== ======== ========
Net income:
Farm Bureau Life Insurance Company $ 22,535 $ 47,324 $ 63,574
Western Life 6,400 14,717 11,904
-------- -------- --------
28,935 62,041 75,478
Eliminations 73 (3,131) (45)
-------- -------- --------
Consolidated $ 29,008 $ 58,910 $ 75,433
======== ======== ========
</TABLE>
Prior to the merger, the Company owned 3,013 shares of Western Life redeemable
preferred stock with a carrying value of $0.6 million. All of Western Life's
preferred stock was redeemed in conjunction with the merger. The elimination
amounts noted in the table above represent dividend income from the Western Life
preferred stock owned by the Company and differences in the realized gain and
amortization of the deferred gain resulting from the dividend of the home office
properties to our parent. See "Property and Equipment".
In addition to merging with Western Life, we also closed an administrative
processing center during 1999. As a result of the closing of the service center,
a leased property was vacated, 22 positions were
8
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
eliminated and moving costs were incurred. During 1999, we charged to expense
costs totaling $1.2 million, $0.4 million of which remains accrued at
December 31, 1999, for related severance benefits, lease costs and other costs
primarily associated with the closing of the service center. The restructuring
expenses are recorded in the underwriting, acquisition and insurance expense
line of the 1999 consolidated statement of income.
INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
Fixed maturity securities, comprised of bonds and redeemable preferred stocks
that we have a positive intent and ability to hold to maturity, are designated
as "held for investment." Held for investment securities are reported at cost
adjusted for amortization of premiums and discounts. Changes in the market value
of these securities, except for declines that are other than temporary, are not
reflected in our financial statements. Fixed maturity securities which may be
sold are designated as "available for sale." Available for sale securities are
reported at market value and unrealized gains and losses on these securities are
included directly in stockholder's equity as a component of accumulated other
comprehensive income or loss. The unrealized gains and losses included in
accumulated other comprehensive income or loss are reduced by a provision for
deferred income taxes and adjustments to deferred policy acquisition costs,
value of insurance in force aquired and unearned revenue reserve that would have
been required as a charge or credit to income had such amounts been realized.
Premiums and discounts are amortized/accrued using methods which result in a
constant yield over the securities' expected lives. Amortization/accrual of
premiums and discounts on mortgage and asset-backed securities incorporates
prepayment assumptions to estimate the securities' expected lives.
Equity securities, comprised of common and non-redeemable preferred stocks, are
reported at market value. The change in unrealized appreciation and depreciation
of equity securities is included directly in stockholder's equity, net of any
related deferred income taxes, as a component of accumulated other comprehensive
income or loss.
MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate are reported at cost adjusted for amortization of
premiums and accrual of discounts. If we determine that the value of any
mortgage loan is impaired (i.e., when it is probable we will be unable to
collect all amounts due according to the contractual terms of the loan
agreement), the carrying value of the mortgage loan is reduced to its fair
value, which may be based upon the present value of expected future cash flows
from the loan (discounted at the loan's effective interest rate), or the fair
value of the underlying collateral. The carrying value of impaired loans is
reduced by the establishment of a valuation allowance, changes to which are
recognized as realized gains or losses on investments. Interest income on
impaired loans is recorded on a cash basis.
INVESTMENT REAL ESTATE
Investment real estate is reported at cost less allowances for depreciation.
Real estate acquired through foreclosure, which is included with investment real
estate in our consolidated balance sheets, is recorded at the lower of cost
(which includes the balance of the mortgage loan, any accrued interest and any
costs incurred to obtain title to the property) or fair value as determined at
or before the foreclosure date. The carrying value of these assets is subject to
regular review. If the fair value, less estimated sales costs, of real estate
owned decreases to an amount lower than its carrying value, a valuation
allowance is established for the difference. This valuation allowance can be
reduced or eliminated should the fair value of the property increase. Changes in
this valuation allowance are recognized as realized gains or losses on
investments. No allowance was recorded at December 31, 1999 or December 31,
1998.
9
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER INVESTMENTS
Policy loans are reported at unpaid principal balance. Short-term investments
are reported at cost adjusted for amortization of premiums and accrual of
discounts.
Other long-term investments include certain nontraditional investments and
securities held by a subsidiary engaged in the venture capital investment
company industry. Nontraditional investments include a debt-related instrument
and investment deposits which are reported at cost. In accordance with
accounting practices for the investment company industry, marketable securities
held by a subsidiary in this industry are valued at market value if readily
marketable or at fair value, as determined by the Board of Directors of the
subsidiary, if not readily marketable. The resulting difference between cost and
market is included in the statements of income as net investment income.
Realized gains and losses are also reported as a component of net investment
income.
Securities and indebtedness of related parties include investments in
partnerships and corporations over which we may exercise significant influence.
Such investments are accounted for using the equity method. Changes in the value
of our investment in equity investees attributable to capital transactions of
the investee, such as an additional offering of stock, are recorded directly to
stockholder's equity. Securities and indebtedness of related parties also
includes advances and loans to the partnerships and corporations which are
principally reported at cost.
REALIZED GAINS AND LOSSES ON INVESTMENTS
The carrying values of all our investments are reviewed on an ongoing basis for
credit deterioration, and if this review indicates a decline in market value
that is other than temporary, the carrying value in the investment is reduced to
its estimated realizable value (the sum of the estimated nondiscounted cash
flows for securities or fair value for mortgage loans on real estate) and a
specific writedown is taken. Such reductions in carrying value are recognized as
realized losses on investments. Realized gains and losses on sales are
determined on the basis of specific identification of investments. If we expect
that an issuer of a security will modify its payment pattern from contractual
terms but no writedown is required, future investment income is recognized at
the rate implicit in the calculation of net realizable value under the expected
payment pattern.
MARKET VALUES
Market values of fixed maturity securities are reported based on quoted market
prices, where available. Market values of fixed maturity securities not actively
traded in a liquid market are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U.S.
Treasury bonds. Market values of redeemable preferred stocks and equity
securities are based on the latest quoted market prices, or for those not
readily marketable, generally at values which are representative of the market
values of comparable issues.
CASH AND CASH EQUIVALENTS
For purposes of our consolidated statements of cash flows, we consider all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
DEFERRED POLICY ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE ACQUIRED
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. The
value of insurance in force acquired represents the cost assigned to insurance
contracts when an insurance company is acquired. The initial value is determined
by an actuarial study using expected future gross profits as a measurement of
the net present value of the insurance acquired. Interest accrues on the
unamortized balance at a weighted average rate of 5.72%.
10
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For participating traditional life insurance and interest sensitive products
(principally universal life insurance policies and annuity contracts), these
costs are being amortized generally in proportion to expected gross profits
(after dividends to policyholders, if applicable) from surrender charges and
investment, mortality, and expense margins. That amortization is adjusted
retrospectively when estimates of current or future gross profits/margins
(including the impact of investment gains and losses) to be realized from a
group of products are revised. For nonparticipating traditional life and
accident and health insurance products, these costs are amortized over the
premium paying period of the related policies, in proportion to the ratio of
annual premium revenues to total anticipated premium revenues. Such anticipated
premium revenues are estimated using the same assumptions used for computing
liabilities for future policy benefits.
PROPERTY AND EQUIPMENT
Property and equipment, comprised primarily of furniture, equipment and
capitalized software costs, are reported at cost less allowances for
depreciation and amortization. Depreciation and amortization expense are
computed primarily using the straight-line method over the estimated useful
lives of the assets. Depreciation and amortization expense was $1.9 million in
1999, $1.8 million in 1998 and $2.4 million in 1997.
On March 30, 1998, we transferred our home office properties to our parent in
the form of a dividend. The fair value of the properties, which served as the
basis for the transaction, was $45.7 million and the book value was $24.7
million. We are leasing a portion of the properties back from our parent under a
sublease arrangement. Of the $21.0 million gain on the transaction, $5.1 million
was recognized in the 1998 statement of income and the remainder is being
amortized over the term of the operating lease. The unamortized balance was
$14.0 million at December 31, 1999 and $15.0 million at December 31, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The SOP, which was adopted prospectively as of January 1, 1999,
requires the capitalization of certain costs incurred in connection with
developing or obtaining internal use software. Prior to the adoption of SOP
98-1, we capitalized external software development costs and charged internal
costs, primarily payroll and related items, to expense as they were incurred.
Pursuant to the SOP, these internal costs are now capitalized. The effect of
adopting the SOP was to increase net income for the year ended December 31, 1999
by $0.2 million.
GOODWILL
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is generally being amortized on a straight-line
basis over a period of 20 years. The carrying value of goodwill is regularly
reviewed for indicators of impairment in value, which in the view of management
are other than temporary. If facts and circumstances suggest that goodwill is
impaired, we assess the fair value of the underlying business and reduce
goodwill to an amount that results in the book value of the underlying business
approximating fair value. We have not recorded any such writedowns during 1999,
1998 or 1997.
FUTURE POLICY BENEFITS
The liability for future policy benefits for participating traditional life
insurance is based on net level premium reserves, including assumptions as to
interest, mortality, and other assumptions underlying the guaranteed policy cash
values. Reserve interest assumptions are level and range from 2.5% to 6.0%. The
average rate of assumed investment yields used in estimating gross margins was
7.83% in 1999, 8.03% in 1998 and 8.15% in 1997. Accrued dividends for
participating business are established for anticipated amounts earned to date
for the period through the policy's next anniversary and are provided for as a
11
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
separate liability. The declaration of future dividends for participating
business is at the discretion of the Board of Directors. Participating business
accounted for 40% of receipts from policyholders during the year ended
December 31, 1999 and represented 17% of life insurance inforce at December 31,
1999. Participating business accounted for 41% of receipts from policyholders
during the year ended December 31, 1998 and represented 18% of life insurance
inforce at December 31, 1998.
The liabilities for future policy benefits for accident and health insurance are
computed using a net level (or an equivalent) method, including assumptions as
to morbidity, mortality and interest and to include provisions for possible
unfavorable deviations. Policy benefit claims are charged to expense in the
period that the claims are incurred.
Future policy benefit reserves for interest sensitive products are computed
under a retrospective deposit method and represent policy account balances
before applicable surrender charges. Policy benefits and claims that are charged
to expense include benefit claims incurred in the period in excess of related
policy account balances.
Interest crediting rates for interest sensitive products ranged from 4.00% to
6.25% in 1999, 4.00% to 6.50% in 1998 and 4.00% to 7.00% in 1997.
The unearned revenue reserve reflects the unamortized balance of the excess of
first year administration charges over renewal period administration charges
(policy initiation fees) on interest sensitive products. These excess charges
have been deferred and are being recognized in income over the period benefited
using the same assumptions and factors used to amortize deferred policy
acquisition costs.
GUARANTY FUND ASSESSMENTS
From time to time, assessments are levied on us and our insurance subsidiaries
by guaranty associations in most states in which the companies are licensed.
These assessments, which are accrued for, are to cover losses of policyholders
of insolvent or rehabilitated companies. In some states, these assessments can
be partially recovered through a reduction in future premium taxes.
We had undiscounted reserves of $1.3 million at December 31, 1999 and 1998 to
cover estimated future assessments on known insolvencies. We had assets totaling
$2.8 million at December 31, 1999 and $3.1 million at December 31, 1998
representing estimated premium tax offsets on paid and future assessments.
Expenses (credits) incurred for guaranty fund assessments, net of related
premium tax offsets, totaled ($0.1) million in 1999, ($1.2) million in 1998 and
$1.9 million (including $1.6 million related to the adoption of an accounting
standard requiring the accrual of assessments) in 1997. It is anticipated that
estimated future guaranty fund assessments on known insolvencies will be paid
during the two year period ended December 31, 2001 and substantially all the
related future premium tax offsets will be realized during the six year period
ended December 31, 2005. We believe the reserve for guaranty fund assessments is
sufficient to provide for future assessments based upon known insolvencies and
projected premium levels.
DEFERRED INCOME TAXES
Deferred income tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or credits are
based on the changes in the asset or liability from period to period.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in our accompanying
consolidated balance sheets represent funds that are separately administered,
principally for the benefit of certain policyholders who bear the underlying
investment risk. The separate account assets and liabilities are carried at fair
value.
12
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues and expenses related to the separate account assets and liabilities, to
the extent of benefits paid or provided to the separate account policyholders,
are excluded from the amounts reported in the accompanying consolidated
statements of income.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Revenues for interest sensitive and variable products consist of policy charges
for the cost of insurance, administration charges, amortization of policy
initiation fees and surrender charges assessed against policyholder account
balances. Expenses related to these products include interest credited to
policyholder account balances and benefit claims incurred in excess of
policyholder account balances.
Traditional life insurance premiums are recognized as revenues over the
premium-paying period. Future policy benefits and policy acquisition costs are
recognized as expenses over the life of the policy by means of the provision for
future policy benefits and amortization of deferred policy acquisition costs.
All insurance-related revenues, benefits and expenses are reported net of
reinsurance ceded.
REINSURANCE
We use reinsurance to manage certain risks associated with our insurance
operations. These reinsurance arrangements provide for greater diversification
of business, allow management to control exposure to potential risks arising
from large losses and provide additional capacity for growth.
Our life insurance operations cede reinsurance to various reinsurers. The cost
of reinsurance is generally amortized over the contract periods of the
reinsurance agreements.
OTHER INCOME AND OTHER EXPENSES
Other income and other expenses include certain revenue and expenses generated
by us and our insurance and non-insurance subsidiaries. During 1999, 1998 and
1997 revenues of our insurance companies included as other income aggregated
$0.6 million in 1999, $1.4 million in 1998 and $4.0 million in 1997.
COMPREHENSIVE INCOME (LOSS)
Unrealized gains and losses on our available for-sale securities are included in
other comprehensive income (loss) in stockholder's equity. Other comprehensive
income (loss) excludes net investment gains (losses) included in net income
which merely represent transfers from unrealized to realized gains and losses.
These amounts totaled $0.3 million in 1999, ($0.9) million in 1998 and $26.5
million in 1997. These amounts, which have been measured through the date of
sale, are net of income taxes and adjustments to deferred policy acquisition
costs, value of insurance inforce acquired and unearned revenue reserve totaling
$0.2 million in 1999, $0.5 million in 1998 and ($15.3) million in 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. For example, significant
estimates and assumptions are utilized in the calculation of deferred policy
acquisition costs, policyholder liabilities and accruals and valuation
allowances on investments. It is reasonably possible that actual experience
could differ from the estimates and assumptions utilized which could have a
material impact on the consolidated financial statements.
PENDING ACCOUNTING CHANGE
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (Statement) No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
13
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Statement No. 133 requires companies to record derivatives on the balance sheet
as assets or liabilities, measured at fair value. Accounting for gains or losses
resulting from changes in the values of those derivatives is dependent on the
use of the derivative and whether it qualifies for hedge accounting. Statement
No. 133 also allows companies to transfer securities classified as held for
investment to either the available-for-sale or trading categories in connection
with the adoption of the new standard. The Statement's effective date for the
Company has been extended to the fiscal year beginning January 1, 2001, with
earlier adoption encouraged. Because of our minimal use of derivatives,
management does not anticipate that the adoption of the new Statement will have
a significant effect on our earnings or financial position.
2. INVESTMENT OPERATIONS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables contain amortized cost and market value information on
fixed maturities and equity securities:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Fixed
maturities--mortgaged-backed
securities $ 339,362 $ 3,695 $ (5,263) $ 337,794
===================================================
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Bonds:
United States Government and
agencies $ 71,490 $ 90 $ (1,831) $ 69,749
State, municipal and other
governments 46,395 51 (2,411) 44,035
Public utilities 118,099 1,545 (3,822) 115,822
Corporate securities 1,060,643 14,796 (60,710) 1,014,729
Mortgage and asset-backed
securities 722,779 3,110 (22,485) 703,404
Redeemable preferred stocks 44,154 365 (4,033) 40,486
---------------------------------------------------
Total fixed maturities $2,063,560 $ 19,957 $ (95,292) $1,988,225
===================================================
Equity securities $ 38,147 $ 3,572 $ (6,374) $ 35,345
===================================================
</TABLE>
14
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
Corporate securities $ 5,008 $ 542 $ (8) $ 5,542
Mortgage-backed securities 487,280 24,690 (783) 511,187
---------------------------------------------------
Total fixed maturities $ 492,288 $ 25,232 $ (791) $ 516,729
===================================================
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and
agencies $ 81,674 $ 5,375 $ (4) $ 87,045
State, municipal and other
governments 61,194 2,516 (101) 63,609
Public utilities 137,640 9,626 (536) 146,730
Corporate securities 970,998 64,729 (16,985) 1,018,742
Mortgage and asset-backed
securities 592,115 24,526 (1,129) 615,512
Redeemable preferred stocks 30,549 741 (1,575) 29,715
---------------------------------------------------
Total fixed maturities $1,874,170 $107,513 $ (20,330) $1,961,353
===================================================
Equity securities $ 39,589 $ 748 $ (5,050) $ 35,287
===================================================
</TABLE>
Short-term investments have been excluded from the above schedules as amortized
cost approximates market value for these securities.
The carrying value and estimated market value of our portfolio of fixed maturity
securities at December 31, 1999, by contractual maturity, are shown below.
Expected maturities will differ from
15
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD FOR INVESTMENT AVAILABLE FOR SALE
------------------------ -------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ 17,936 $ 17,999
Due after one year through five
years -- -- 209,871 205,294
Due after five years through ten
years -- -- 407,018 388,336
Due after ten years -- -- 661,802 632,706
----------------------------------------------------
-- -- 1,296,627 1,244,335
Mortgage and asset-backed
securities 339,362 337,794 722,779 703,404
Redeemable preferred stocks -- -- 44,154 40,486
----------------------------------------------------
$339,362 $337,794 $2,063,560 $1,988,225
====================================================
</TABLE>
Net unrealized investment gains (losses) on equity securities and fixed maturity
securities classified as available for sale were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation (depreciation) on fixed maturity
and equity securities available for sale $(78,137) $ 82,881
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs 5,577 (5,264)
Value of insurance in force acquired 1,040 (1,306)
Unearned revenue reserve (554) 585
Provision for deferred income taxes 25,226 (26,914)
-----------------------
(46,848) 49,982
Proportionate share of net unrealized investment gains
(losses) of equity investees (3,034) 68
-----------------------
Net unrealized investment gains (losses) $(49,882) $ 50,050
=======================
</TABLE>
The change in net unrealized investment gains/losses are recorded net of
deferred income taxes and other adjustments for assumed changes in the
amortization pattern of deferred policy acquisition costs, value of insurance in
force acquired and unearned revenue reserve totaling ($64.2) million in 1999,
$1.2 million in 1998 and $16.6 million in 1997.
MORTGAGE LOANS ON REAL ESTATE
Our mortgage loan portfolio consists principally of commercial mortgage loans.
Our lending policies require that the loans be collateralized by the value of
the related property, establish limits on the amount that can be loaned to one
borrower and require diversification by geographic location and collateral type.
16
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
We have provided an allowance for possible losses against our mortgage loan
portfolio. An analysis of this allowance, which consists of specific and general
reserves, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $871 $812 $1,128
Realized losses -- 59 --
Uncollectible amounts written off, net of recoveries (65) -- (316)
------------------------------------
Balance at end of year $806 $871 $ 812
====================================
</TABLE>
We did not have any impaired loans (those loans in which we do not believe we
will collect all amounts due according to the contractual terms of the
respective loan agreements) at December 31, 1999. We had impaired loans with a
carrying value of $1.0 million and a corresponding valuation allowance of $0.4
million at December 31, 1998.
NET INVESTMENT INCOME
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Held for investment $ 32,431 $ 49,176 $ 53,332
Available for sale 154,255 136,912 126,366
Equity securities 2,145 2,116 1,283
Mortgage loans on real estate 23,989 25,895 26,160
Investment real estate 5,098 5,822 4,902
Policy loans 7,644 7,642 7,587
Other long-term investments 2 63 2,920
Short-term investments 2,930 3,353 3,976
Other 6,696 8,196 4,522
------------------------------
235,190 239,175 231,048
Less investment expenses (10,150) (10,681) (10,716)
------------------------------
Net investment income $225,040 $228,494 $220,332
==============================
</TABLE>
17
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized appreciation/depreciation
on investments, excluding amounts attributed to investments held by a subsidiary
engaged in the investment company industry, are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REALIZED
Fixed maturities--available for sale $ (2,163) $ 318 $ 4,295
Equity securities 2,307 (1,712) 37,468
Mortgage loans on real estate -- (59) --
Investment real estate (221) 381 (28)
Other long-term investments (1,345) -- (300)
Securities and indebtedness of related parties (582) (331) (487)
Notes receivable and other 28 (3,475) --
-------------------------------
Realized gains (losses) on investments $ (1,976) $(4,878) $ 40,948
===============================
UNREALIZED
Fixed maturities:
Held for investment $ (26,009) $ 724 $ 8,900
Available for sale (162,518) 5,555 51,460
Equity securities 1,500 (1,538) (14,957)
-------------------------------
Change in unrealized appreciation/depreciation of
investments $(187,027) $ 4,741 $ 45,403
===============================
</TABLE>
18
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
An analysis of sales, maturities and principal repayments of our fixed
maturities portfolio is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Scheduled principal repayments and calls:
Available for sale $150,696 $ -- $ -- $150,696
Held for investment 154,700 -- -- 154,700
Sales--available for sale 70,789 3,904 (859) 73,834
------------------------------------------
Total $376,185 $3,904 $ (859) $379,230
==========================================
YEAR ENDED DECEMBER 31, 1998
Scheduled principal repayments and calls:
Available for sale $213,082 $ 170 $ (291) $212,961
Held for investment 151,298 -- -- 151,298
Sales--available for sale 85,586 5,965 (2,742) 88,809
------------------------------------------
Total $449,966 $6,135 $(3,033) $453,068
==========================================
YEAR ENDED DECEMBER 31, 1997
Scheduled principal repayments and calls:
Available for sale $180,556 $ 42 $ -- $180,598
Held for investment 49,961 -- -- 49,961
Sales--available for sale 108,399 6,452 (2,199) 112,652
------------------------------------------
Total $338,916 $6,494 $(2,199) $343,211
==========================================
</TABLE>
Realized losses on fixed maturities totaling $5.2 million in 1999 and $2.8
million in 1998 were incurred as a result of writedowns for other than temporary
impairment of fixed maturity securities. No such writedowns were recorded during
1997.
Income taxes (credits) include a provision of ($0.7) million in 1999, ($1.7)
million in 1998 and $14.3 million in 1997 for the tax effect of realized gains
and losses on investments.
OTHER
At December 31, 1999, affidavits of deposits covering investments with a
carrying value totaling $2,605.0 million were on deposit with state agencies to
meet regulatory requirements.
At December 31, 1999, the Company had committed to provide additional funding
for mortgage loans on real estate aggregating $15.8 million. These commitments
arose in the normal course of business at terms that are comparable to similar
investments.
The carrying value of investments which have been non-income producing for the
twelve months preceding December 31, 1999 include other long-term investments
totaling $5.1 million.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded ten percent of stockholder's
equity at December 31, 1999.
In December 1997, we acquired a 35% interest in an unaffiliated life insurance
company, American Equity Investment Life Holding Company (American Equity), for
$25.0 million. The excess (approximately $5.9 million) of the carrying amount of
the investment, which is classified as securities and indebtedness of
19
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
related parties on the consolidated balance sheets, over the amount of
underlying equity in net assets on the acquisition date is attributable to
goodwill. This goodwill is being amortized over a 20 year period. The investment
is being accounted for using the equity method. American Equity underwrites and
markets life insurance and annuity products throughout the United States. In
addition, during 1999 we invested an additional $2.3 million in preferred stock
issued by a subsidiary of American Equity. Summarized financial information for
American Equity is as follows:
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total investments $1,477,590 $ 634,153 $ 212,285
Total assets 1,689,868 683,012 229,418
Long-term debt 20,600 10,000 10,000
Total liabilities 1,534,842 616,881 174,992
Minority interest 98,460 -- --
Total revenues 82,875 37,954 15,455
Income (loss) from continuing operations 3,221 244 (3,369)
Net income (loss) 3,221 244 (3,369)
Percentage ownership 33.2% 34.1% 35.3%
</TABLE>
Also in December 1997, we acquired all of the common stock of EquiTrust Life
Insurance Company for $9.7 million. EquiTrust Life Insurance Company is a life
insurance company licensed in 42 states. Goodwill totaling $1.5 million was
recorded in connection with the acquisition and is being amortized over 20
years.
3. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated balance sheets, for which it is
practicable to estimate value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 also excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements and allows companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented herein are limited by each of these factors and do
not purport to represent our underlying value.
We used the following methods and assumptions in estimating our fair value
disclosures for financial instruments.
FIXED MATURITY SECURITIES: Fair values for fixed maturity securities are based
on quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U. S.
Treasury bonds.
EQUITY SECURITIES: The fair values for equity securities are based on quoted
market prices, where available. For equity securities that are not actively
traded, estimated fair values are based on values of comparable issues.
20
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE AND POLICY LOANS: Fair values are estimated by
discounting expected cash flows using interest rates currently being offered for
similar loans.
OTHER LONG-TERM INVESTMENTS: The fair values for nontraditional debt
instruments and investment deposits are estimated by discounting expected cash
flows using interest rates currently being offered for similar investments.
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
consolidated balance sheets for these instruments approximate their fair values.
SECURITIES AND INDEBTEDNESS OF RELATED PARTIES: Fair values for loans and
advances are estimated by discounting expected cash flows using interest rates
currently being offered for similar investments. As allowed by Statement No.
107, fair values are not assigned to investments accounted for using the equity
method.
ASSETS AND LIABILITIES OF SEPARATE ACCOUNTS: Separate account assets and
liabilities are reported at estimated fair value in the Company's consolidated
balance sheets.
FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' FUNDS: Fair values of our
liabilities under contracts not involving significant mortality or morbidity
risks (principally deferred annuities, deposit administration funds and
supplementary contracts) are stated at cash surrender value, the cost we would
incur to extinguish the liability. We are not required to estimate the fair
value of our liabilities under other insurance contracts.
LONG-TERM DEBT: The fair values for long-term debt are estimated using
discounted cash flow analysis based on our current incremental borrowing rate
for similar types of borrowing arrangements.
REDEEMABLE PREFERRED STOCK: The carrying amount reported in the consolidated
balance sheet, which equals redemption value, approximates fair value.
21
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following sets forth a comparison of the fair values and carrying values of
our financial instruments subject to the provisions of Statement No. 107:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1999 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Held for investment $ 339,362 $ 337,794 $ 492,288 $ 516,729
Available for sale 1,988,225 1,988,225 1,961,353 1,961,353
Equity securities 35,345 35,345 35,287 35,287
Mortgage loans on real estate 314,523 301,309 299,372 311,012
Policy loans 123,717 135,888 123,328 144,264
Other long-term investments 4,822 5,111 6,236 6,636
Cash and short-term investments 83,990 83,990 80,451 80,451
Securities and indebtedness of related parties 4,179 4,278 4,812 5,288
Assets held in separate accounts 256,028 256,028 190,111 190,111
LIABILITIES
Future policy benefits $1,024,285 $1,006,155 $1,020,080 $ 996,428
Other policyholders' funds 243,076 243,076 230,945 230,945
Long-term debt 40,000 40,000 71 75
Liabilities related to separate accounts 256,028 256,028 190,111 190,111
Redeemable preferred stock -- -- 4,503 4,503
</TABLE>
4. REINSURANCE AND POLICY PROVISIONS
In the normal course of business, we seek to limit our exposure to loss on any
single insured and to recover a portion of benefits paid by ceding reinsurance
to other insurance enterprises or reinsurers. Our reinsurance coverage for life
insurance varies according to the age and risk classification of the insured
with retention limits ranging up to $1.1 million of coverage per individual
life. We do not use financial or surplus relief reinsurance. Life insurance in
force ceded on a consolidated basis totaled $1,826.3 million (8.7% of total life
insurance in force) at December 31, 1999 and $1,298.7 million (6.6% of total
life insurance in force) at December 31, 1998.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, we would be liable for these
obligations, and payment of these obligations could result in losses. To limit
the possibility of such losses, we evaluate the financial condition of our
reinsurers and monitor concentrations of credit risk. No allowance for
uncollectible amounts has been established against our asset for reinsurance
recoverable since none of our receivables are deemed to be uncollectible.
In addition to the cession of risks in excess of specific retention limits, we
also have reinsurance agreements with five variable alliance partners to cede a
specified percentage of risks associated with variable universal life and
variable annuity contracts. Under these agreements, we pay the alliance partners
their reinsurance percentage of charges and deductions collected on the
reinsured polices. The alliance partners in return pay us their reinsurance
percentage of benefits in excess of related account balances. In addition, the
alliance partners pay us an expense allowance for certain new business,
development and maintenance costs on the reinsured contracts.
22
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
In total, including amounts applicable to traditional products, insurance
premiums and product charges have been reduced by $5.3 million in 1999, $5.9
million in 1998 and $6.0 million in 1997 and insurance benefits have been
reduced by $2.4 million in 1999, $2.2 million in 1998 and $6.6 million in 1997
as a result of cession agreements.
Prior to 1998, the amount of reinsurance assumed was not significant. In
December 1998, we assumed a block of ordinary annuity policies with reserves
totaling $22.0 million. In addition, beginning in 1998, we began assuming
variable annuity business from American Equity through a modified coinsurance
arrangement. Product charges from this business were not significant during 1999
or 1998.
Unpaid claims on accident and health policies (entirely disability income
products) include amounts for losses and related adjustment expense and are
estimates of the ultimate net costs of all losses, reported and unreported.
These estimates are subject to the impact of future changes in claim severity,
frequency and other factors. The activity in the liability for unpaid claims and
related adjustment expense, net of reinsurance, is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Unpaid claims liability, net of related reinsurance, at
beginning of year $20,706 $21,199 $14,801
Add:
Provision for claims occurring in the current year 6,630 5,520 8,289
Increase (decrease) in estimated expense for claims
occurring in the prior years (1,417) (519) 3,038
------------------------------
Incurred claim expense during the current year 5,213 5,001 11,327
Deduct expense payments for claims occurring during:
Current year 2,274 2,200 2,010
Prior years 3,212 3,294 2,919
------------------------------
5,486 5,494 4,929
------------------------------
Unpaid claims liability, net of related reinsurance, at end
of year 20,433 20,706 21,199
Active life reserve 19,705 17,632 16,924
------------------------------
Net accident and health reserves 40,138 38,338 38,123
Reinsurance ceded 853 612 2,940
------------------------------
Gross accident and health reserves $40,991 $38,950 $41,063
==============================
</TABLE>
We develop reserves for unpaid claims by using industry mortality and morbidity
data. One year development on prior year reserves represents our experience
being more or less favorable than that of the industry. Over time, we expect our
experience with respect to disability income business to be comparable to that
of the industry. A certain level of volatility in development is inherent in
these reserves since the underlying block of business is relatively small.
23
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
An analysis of the value of insurance in force acquired is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Excluding impact of net unrealized investment gains and
losses:
Balance at beginning of year $15,839 $17,105 $18,824
Accretion of interest during the year 877 973 1,062
Amortization of asset (1,862) (2,239) (2,781)
------------------------------
Balance prior to impact of net unrealized investment gains
and losses 14,854 15,839 17,105
Impact of net unrealized investment gains and losses 1,040 (1,306) (1,061)
------------------------------
Balance at end of year $15,894 $14,533 $16,044
==============================
</TABLE>
Net amortization of the value of insurance in force acquired, based on expected
future gross profits/ margins, for the next five years and thereafter is
expected to be as follows: 2000--$1.1 million;
2001--$1.1 million; 2002--$1.0 million; 2003--$1.0 million; 2004--$0.9 million;
and thereafter,
through 2023--$9.8 million.
5. INCOME TAXES
We file a consolidated federal income tax return with FBL Financial Group, Inc.
and a majority of its subsidiaries. FBL Financial Group, Inc. and its direct and
indirect subsidiaries included in the consolidated federal income tax return
each report current income tax expense as allocated under a consolidated tax
allocation agreement. Generally, this allocation results in profitable companies
recognizing a tax provision as if the individual company filed a separate return
and loss companies recognizing benefits to the extent their losses contribute to
reduce consolidated taxes.
Deferred income taxes have been established based upon the temporary differences
between the financial statement and income tax bases of assets and liabilities.
The reversal of the temporary differences will result in taxable or deductible
amounts in future years when the related asset or liability is recovered or
settled.
24
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes provided in consolidated statements of income on:
Income before equity income:
Current $ 23,990 $24,734 $45,372
Deferred 1,696 2,501 (7,262)
------------------------------
25,686 27,235 38,110
Equity income:
Current 2,010 575 1,048
Deferred 128 79 78
------------------------------
2,138 654 1,126
Taxes provided in consolidated statement of changes in
stockholder's equity:
Change in net unrealized investment
gains/losses--deferred (53,810) 1,576 10,734
Adjustment resulting from capital transaction of equity
investee--deferred -- (33) --
------------------------------
(53,810) 1,543 10,734
------------------------------
$(25,986) $29,432 $49,970
==============================
</TABLE>
The effective tax rate on income before income taxes and equity income is
different from the prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes and equity income $75,640 $84,887 $111,455
==============================
Income tax at federal statutory rate (35%) $26,474 $29,710 $ 39,009
Tax effect (decrease) of:
Gain on dividend of home office properties (369) (2,061) --
Tax-exempt interest income (226) (280) (335)
Tax-exempt dividend income (597) (228) (1,149)
Other items 404 94 585
------------------------------
Income tax expense $25,686 $27,235 $ 38,110
==============================
</TABLE>
25
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to our deferred income tax
assets and liabilities is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Fixed maturity and equity securities $ -- $ 34,581
Deferred policy acquisition costs 67,275 57,114
Value of insurance in force acquired 5,563 5,087
Other 9,982 12,382
-----------------------
82,820 109,164
Deferred income tax assets:
Fixed maturity and equity securities (22,327) --
Future policy benefits (44,136) (44,684)
Accrued dividends (3,851) (4,045)
Accrued pension costs (9,469) (10,037)
Other (10,165) (5,540)
-----------------------
(89,948) (64,306)
-----------------------
Deferred income tax liability (asset) $ (7,128) $ 44,858
=======================
</TABLE>
Prior to 1984, a portion of our current income was not subject to current income
taxation, but was accumulated, for tax purposes, in a memorandum account
designated as "policyholders' surplus account." The aggregate accumulation in
this account at December 31, 1999 was $11.9 million. Should the policyholders'
surplus account exceed the limitation prescribed by federal income tax law, or
should distributions be made by us to our stockholder in excess of $519.7
million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes of $4.2 million have not been provided on
amounts included in this memorandum account.
6. CREDIT ARRANGEMENTS
We have a note payable to the Federal Home Loan Bank (FHLB) totaling $40.0
million at December 31, 1999. The note is due September 17, 2003, and interest
on the note is charged at a variable rate equal to the London Interbank Offered
Rate less 0.0475% (5.77% at December 31, 1999). Fixed maturity securities with a
carrying value of $41.7 million are on deposit with the FHLB as collateral for
the note. As an investor in the FHLB, we have the ability to borrow an
additional $15.8 million from the FHLB at December 31, 1999. No debt was
outstanding under this credit agreement as of December 31, 1998.
During 1999, FBL Financial Group, Inc. extended a line of credit to us in the
amount of $75.0 million. Interest on any borrowings under this arrangement is
charged at a rate equal to the prime rate of a national bank. No borrowings have
been made on this line of credit.
7. RETIREMENT AND COMPENSATION PLANS
We participate with several affiliates in various defined benefit plans covering
substantially all of our employees. The benefits of these plans are based
primarily on years of service and employees' compensation. Net periodic pension
cost of the plans is allocated between participants generally on a basis of time
incurred by the respective employees for each employer. Such allocations are
reviewed annually. Pension expense aggregated $3.7 million in 1999, $4.4 million
in 1998 and $5.3 million in 1997.
26
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
We participate with several affiliates in a 401(k) defined contribution plan
which covers substantially all employees. Beginning in 1998, we contribute FBL
Financial Group, Inc. stock in amounts equal to 50 percent of an employee's
contributions up to four percent of the annual salary contributed by the
employees. Costs are allocated among the affiliates on a basis of time incurred
by the respective employees for each employer. Related expense totaled $0.3
million in 1999 and $0.2 million in 1998.
We have established deferred compensation plans for certain key current and
former employees and have certain other benefit plans which provide for
retirement and other benefits. These plans have been accrued or funded as deemed
appropriate by management.
Certain of the assets related to these plans are on deposit with the Company and
amounts relating to these plans are included in our financial statements. In
addition, certain amounts included in the policy liabilities for interest
sensitive products relate to deposit administration funds maintained by the
Company on behalf of affiliates offering substantially the same benefit programs
as the Company.
In addition to benefits offered under the aforementioned benefit plans, we and
several other affiliates sponsor a plan that provides group term life insurance
benefits to retired full-time employees who have worked ten years and attained
age 55 while in service. Postretirement benefit expense is allocated in a manner
consistent with pension expense discussed above. Postretirement benefit expense
aggregated $0.1 million for 1999 and 1998 and $0.2 million in 1997.
8. STOCKHOLDER'S EQUITY
STATUTORY LIMITATIONS ON SUBSIDIARY DIVIDENDS
Our ability to pay dividends to our parent company is restricted because prior
approval of the Iowa insurance commissioner is required for payment of dividends
to the stockholder which exceed an annual limitation. During 2000, we could pay
dividends to the parent company of approximately $40.6 million without prior
approval of insurance regulatory authorities.
STATUTORY ACCOUNTING POLICIES
Our financial statements and the financial statements of our insurance
subsidiaries included herein differ from related statutory-basis financial
statements principally as follows: (a) the bond portfolio is segregated into
held-for-investment (carried at amortized cost) and available-for-sale (carried
at fair value) classifications rather than generally being carried at amortized
cost; (b) acquisition costs of acquiring new business are deferred and amortized
over the life of the policies rather than charged to operations as incurred; (c)
future policy benefit reserves for participating traditional life insurance
products are based on net level premium methods and guaranteed cash value
assumptions which may differ from statutory reserves; (d) future policy benefit
reserves on certain interest sensitive products are based on full account
values, rather than discounting methodologies utilizing statutory interest
rates; (e) deferred income taxes are provided for the difference between the
financial statement and income tax bases of assets and liabilities; (f) net
realized gains or losses attributed to changes in the level of market interest
rates are recognized as gains or losses in the statements of income when the
sale is completed rather than deferred and amortized over the remaining life of
the fixed maturity security or mortgage loan; (g) declines in the estimated
realizable value of investments are charged to the statements of income when
such declines are judged to be other than temporary rather than through the
establishment of a formula-determined statutory investment reserve (carried as a
liability), changes in which are charged directly to surplus; (h) agents'
balances and certain other assets designated as "non-admitted assets" for
statutory purposes are reported as assets rather than being charged to surplus;
(i) revenues for interest sensitive and variable products consist of policy
charges for the cost of insurance, policy administration charges, amortization
of policy initiation fees and surrender charges assessed rather than premiums
received; (j) pension income or expense is recognized in accordance with
Statement No. 87, "Employers' Accounting for Pensions" rather
27
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDER'S EQUITY (CONTINUED)
than in accordance with rules and regulations permitted by the Employee
Retirement Income Security Act of 1974; (k) the financial statements of
subsidiaries are consolidated with those of the Company; (l) redeemable
preferred stock is classified as mezzanine financing rather than as a component
of stockholder's equity; and (m) assets and liabilities are restated to fair
values when a change in ownership occurs that is accounted for as a purchase,
with provisions for goodwill and other intangible assets, rather than continuing
to be presented at historical cost.
Our net income, as determined in accordance with statutory accounting practices,
was $39.8 million in 1999, $52.1 million in 1998 and $85.2 million in 1997. Our
statutory net gain from operations, which excludes realized gains and losses,
totaled $40.6 million in 1999, $55.5 million in 1998 and $46.8 million in 1997.
Our total statutory capital and surplus was $301.5 million at December 31, 1999
and $376.9 million at December 31, 1998.
Net income of our insurance subsidiaries, as determined in accordance with
statutory accounting practices, was $0.6 million in 1999, $0.4 million in 1998
and $0.1 million in 1997. Total statutory capital and surplus for our insurance
subsidiaries was $37.0 million at December 31, 1999 and $36.4 million at
December 31, 1998.
9. MANAGEMENT AND OTHER AGREEMENTS
We share certain office facilities and services with the Iowa Farm Bureau
Federation, the majority owner of FBL Financial Group, Inc., and its affiliated
companies. These expenses are allocated on the basis of cost and time studies
that are updated annually and consist primarily of salaries and related
expenses, travel and other operating costs.
We participate in a management agreement with FBL Financial Group, Inc., under
which FBL Financial Group, Inc. provides general business, administration and
management services. In addition, Farm Bureau Management Corporation, a
wholly-owned subsidiary of the Iowa Farm Bureau Federation, provides certain
management services to us under a separate arrangement. We incurred related
expenses totaling $1.0 million in 1999 and 1998 and $0.8 million in 1997.
We have equipment and auto lease agreements with FBL Leasing Services, Inc., an
indirect wholly-owned subsidiary of FBL Financial Group, Inc. We incurred
expenses totaling $2.3 million during 1999, $2.0 million during 1998 and $2.3
million during 1997 under these agreements.
EquiTrust Investment Management Services, Inc., an indirect wholly-owned
subsidiary of FBL Financial Group, Inc., provides investment advisory services
for us. The related fees are based on the level of assets under management plus
certain out-of-pocket expenses. We incurred expenses totaling $4.0 million
during 1999 and 1998 and $4.8 million during 1997 relating to these services.
We have marketing agreements with the Farm Bureau property-casualty companies
operating within our marketing territory, including Farm Bureau Mutual Insurance
Company and other affiliates. Under the marketing agreements, the
property-casualty companies are responsible for development and management of
our agency force for a fee equal to a percentage of commissions on first year
life insurance premiums and annuity deposits. We paid $5.0 million in 1999, $4.5
million in 1998 and $3.9 million in 1997 to the property-casualty companies
under these arrangements.
We are licensed by the Iowa Farm Bureau Federation to use the "Farm Bureau" and
"FB" designations in Iowa. In connection with this license, royalties of $0.9
million in 1999, $0.7 million in 1998 and $0.5 million in 1997 were paid to the
Iowa Farm Bureau Federation. We have similar arrangements with Farm Bureau
organizations in other states in its market territory. Total royalties paid to
Farm Bureau organizations other than the Iowa Farm Bureau Federation were $1.0
million in 1999 and 1998, and $1.1 million in 1997.
28
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANAGEMENT AND OTHER AGREEMENTS (CONTINUED)
Beginning in 1998, we established administrative services agreements with
American Equity under which we provide underwriting, claim processing,
accounting, compliance and other administrative services relating to certain
variable insurance products underwritten by them. Fee income from performing
these services totaled $0.3 million during 1999 and $0.2 million in 1998.
10. COMMITMENTS AND CONTINGENCIES
In the normal course of business, we may be involved in litigation where amounts
are alleged that are substantially in excess of contractual policy benefits or
certain other agreements. At December 31, 1999, management is not aware of any
claims for which a material loss is reasonably possible.
Our parent leases its home office properties under a 15-year operating lease.
Our expected share of future remaining minimum lease payments under this lease
as of December 31, 1999 are as follows: 2000--$1.5 million; 2001--$1.5 million;
2002--$1.5 million; 2003--$1.7 million; 2004--$1.7 million and thereafter,
through 2013--$15.1 million. Rent expense for the lease totaled $1.8 million
(net of $1.1 million in amortization of the deferred gain on the transfer of the
home office properties) and $1.0 million in 1998 (net of $0.8 million in
amortization of the deferred gain on the transfer of the home office properties)
(see Note 1).
We have extended a line of credit in the amount of $0.5 million to Western
Computer Services, Inc., an affiliate. Interest on this agreement is equal to
the prime rate of a national bank and payable monthly. There was $0.3 million at
December 31, 1999 and $0.4 million at December 31, 1998 outstanding on the line
of credit.
We have also extended a line of credit in the amount of $40.0 million to FBL
Leasing Services, Inc. Interest on this agreement is charged at a variable rate
equal to the London Interbank Offered Rate plus 0.0025% (5.82% at December 31,
1999). There was $34.6 million outstanding on the line of credit at
December 31, 1999 and $11.3 million at December 31, 1998. Interest income on the
line of credit totaled $1.3 million during the year ended December 31, 1999.
In connection with an investment in a limited real estate partnership, we have
agreed to pay any cash flow deficiencies of a medium-sized shopping center owned
by the partnership through January 1, 2001. We recorded a reserve for expected
future cash flow deficiencies totaling $0.4 million at December 31, 1999 and
$0.3 million at December 31, 1998. At December 31, 1999, the limited partnership
had a $5.3 million mortgage loan, secured by the shopping center, with Farm
Bureau Mutual Insurance Company.
29
<PAGE>
FINANCIAL STATEMENTS
FARM BUREAU LIFE ANNUITY ACCOUNT
YEAR ENDED DECEMBER 31, 1999
WITH REPORT OF INDEPENDENT AUDITORS
30
<PAGE>
Farm Bureau Life Annuity Account
Financial Statements
Year ended December 31, 1999
CONTENTS
Report of Independent Auditors................................................32
Financial Statements
Statements of Net Assets......................................................33
Statements of Operations......................................................35
Statements of Changes in Net Assets...........................................39
Notes to Financial Statements.................................................44
31
<PAGE>
Report of Independent Auditors
The Board of Directors and Participants
Farm Bureau Life Insurance Company
We have audited the accompanying individual and combined statements of net
assets of Farm Bureau Life Annuity Account (comprised of the Value Growth, High
Grade Bond, High Yield Bond, Managed, Money Market, Blue Chip, VIP Growth, VIP
Overseas, VIP Contrafund, VIP Index 500, VIP Growth & Income, Mid-Cap Growth,
New America Growth, Personal Strategy Balanced and International Stock
Subaccounts) as of December 31, 1999, and the related statements of operations
and changes in net assets for the periods disclosed in the financial statements.
These financial statements are the responsibility of the Account's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999, by
correspondence with the mutual funds' transfer agent. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
respective subaccounts of Farm Bureau Life Annuity Account at December 31, 1999,
and the individual and combined results of their operations and changes in their
net assets for the periods described above, in conformity with accounting
principles generally accepted in the United States.
Des Moines, Iowa
March 10, 2000
32
<PAGE>
Farm Bureau Life Annuity Account
Statements of Net Assets
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments in EquiTrust Variable Insurance Series Fund:
Value Growth Subaccount:
Value Growth Portfolio, 1,936,165 shares at net asset
value of $8.69 per share (cost $23,559,160) $ 16,825,278
High Grade Bond Subaccount:
High Grade Bond Portfolio, 849,447 shares at net asset value
of $9.49 per share (cost $8,493,171) 8,061,248
High Yield Bond Subaccount:
High Yield Bond Portfolio, 976,445 shares at net asset value
of $9.30 per share (cost $9,802,273) 9,080,938
Managed Subaccount:
Managed Portfolio, 2,000,396 shares at net asset value of
$10.54 per share (cost $25,021,310) 21,084,173
Money Market Subaccount:
Money Market Portfolio, 3,421,346 shares at net asset value
of $1.00 per share (cost $3,421,346) 3,421,346
Blue Chip Subaccount:
Blue Chip Portfolio, 1,005,665 shares at net asset value of
$43.98 per share (cost $32,575,568) 44,229,150
Investments in Fidelity Variable Insurance Products Fund:
VIP Growth Subaccount:
VIP Growth Portfolio, 105,811 shares at net asset value of
$54.65 per share (cost $4,988,284) 5,782,559
VIP Overseas Subaccount:
VIP Overseas Portfolio, 30,178 shares at net asset value of
$27.34 per share (cost $705,558) 825,064
VIP Contrafund Subaccount:
VIP Contrafund Portfolio, 105,737 shares at net asset value
of $28.97 per share (cost $2,758,066) 3,063,206
VIP Index 500 Subaccount:
VIP Index 500 Portfolio, 23,986 shares at net asset value of
$166.87 per share (cost $3,680,399) 4,002,532
VIP Growth & Income Subaccount:
VIP Growth and Income Portfolio, 151,258 shares at net
asset value of $17.29 per share (cost $2,518,493) 2,615,259
</TABLE>
33
<PAGE>
Farm Bureau Life Annuity Account
Statements of Net Assets (continued)
<TABLE>
<S> <C>
ASSETS
Investments in T. Rowe Equity Series, Inc.:
Mid-Cap Growth Subaccount:
Mid-Cap Growth Portfolio, 99,301 shares at net asset value
of $17.24 per share (cost $1,548,557) $ 1,711,947
New America Growth Subaccount:
New America Growth Portfolio, 60,482 shares at net
asset value of $26.03 per share (cost $1,531,861) 1,574,336
Personal Strategy Balanced Subaccount:
Personal Strategy Balanced Portfolio, 130,975 shares at
net asset value of $15.94 per share (cost $2,107,882) 2,087,746
Investment in T. Rowe Price International Series, Inc.:
International Stock Subaccount:
International Stock Portfolio, 25,120 shares at net asset
value of $18.98 per share (cost $403,233) 476,771
----------------
Total investments (cost $123,115,161) 124,841,553
LIABILITIES -
----------------
COMBINED NET ASSETS $ 124,841,553
----------------
----------------
<CAPTION>
EXTENDED
UNITS UNIT VALUE VALUE
-------------------------------------------------------------
<S> <C> <C> <C>
Net assets are represented by:
Value Growth Subaccount 1,698,985.167791 $ 9.903134 $ 16,825,278
High Grade Bond Subaccount 610,691.272284 13.200202 8,061,248
High Yield Bond Subaccount 645,218.673657 14.074203 9,080,938
Managed Subaccount 1,655,918.646748 12.732614 21,084,173
Money Market Subaccount 277,902.542187 12.311317 3,421,346
Blue Chip Subaccount 1,605,404.332352 27.550162 44,229,150
VIP Growth Subaccount 463,699.762973 12.470481 5,782,559
VIP Overseas Subaccount 63,176.428061 13.059675 825,064
VIP Contrafund Subaccount 268,419.718536 11.412001 3,063,206
VIP Index 500 Subaccount 364,582.667227 10.978394 4,002,532
VIP Growth & Income
Subaccount 256,006.036822 10.215613 2,615,259
Mid-Cap Growth Subaccount 148,116.601103 11.558106 1,711,947
New America Growth Subaccount 148,260.057146 10.618750 1,574,336
Personal Strategy Balanced
Subaccount 204,868.486876 10.190662 2,087,746
International Stock Subaccount 37,855.933511 12.594365 476,771
------------------
Combined net assets $124,841,553
------------------
------------------
</TABLE>
SEE ACCOMPANYING NOTES.
34
<PAGE>
Farm Bureau Life Annuity Account
Statements of Operations
Year ended December 31, 1999, except as noted
<TABLE>
<CAPTION>
VALUE
GROWTH
COMBINED SUBACCOUNT
-----------------------------------
<S> <C> <C>
Net investment income (operating loss):
Dividend income $ 3,804,514 $ 442,162
Mortality and expense risk charges (1,368,783) (239,939)
-----------------------------------
Net investment income (operating loss) 2,435,731 202,223
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions 39,345 (1,169,581)
Change in unrealized appreciation/depreciation of
investments 3,707,125 (475,205)
-----------------------------------
Net gain (loss) on investments 3,746,470 (1,644,786)
-----------------------------------
Net increase (decrease) in net assets resulting from operations $ 6,182,201 $(1,442,563)
-----------------------------------
-----------------------------------
</TABLE>
* Period from May 4, 1999 (date operations commenced) through December 31, 1999.
35
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE HIGH YIELD MONEY
BOND BOND MANAGED MARKET
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-----------------------------------------------------------------
<S> <S> <C> <C> <C>
Net investment income (operating loss):
Dividend income $ 514,169 $ 751,597 $ 1,328,209 $126,620
Mortality and expense risk charges (96,307) (114,551) (324,622) (34,741)
-----------------------------------------------------------------
Net investment income (operating loss) 417,862 637,046 1,003,587 91,879
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions (10,541) (17,519) (609,648) -
Change in unrealized appreciation/depreciation of
investments (530,759) (803,797) (1,409,960) -
-----------------------------------------------------------------
Net gain (loss) on investments (541,300) (821,316) (2,019,608) -
-----------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(123,438) $(184,270) $(1,016,021) $ 91,879
-----------------------------------------------------------------
-----------------------------------------------------------------
<CAPTION>
VIP
BLUE CHIP GROWTH
SUBACCOUNT SUBACCOUNT*
-----------------------------
<S> <C> <C>
Net investment income (operating loss):
Dividend income $ 434,143 $ -
Mortality and expense risk charges (482,650) (17,057)
-----------------------------
Net investment income (operating loss) (48,507) (17,057)
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions 1,822,842 4,650
Change in unrealized appreciation/depreciation of
investments 5,029,759 794,275
-----------------------------
Net gain (loss) on investments 6,852,601 798,925
-----------------------------
Net increase (decrease) in net assets resulting from operations $6,804,094 $781,868
-----------------------------
-----------------------------
</TABLE>
36
<PAGE>
Farm Bureau Life Annuity Account
Statements of Operations (continued)
<TABLE>
<CAPTION>
VIP VIP
OVERSEAS CONTRAFUND
SUBACCOUNT* SUBACCOUNT*
-------------------------------------
<S> <C> <C>
Net investment income (operating loss):
Dividend income $ - $ -
Mortality and expense risk charges (2,087) (10,392)
-------------------------------------
Net investment income (operating loss) (2,087) (10,392)
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions 2,882 6,887
Change in unrealized appreciation/depreciation of
investments 119,506 305,140
-------------------------------------
Net gain (loss) on investments 122,388 312,027
-------------------------------------
Net increase in net assets resulting from operations $120,301 $301,635
-------------------------------------
-------------------------------------
</TABLE>
* Period from May 4, 1999 (date operations commenced) through December 31, 1999.
SEE ACCOMPANYING NOTES.
37
<PAGE>
<TABLE>
<CAPTION>
NEW
VIP VIP GROWTH MID-CAP AMERICA
INDEX 500 & INCOME GROWTH GROWTH
SUBACCOUNT* SUBACCOUNT* SUBACCOUNT* SUBACCOUNT*
---------------------------------------------------------------------
<S> <S> <C> <C> <C>
Net investment income (operating loss):
Dividend income $ - $ - $ 17,407 $ 86,021
Mortality and expense risk charges (14,930) (10,577) (6,280) (5,485)
---------------------------------------------------------------------
Net investment income (operating loss) (14,930) (10,577) 11,127 80,536
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions 242 1,200 7,181 (5,250)
Change in unrealized appreciation/depreciation of
investments 322,133 96,766 163,390 42,475
---------------------------------------------------------------------
Net gain (loss) on investments 322,375 97,966 170,571 37,225
---------------------------------------------------------------------
Net increase in net assets resulting from operations $307,445 $ 87,389 $181,698 $117,761
---------------------------------------------------------------------
---------------------------------------------------------------------
<CAPTION>
PERSONAL
STRATEGY INTERNATIONAL
BALANCED STOCK
SUBACCOUNT* SUBACCOUNT*
-------------------------------
<S> <C> <C>
Net investment income (operating loss):
Dividend income $ 96,729 $ 7,457
Mortality and expense risk charges (7,444) (1,721)
-------------------------------
Net investment income (operating loss) 89,285 5,736
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions (1,060) 7,060
Change in unrealized appreciation/depreciation of
investments (20,136) 73,538
-------------------------------
Net gain (loss) on investments (21,196) 80,598
-------------------------------
Net increase in net assets resulting from operations $ 68,089 $86,334
-------------------------------
-------------------------------
</TABLE>
38
<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
1999 1998 1999 1998
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (operating loss) $ 2,435,731 $ (203,682) $ 202,223 $ (244,662)
Net realized gain (loss) from investment
transactions 39,345 (306,200) (1,169,581) (413,096)
Change in unrealized appreciation/
depreciation of investments 3,707,125 (4,817,707) (475,205) (5,868,067)
-------------------------------- -------------------------------
Net increase (decrease) in net assets
resulting from operations 6,182,201 (5,327,589) (1,442,563) (6,525,825)
Capital share transactions:
Transfers of net premiums 35,723,595 36,212,961 2,229,152 2,825,684
Transfers of surrenders and death benefits (9,222,053) (5,773,481) (1,687,000) (1,226,895)
Transfers of administrative charges (163,354) (125,995) (34,167) (35,908)
Transfers between subaccounts, including
fixed interest subaccount (4,885,153) 1,817,639 (1,503,994) 2,979,423
-------------------------------- -------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions 21,453,035 32,131,124 (996,009) 4,542,304
-------------------------------- -------------------------------
Total increase (decrease) in net assets 27,635,236 26,803,535 (2,438,572) (1,983,521)
Net assets at beginning of period 97,206,317 70,402,782 19,263,850 21,247,371
-------------------------------- -------------------------------
Net assets at end of period $124,841,553 $97,206,317 $16,825,278 $19,263,850
-------------------------------- -------------------------------
-------------------------------- -------------------------------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE BOND HIGH YIELD BOND
SUBACCOUNT SUBACCOUNT
------------------------------ -----------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1999 1998 1999 1998
<S> ------------------------------ -----------------------------
Operations: <S> <C> <C> <C>
Net investment income (operating loss) $ 417,862 $ 245,266 $ 637,046 $ 379,714
Net realized gain (loss) from investment
transactions (10,541) 9,120 (17,519) 6,450
Change in unrealized appreciation/
depreciation of investments (530,759) 27,507 (803,797) (37,204)
------------------------------ -----------------------------
Net increase (decrease) in net assets
resulting from operations (123,438) 281,893 (184,270) 348,960
Capital share transactions:
Transfers of net premiums 1,341,048 1,170,895 1,500,538 1,190,386
Transfers of surrenders and death benefits (605,371) (401,478) (532,426) (572,368)
Transfers of administrative charges (7,226) (4,302) (12,149) (7,180)
Transfers between subaccounts, including
fixed interest subaccount 1,036,405 2,254,649 56,655 2,962,751
------------------------------ -----------------------------
Net increase (decrease) in net assets
resulting from capital share transactions 1,764,856 3,019,764 1,012,618 3,573,589
------------------------------ -----------------------------
Total increase (decrease) in net assets 1,641,418 3,301,657 828,348 3,922,549
Net assets at beginning of period 6,419,830 3,118,173 8,252,590 4,330,041
------------------------------ -----------------------------
Net assets at end of period $8,061,248 $6,419,830 $9,080,938 $8,252,590
------------------------------ -----------------------------
------------------------------ -----------------------------
<CAPTION>
MONEY MARKET
MANAGED SUBACCOUNT SUBACCOUNT
--------------------------------- -------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1999 1998 1999 1998
<S> --------------------------------- -------------------------------
Operations: <C> <C> <C> <C>
Net investment income (operating loss) $ 1,003,587 $ (325,038) $ 91,879 $ 60,090
Net realized gain (loss) from investment
transactions (609,648) (111,187) - -
Change in unrealized appreciation/
depreciation of investments (1,409,960) (2,657,109) - -
--------------------------------- -------------------------------
Net increase (decrease) in net assets
resulting from operations (1,016,021) (3,093,334) 91,879 60,090
Capital share transactions:
Transfers of net premiums 1,861,833 4,257,432 17,647,328 21,323,035
Transfers of surrenders and death benefits (2,740,025) (1,740,578) (364,016) (118,405)
Transfers of administrative charges (41,862) (38,813) (2,037) (1,064)
Transfers between subaccounts, including
fixed interest subaccount (5,488,687) 5,610,343 (16,289,428) (20,116,906)
--------------------------------- -------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions (6,408,741) 8,088,384 991,847 1,086,660
--------------------------------- -------------------------------
Total increase (decrease) in net assets (7,424,762) 4,995,050 1,083,726 1,146,750
Net assets at beginning of period 28,508,935 23,513,885 2,337,620 1,190,870
--------------------------------- -------------------------------
Net assets at end of period $21,084,173 $28,508,935 $ 3,421,346 $ 2,337,620
--------------------------------- -------------------------------
--------------------------------- -------------------------------
</TABLE>
40
<PAGE>
Farm Bureau Life Annuity Account
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
VIP
GROWTH
BLUE CHIP SUBACCOUNT SUBACCOUNT
-------------------------------- -----------------
PERIOD FROM
MAY 4, 1999
(DATE
OPERATIONS
COMMENCED)
THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31
1999 1998 1999
-------------------------------- -----------------
<S> <C> <C> <C>
Operations:
Net investment income (operating loss) $ (48,507) $ (319,052) $ (17,057)
Net realized gain (loss) from investment transactions 1,822,842 202,513 4,650
Change in unrealized appreciation/depreciation of
investments 5,029,759 3,717,166 794,275
-------------------------------- -----------------
Net increase in net assets resulting from operations 6,804,094 3,600,627 781,868
Capital share transactions:
Transfers of net premiums 4,968,379 5,445,529 1,487,183
Transfers of surrenders and death benefits (3,083,025) (1,713,757) (51,431)
Transfers of administrative charges (63,737) (38,728) (571)
Transfers between subaccounts, including fixed
interest subaccount 3,179,947 8,127,379 3,565,510
-------------------------------- -----------------
Net increase in net assets resulting from capital share
transactions 5,001,564 11,820,423 5,000,691
-------------------------------- -----------------
Total increase in net assets 11,805,658 15,421,050 5,782,559
Net assets at beginning of period 32,423,492 17,002,442 -
-------------------------------- -----------------
Net assets at end of period $44,229,150 $32,423,492 $5,782,559
-------------------------------- -----------------
-------------------------------- -----------------
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
VIP VIP VIP INDEX VIP GROWTH
OVERSEAS CONTRAFUND 500 & INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------ ----------------- ---------------- -----------------
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
MAY 4, 1999 MAY 4, 1999 MAY 4, 1999 MAY 4, 1999
(DATE (DATE (DATE (DATE
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
COMMENCED) COMMENCED) COMMENCED) COMMENCED)
THROUGH THROUGH THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999 1999
------------------ ----------------- ---------------- -----------------
<S> <S> <C> <C> <C>
Operations:
Net investment income (operating loss) $ (2,087) $ (10,392) $ (14,930) $ (10,577)
Net realized gain (loss) from investment transactions 2,882 6,887 242 1,200
Change in unrealized appreciation/depreciation of
investments 119,506 305,140 322,133 96,766
------------------ ----------------- ---------------- -----------------
Net increase in net assets resulting from operations 120,301 301,635 307,445 87,389
Capital share transactions:
Transfers of net premiums 245,085 938,519 1,161,824 657,908
Transfers of surrenders and death benefits (8,821) (4,435) (29,063) (7,402)
Transfers of administrative charges (58) (365) (406) (250)
Transfers between subaccounts, including fixed
interest subaccount 468,557 1,827,852 2,562,732 1,877,614
------------------ ----------------- ---------------- -----------------
Net increase in net assets resulting from capital share
transactions 704,763 2,761,571 3,695,087 2,527,870
------------------ ----------------- ---------------- -----------------
Total increase in net assets 825,064 3,063,206 4,002,532 2,615,259
Net assets at beginning of period - - - -
------------------ ----------------- ---------------- -----------------
Net assets at end of period $825,064 $3,063,206 $4,002,532 $2,615,259
------------------ ----------------- ---------------- -----------------
------------------ ----------------- ---------------- -----------------
<CAPTION>
MID-CAP NEW AMERICA
GROWTH GROWTH
SUBACCOUNT SUBACCOUNT
----------------- ----------------
PERIOD FROM PERIOD FROM
MAY 4, 1999 MAY 4, 1999
(DATE (DATE
OPERATIONS OPERATIONS
COMMENCED) COMMENCED)
THROUGH THROUGH
DECEMBER 31, DECEMBER 31,
1999 1999
----------------- ----------------
<S> <C> <C>
Operations:
Net investment income (operating loss) $ 11,127 $ 80,536
Net realized gain (loss) from investment transactions 7,181 (5,250)
Change in unrealized appreciation/depreciation of
investments 163,390 42,475
----------------- ----------------
Net increase in net assets resulting from operations 181,698 117,761
Capital share transactions:
Transfers of net premiums 551,830 470,276
Transfers of surrenders and death benefits (10,744) (51,384)
Transfers of administrative charges (245) (82)
Transfers between subaccounts, including fixed
interest subaccount 989,408 1,037,765
----------------- ----------------
Net increase in net assets resulting from capital share
transactions 1,530,249 1,456,575
----------------- ----------------
Total increase in net assets 1,711,947 1,574,336
Net assets at beginning of period - -
----------------- ----------------
Net assets at end of period $1,711,947 $1,574,336
----------------- ----------------
----------------- ----------------
</TABLE>
42
<PAGE>
Farm Bureau Life Annuity Account
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
PERSONAL
STRATEGY INTERNATIONAL
BALANCED STOCK
SUBACCOUNT SUBACCOUNT
---------------- ------------------
PERIOD FROM PERIOD FROM
MAY 4, 1999 MAY 4, 1999
(DATE (DATE
OPERATIONS OPERATIONS
COMMENCED) COMMENCED)
THROUGH THROUGH
DECEMBER 31 DECEMBER 31
1999 1999
---------------- ------------------
<S> <C> <C>
Operations:
Net investment income $ 89,285 $ 5,736
Net realized gain (loss) from investment transactions (1,060) 7,060
Change in unrealized appreciation/depreciation of investments (20,136) 73,538
---------------- ------------------
Net increase in net assets resulting from operations 68,089 86,334
Capital share transactions:
Transfers of net premiums 494,804 167,888
Transfers of surrenders and death benefits (41,779) (5,131)
Transfers of administrative charges (154) (45)
Transfers between subaccounts, including fixed interest
subaccount 1,566,786 227,725
---------------- ------------------
Net increase in net assets resulting from capital share transactions 2,019,657 390,437
---------------- ------------------
Total increase in net assets 2,087,746 476,771
Net assets at beginning of period - -
---------------- ------------------
Net assets at end of period $2,087,746 $476,771
---------------- ------------------
---------------- ------------------
</TABLE>
SEE ACCOMPANYING NOTES.
43
<PAGE>
Farm Bureau Life Annuity Account
Notes to Financial Statements
December 31, 1999
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.
At December 31, 1999, the Account has available fifteen separate subaccounts,
each of which invests solely, as directed by contract owners, in a different
portfolio of EquiTrust Variable Insurance Series Fund, Fidelity Variable
Insurance Products Fund, T. Rowe Price Equity Series, Inc. and T. Rowe Price
International Series, Inc. (the Funds), which are open-end, diversified
management investment companies. Prior to May 4, 1999, only portfolios of
EquiTrust Variable Insurance Series Fund were available to contract owners.
Contract owners also may direct investments to a fixed interest subaccount held
in the general assets of the Company.
Investments in shares of the Funds are stated at market value, which is the
closing net asset value per share as determined by the Funds. The first-in,
first-out cost basis has been used in determining the net realized gain or loss
from investment transactions and unrealized appreciation or depreciation on
investments. On January 1, 1999, the Account adjusted its cost basis from the
average cost method to the first-in, first-out method. This change had the
effect of changing accumulated unrealized appreciation (depreciation) on
investments, with an offsetting amount recorded to accumulated undistributed net
realized gain (loss). This increased the cost basis as follows for the following
subaccounts: Value Growth - $70,326; High Grade - $3,527; High Yield - $17,295;
Managed Portfolio - $117,130; and Blue Chip - $436,238. This change had no
effect on the statement of net assets at December 31, 1999 and 1998 or the
statement of operations for the periods indicated herein.
Dividends paid to the Account are automatically reinvested in shares of the Fund
on the payable date.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Account's financial statements and accompanying notes
requires management to make estimates and assumptions that affect the amounts
reported and disclosed. These estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.
44
<PAGE>
Farm Bureau Life Annuity Account
Notes to Financial Statements (continued)
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 CHARGES: 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.
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.
TRANSFER CHARGE: A transfer charge of $25 may be imposed for the thirteenth and
each subsequent transfer between subaccounts in any one policy year.
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.
45
<PAGE>
Farm Bureau Life Annuity Account
Notes to Financial Statements (continued)
4. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1999, EXCEPT AS NOTED 1998
-------------------------------- ---------------------------------
PURCHASES SALES PURCHASES SALES
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Value Growth Subaccount $ 2,565,600 $ 3,359,386 $ 6,338,103 $ 2,040,461
High Grade Bond Subaccount 3,619,376 1,436,658 3,775,676 510,646
High Yield Bond Subaccount 3,361,894 1,712,230 4,717,878 764,575
Managed Subaccount 2,294,999 7,700,153 9,887,040 2,123,694
Money Market Subaccount 12,532,462 11,448,736 14,905,897 13,759,147
Blue Chip Subaccount 8,227,206 3,274,149 12,813,433 1,312,062
VIP Growth Subaccount* 5,043,844 60,210 - -
VIP Overseas Subaccount* 727,929 25,253 - -
VIP Contrafund Subaccount* 2,905,938 154,759 - -
VIP Index 500 Subaccount* 3,786,863 106,706 - -
VIP Growth & Income
Subaccount* 2,632,170 114,877 - -
Mid-Cap Growth Subaccount* 1,660,300 118,924 - -
New America Growth
Subaccount* 1,650,402 113,291 - -
Personal Strategy Balanced
Subaccount* 2,161,173 52,231 - -
International Stock Subaccount* 442,862 46,689 - -
-------------------------------- ---------------------------------
Combined $53,613,018 $29,724,252 $52,438,027 $20,510,585
-------------------------------- ---------------------------------
-------------------------------- ---------------------------------
</TABLE>
* Period from May 4, 1999 (date operations commenced) through December 31, 1999.
46
<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 (DECREASE)
---------------------------- --------------------------- -----------------------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
---------------------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999,
EXCEPT AS NOTED
Value Growth Subaccount 196,953 $ 2,123,521 296,922 $ 3,119,530 (99,969) $ (996,009)
High Grade Bond Subaccount 233,618 3,105,207 101,153 1,340,351 132,465 1,764,856
High Yield Bond Subaccount 183,111 2,610,297 112,684 1,597,679 70,427 1,012,618
Managed Subaccount 72,007 966,790 551,098 7,375,531 (479,091) (6,408,741)
Money Market Subaccount 1,024,179 12,405,842 942,408 11,413,995 81,771 991,847
Blue Chip Subaccount 309,294 7,793,062 108,928 2,791,498 200,366 5,001,564
VIP Growth Subaccount* 467,841 5,043,844 4,141 43,153 463,700 5,000,691
VIP Overseas Subaccount* 65,264 727,930 2,088 23,167 63,176 704,763
VIP Contrafund Subaccount* 282,442 2,905,938 14,022 144,367 268,420 2,761,571
VIP Index 500 Subaccount* 373,839 3,786,863 9,256 91,776 364,583 3,695,087
VIP Growth & Income
Subaccount* 266,527 2,632,170 10,521 104,300 256,006 2,527,870
Mid-Cap Growth Subaccount* 158,616 1,642,893 10,499 112,644 148,117 1,530,249
New America Growth
Subaccount* 159,204 1,564,382 10,944 107,807 148,260 1,456,575
Personal Strategy Balanced
Subaccount* 209,445 2,064,445 4,577 44,788 204,868 2,019,657
International Stock Subaccount* 41,805 435,405 3,949 44,968 37,856 390,437
---------------------------- --------------------------- -----------------------------
Combined 4,044,145 $49,808,589 2,183,190 $28,355,554 1,860,955 $21,453,035
---------------------------- --------------------------- -----------------------------
---------------------------- --------------------------- -----------------------------
YEAR ENDED DECEMBER 31, 1998
Value Growth Subaccount 467,209 $ 6,322,131 148,713 $ 1,779,827 318,496 $ 4,542,304
High Grade Bond Subaccount 265,740 3,472,895 34,230 453,131 231,510 3,019,764
High Yield Bond Subaccount 304,949 4,256,719 48,546 683,130 256,403 3,573,589
Managed Subaccount 675,477 9,870,694 127,868 1,782,310 547,609 8,088,384
Money Market Subaccount 1,270,274 14,825,422 1,177,782 13,738,762 92,492 1,086,660
Blue Chip Subaccount 586,368 12,810,385 46,848 989,962 539,520 11,820,423
---------------------------- --------------------------- -----------------------------
Combined 3,570,017 $51,558,246 1,583,987 $19,427,122 1,986,030 $32,131,124
---------------------------- --------------------------- -----------------------------
---------------------------- --------------------------- -----------------------------
</TABLE>
* Period from May 4, 1999 (date operations commenced) through December 31, 1999.
47
<PAGE>
Farm Bureau Life Annuity Account
Notes to Financial Statements (continued)
6. NET ASSETS
The Account has an unlimited number of units of beneficial interest authorized
with no par value. Net assets as of December 31, 1999 consisted of:
<TABLE>
<CAPTION>
HIGH
VALUE GRADE HIGH YIELD
GROWTH BOND BOND
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Paid-in capital $112,328,414 $21,689,722 $7,513,960 $8,058,798
Accumulated undistributed net investment
income 10,747,402 3,039,019 989,752 1,760,994
Accumulated undistributed net realized gain
(loss) from investment transactions 39,345 (1,169,581) (10,541) (17,519)
Net unrealized appreciation (depreciation) of
investments 1,726,392 (6,733,882) (431,923) (721,335)
-------------------------------------------------------------
Net assets $124,841,553 $16,825,278 $8,061,248 $9,080,938
-------------------------------------------------------------
-------------------------------------------------------------
<CAPTION>
MONEY VIP
MANAGED MARKET BLUE CHIP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Paid-in capital $21,521,593 $3,177,004 $30,280,437 $5,000,691
Accumulated undistributed net investment
income (loss) 4,109,365 244,342 472,289 (17,057)
Accumulated undistributed net realized gain
(loss) from investment transactions (609,648) - 1,822,842 4,650
Net unrealized appreciation (depreciation) of
investments (3,937,137) - 11,653,582 794,275
-------------------------------------------------------------
Net assets $21,084,173 $3,421,346 $44,229,150 $5,782,559
-------------------------------------------------------------
-------------------------------------------------------------
<CAPTION>
VIP VIP VIP INDEX VIP GROWTH
OVERSEAS CONTRAFUND 500 & INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Paid-in capital $704,763 $2,761,571 $3,695,087 $2,527,870
Accumulated undistributed net (loss) (2,087) (10,392) (14,930) (10,577)
Accumulated undistributed net realized gain
from investment transactions 2,882 6,887 242 1,200
Net unrealized appreciation of investments 119,506 305,140 322,133 96,766
-------------------------------------------------------------
Net assets $825,064 $3,063,206 $4,002,532 $2,615,259
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
48
<PAGE>
Farm Bureau Life Annuity Account
Notes to Financial Statements (continued)
6. NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
NEW PERSONAL
MID-CAP AMERICA STRATEGY INTERNATIONAL
GROWTH GROWTH BALANCED STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Paid-in capital $1,530,249 $1,456,575 $2,019,657 $390,437
Accumulated undistributed net investment
income 11,127 80,536 89,285 5,736
Accumulated undistributed net realized gain
(loss) from investment transactions 7,181 (5,250) (1,060) 7,060
Net unrealized appreciation (depreciation) of
investments 163,390 42,475 (20,136) 73,538
---------------------------------------------------------------
Net assets $1,711,947 $1,574,336 $2,087,746 $476,771
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
49
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) (1) All Financial Statements are included in either the Prospectus or the
Statement of Additional Information, as indicated therein.
*(2) Schedules I, IV.
All required financial statements are included in Part B.
(b) Exhibits
<TABLE>
<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").(3)
(2) Not Applicable.
(3) *Underwriting Agreement.
(4) (a) Contract Form.(1)
(b) Variable Settlement Agreement.(5)
(5) Contract Application.(2)
(6) (a) Articles of Incorporation of the Company.(3)
(b) By-Laws of the Company.(3)
(7) Not Applicable.
(8) (a) Participation agreement relating to Farm Bureau Variable Insurance
Series Fund.(3)
(b)(1) Participation agreement relating to Fidelity Variable Insurance
Products Fund.(4)
(b)(2) Participation agreement relating to Fidelity Variable Insurance
Products Fund II.(4)
(b)(3) Participation agreement relating to Fidelity Variable Insurance
Products Fund III.(4)
(c) Participation agreement relating to T. Rowe Price Equity Series, Inc.
and T. Rowe Price International Series, Inc.(4)
(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.(3)
</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.
(3) Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-4 (File No. 33-67538) filed with the
Securities and Exchange Commission on May 1, 1998.
(4) Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-4 (File No. 33-67538) filed with the
Securities and Exchange Commission on April 30, 1999.
(5) Incorporated herein by reference to Post-Effective Amendment No. 7 to the
Registration Statement on Form N-4 (File No. 333-67538) filed with the
Securities and Exchange Commission on February 23, 2000.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
Incorporated herein by reference to the prospectus in the Form S-6 registration
statement (File No. 33-12789) for certain variable life insurance contracts
issued by the Company and filed with the Commission on April 30, 1999.
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
<PAGE>
FBL FINANCIAL GROUP, INC.
OWNERSHIP CHART
12/31/99
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
FBL Financial
Group, Inc.
/
/
- --------------------------------------------------------------
/ / /
/ / /
FBL Financial Farm Bureau FBL
Group Capital Life Insurance Financial
Trust Company Services, Inc.
/ /
/ /
/ /
- ---------------------------------------------- /
/ / / /
/ / / /
EquiTrust FBL Universal /
Life Insurance Real Estate Assurors /
Company Ventures, Ltd. Life Ins Co /
----------------------------------------------------------------------------------------------
/ / / / / /
/ / / / / /
Western AG FBL FBL EquiTrust EquiTrust EquiTrust
Insurance Leasing Insurance Investment Market Assigned
Agency, Inc. Services, Inc. Brokerage, Management Services, LLC Benefit
Inc. Services, Inc. Company
.
.
.
.
.
..............................................
. . .
. . .
. . .
EquiTrust EquiTrust EquiTrust
Series Fund, Money Market Variable Ins
Inc. Fund Series Fund
</TABLE>
- ------------------------
.... Management Agreement
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 1, 2000, there were 50,234 contract owners.
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, LLC is the registrant's principal underwriter
and also serves as the principal underwriter of certain variable annuity
contracts and variable life insurance policies issued by other separate accounts
of the Company or its life insurance company affiliates supporting other
variable products, or to variable annuity and variable life insurance separate
accounts of insurance companies not affiliated with the Company.
<PAGE>
(b) Officers and Managers of EquiTrust Marketing Services, LLC
<TABLE>
<CAPTION>
<S> <C>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
Stephen M. Morain General Counsel and Assistant Secretary, Iowa Farm Bureau
Senior Vice President, General Federation; General Counsel, Secretary and Director, Farm Bureau
Counsel and Manager Management Corporation; Senior Vice President, General Counsel and
Director, FBL Financial Group, Inc.
William J. Oddy Chief Executive Officer and Director, FBL Financial Group, Inc.
Chief Executive Officer and
Manager
Dennis M. Marker Vice President--Investment Administration, FBL Financial
Vice President--Investment Group, Inc.
Administration and Manager
Jo Ann Rumelhart Executive Vice President and General Manager--Life Cos., FBL
Executive Vice President and Financial Group, Inc.
Manager
Timothy J. Hoffman Chief Administrative Officer, FBL Financial Group, Inc.
Chief Administrative Officer
and Manager
James W. Noyce Chief Financial Officer, FBL Financial Group, Inc.
Chief Financial Officer,
Treasurer and Manager
Thomas E. Burlingame Vice President--Associate General Counsel, FBL Financial
Vice President and Manager Group, Inc.
John M. Paule Chief Marketing Officer, FBL Financial Group, Inc.
Chief Marketing Officer and
Manager
Lynn E. Wilson Vice President--Life Sales, FBL Financial Group, Inc.
President and Manager
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
<S> <C>
Lou Ann Sandburg Vice President--Investments and Assistant Treasurer, FBL Financial
Vice President--Investments, Group, Inc.
Assistant Treasurer and
Manager
James P. Brannen Vice President--Controller, FBL Financial Group, Inc.
Vice President--Controller
Robert A. Simons Senior Counsel--Investments, FBL Financial Group, Inc.
Senior Counsel--Investments
Sue A. Cornick Sr. Market Conduct and Mutual Funds Vice President and Secretary,
Sr. Market Conduct and Mutual EquiTrust Investment Management Services, Inc., EquiTrust Money
Funds Vice President and Market Fund, Inc., EquiTrust Series Fund, Inc. and EquiTrust
Secretary Variable Insurance Series Fund.
Kristi Rojohn Director, Investment Compliance and Assistant Secretary, EquiTrust
Director, Investment Investment Management Services, Inc.; Assistant Secretary,
Compliance and Assistant EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and
Secretary EquiTrust Variable Insurance Series Fund.
Roger F. Grefe Investment Management Vice President, FBL Financial Group, Inc.
Investment Management Vice
President
Robert J. Rummelhart Investment Vice President, FBL Financial Group, Inc.
Investment Vice President
Charles T. Happel Sr. Portfolio Manager, EquiTrust Investment Management
Sr. Portfolio Manager Services, Inc.
Laura Kellen Beebe Sr. Portfolio Manager, EquiTrust Investment Management
Sr. Portfolio Manager Services, Inc.
Doug Higgins Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
Larry J. Patterson Director, Financial Planning, United Farm Family
Vice President
Thomas J. Faulconer Director of Marketing Training, United Farm Family
Indiana OSJ Principal
Ken L. Lamoreaux Manager of Marketing Information System, Kansas Farm Bureau
Kansas OSJ Officer
Carla K. Dressman Manager of Sales Services, Kansas Farm Bureau
Kansas OSJ Officer
Kay E. Darrah Manager of Sales Training, Kansas Farm Bureau
Kansas OSJ Officer
</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.
<PAGE>
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 as part of any
application to purchase a contract offered by the prospectus, 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.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Farm Bureau Life Annuity Account, certifies that it meets
all the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized in the City of West Des Moines, State of Iowa, on the 25th day
of April, 2000.
<TABLE>
<S> <C> <C>
FARM BUREAU LIFE INSURANCE COMPANY
FARM BUREAU LIFE ANNUITY ACCOUNT
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------------
Edward M. Wiederstein
PRESIDENT
Farm Bureau Life Insurance Company
Attest: /s/ STEPHEN M. MORAIN
-----------------------------------------
Stephen M. Morain
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
Farm Bureau Life Insurance Company
</TABLE>
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the dates set
forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EDWARD M. WIEDERSTEIN President and Director
- ------------------------------ [Principal Executive April 25, 2000
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ JERRY C. DOWNIN Secretary-Treasurer
- ------------------------------ [Principal Financial April 25, 2000
Jerry C. Downin Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ------------------------------ [Principal Accounting April 25, 2000
James W. Noyce Officer]
/s/ ROGER BILL MITCHELL
- ------------------------------ Vice President and April 25, 2000
Roger Bill Mitchell Director
/s/ ERIC K. AASMUNDSTAD
- ------------------------------ Director April 25, 2000
Eric K. Aasmundstad
/s/ KENNETH R. ASHBY
- ------------------------------ Director April 25, 2000
Kenneth R. Ashby*
/s/ AL CHRISTOPHERSON
- ------------------------------ Director April 25, 2000
Al Christopherson*
/s/ KENNY J. EVANS
- ------------------------------ Director April 25, 2000
Kenny J. Evans
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ERNEST A. GLIENKE
- ------------------------------ Director April 25, 2000
Ernest A. Glienke*
/s/ KAREN J. HENRY
- ------------------------------ Director April 25, 2000
Karen J. Henry
/s/ CRAIG D. HILL
- ------------------------------ Director April 25, 2000
Craig D. Hill*
/s/ RICHARD G. KJERSTAD
- ------------------------------ Director April 25, 2000
Richard G. Kjerstad*
/s/ G. STEVEN KOUPLEN
- ------------------------------ Director April 25, 2000
G. Steven Kouplen
/s/ CRAIG A. LANG
- ------------------------------ Director April 25, 2000
Craig A. Lang*
/s/ LINDSEY D. LARSEN
- ------------------------------ Director April 25, 2000
Lindsey D. Larsen*
/s/ DAVID L. MCCLURE
- ------------------------------ Director April 25, 2000
David L. McClure
/s/ BRYCE P. NEIDIG
- ------------------------------ Director April 25, 2000
Bryce P. Neidig*
/s/ HOWARD D. POULSON
- ------------------------------ Director April 25, 2000
Howard D. Poulson*
/s/ FRANK S. PRIESTLEY
- ------------------------------ Director April 25, 2000
Frank S. Priestley
/s/ BEVERLY L. SCHNEPEL
- ------------------------------ Director April 25, 2000
Beverly L. Schnepel*
/s/ JOHN J. VANSWEDEN
- ------------------------------ Director April 25, 2000
John J. VanSweden
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEPHEN M. MORAIN
-------------------------
Stephen M. Morain
ATTORNEY-IN-FACT,
PURSUANT TO POWER OF
ATTORNEY.
</TABLE>
<PAGE>
UNDERWRITING AGREEMENT
UNDERWRITING AGREEMENT made this [ ] day of [ ], 2000, by and between
Farm Bureau Life Insurance Company ("Farm Bureau"), an Iowa corporation, on its
own behalf and on behalf of Farm Bureau Life Annuity Account ("Annuity Account")
and EquiTrust Marketing Services, LLC ("EquiTrust Marketing"), a Delaware
limited liability company.
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 registered as a unit investment trust
under the Investment Company Act of 1940, as amended (the "1940 Act:"); and
WHEREAS, EquiTrust Marketing is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, the parties desire to have EquiTrust Marketing act as
principal underwriter for the Account and assume such supervisory responsibility
as is required by federal and state securities law and applicable requirements
of the NASD for the securities activities of any "person associated" (as that
term is defined in Section 3(a)(18) of the 1934 Act) with EquiTrust Marketing,
including Farm Bureau personnel, and engaged directly or indirectly in Farm
Bureau's variable annuity operations (the "associated persons"); and
WHEREAS, Farm Bureau and the Annuity Account desire to have the
Contracts sold and distributed through EquiTrust Marketing, and EquiTrust
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 EquiTrust Marketing the right to be, and EquiTrust
Marketing agrees to serve as, distributor and principal underwriter of the
Contracts during the term of this Agreement. EquiTrust 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
1
<PAGE>
perform all duties and functions which are necessary and proper for the
distribution of the Contracts.
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 contract owners directly to Farm Bureau or
its designated servicing agent together with such applications, forms and other
documentation as may be required by Farm Bureau. Checks or money orders in
payment of premiums or other monies payable shall be drawn to the order of "Farm
Bureau Life Insurance Company." Farm Bureau will retain all such payments except
to the extent such payments are allocated to the Annuity Account.
3. SALES IN ACCORDANCE WITH CURRENT PROSPECTUS
EquiTrust Marketing agrees to offer the Contracts for sale in accordance with
the current prospectus therefor. EquiTrust Marketing is not authorized to give
any information or to make any representations concerning the 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 EquiTrust Marketing
with copies of all prospectuses, financial statements, and other documents which
EquiTrust Marketing reasonably requests for use in connection with the
distribution of the 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. EquiTrust Marketing and Farm Bureau shall cooperate fully in the
design, draft, and review of sales promotion materials and the preparation of
individual sales proposals related to the sale of the Contracts. EquiTrust
Marketing shall not use any such materials not provided or approved by Farm
Bureau.
5. COMPLIANCE WITH APPLICABLE LAWS
EquiTrust Marketing represents that it is duly registered as a broker-dealer
under the 1934 Act and is a member in good standing of the NASD and, to the
extent necessary to offer the Contracts, shall be duly registered or otherwise
qualified under the securities laws of any state or other jurisdiction.
EquiTrust Marketing shall be responsible for carrying out its sales and
underwriting obligation hereunder in continued compliance with the NASD Rules of
Fair Practice and federal and state securities laws and regulations. Without
limiting the generality of the foregoing, EquiTrust Marketing agrees that it
shall be fully responsible for:
2
<PAGE>
(a) ensuring that no person shall offer or sell the Contracts on its behalf
until such person is duly registered as a representative of EquiTrust
Marketing, duly licensed and appointed by Farm Bureau under applicable
state insurance law, and appropriately licensed, registered or
otherwise qualified to offer and sell such Contracts under the federal
securities laws and any applicable securities laws of each state or
other jurisdiction in which such Contracts may be 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 EquiTrust Marketing shall:
(i) conduct such training (including the preparation and
utilization of training materials) as in the opinion of
EquiTrust Marketing is necessary to accomplish the purposes of
this Agreement;
(ii) establish and implement reasonable written procedures for
supervision of sales practices of associated persons or
brokers selling the 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
EquiTrust Marketing is hereby authorized to enter into separate written
agreements, on such terms and conditions as EquiTrust Marketing may determine
not inconsistent with this Agreement, with broker-dealers which agree to
participate in the distribution of the 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
3
<PAGE>
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
EquiTrust Marketing. All broker-dealers who agree to participate in the
distribution of the Contracts shall act as independent contractors and nothing
herein contained shall constitute such broker-dealers or their agents or
employees as employees of Farm Bureau in connection with the sale of the
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 EquiTrust
Marketing or with other independent broker-dealers which have entered into
agreements with EquiTrust 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 EquiTrust Marketing shall cause to be maintained and preserved,
for the periods prescribed, such accounts, books and other documents as are
required of them by the 1940 Act, the 1934 Act and any other applicable laws and
regulations. The books, accounts and records of Farm Bureau, the Annuity
Account, and EquiTrust Marketing as to all transactions hereunder shall be
maintained so as to disclose clearly and accurately the nature and details of
the transactions.
As agent for and on behalf of EquiTrust Marketing, Farm Bureau shall maintain
such books and records of EquiTrust Marketing pertaining to the sale of the
Contracts and required by the 1934 Act as may be mutually agreed upon from time
to time by Farm Bureau and EquiTrust Marketing; provided that such books and
records shall be the property of EquiTrust Marketing and shall at all times be
subject to such reasonable periodic, special or other examination by the SEC and
all other regulatory bodies having jurisdiction. In addition, Farm Bureau will
maintain records of all sales commissions paid to associated persons of
EquiTrust Marketing in connection with the sale of the Contracts. Farm Bureau,
as agent for EquiTrust Marketing, shall be responsible for sending all required
confirmations on customer transactions in compliance with applicable
regulations, as modified by an exemption or other relief obtained by Farm Bureau
and EquiTrust Marketing.
4
<PAGE>
EquiTrust Marketing shall have the responsibility for maintaining the records of
associated persons of EquiTrust Marketing who are licensed, registered, and
otherwise qualified to sell the Contracts, and for furnishing periodic reports
thereto to Farm Bureau. EquiTrust Marketing shall cause Farm Bureau to be
furnished with such other reports as Farm Bureau may reasonably request for the
purpose of meeting its reporting and recordkeeping requirements under the
insurance laws of the State of Iowa and any other applicable states or
jurisdictions.
9. COSTS AND EXPENSES BORNE BY EQUITRUST MARKETING
EquiTrust Marketing shall bear the costs and expenses of: (a) services,
materials, and supplies required to be supplied by EquiTrust Marketing pursuant
to the terms of this Agreement; (b) registration, licensing or other
qualification of associated persons of EquiTrust Marketing under federal and
state securities laws and with the NASD; and (c) training and supervision of
associated persons.
10. COMPENSATION FOR EQUITRUST MARKETING'S SERVICES
As compensation for EquiTrust Marketing's assumption of the costs and expenses
set forth in Section 9 hereof, the sales services rendered by EquiTrust
Marketing and the associated persons of EquiTrust Marketing, and the continuing
obligations herein, Farm Bureau shall pay: (a) an annual fee, payable monthly,
at a rate equal to $100 multiplied by the number of associated persons of
EquiTrust Marketing; (b) all commissions or other fees or amounts which are due
or otherwise payable to associated persons of EquiTrust Marketing in accordance
with the compensation schedules attached to the associated persons agreements
for the sale of the Contracts as may be revised from time to time by EquiTrust
Marketing; and (c) such compensation as is due under dealer sales agreements
that EquiTrust Marketing and Farm Bureau enter into with other broker-dealers
pursuant to Section 6 hereof.
11. PAYMASTER ARRANGEMENT
In accordance with the terms of the Letter of Instruction dated the same date as
this Agreement and attached hereto as Exhibit A, as it may be amended from time
to time, from EquiTrust Marketing to Farm Bureau, Farm Bureau will pay
commissions payable to designated associated persons of EquiTrust Marketing as
paying agent on behalf of EquiTrust Marketing and will maintain the books and
records reflecting such payments in accordance with the requirements of the 1934
Act on behalf of EquiTrust Marketing. Farm Bureau acknowledges and agrees that
its services in this regard are purely ministerial and clerical in nature and
shall not interfere with the control and supervision exercised by EquiTrust
Marketing over its associated persons with regard to the Contracts. Farm Bureau
further acknowledges and agrees that EquiTrust Marketing shall not be liable to
any party for commissions payable hereunder. Farm Bureau may delegate its
responsibility to pay compensation or commissions pursuant to this Section 11 to
any other
5
<PAGE>
insurer affiliated with Farm Bureau, in its discretion, provided such insurer
agrees to comply with the provisions hereof applicable to the payment of such
compensation or commissions. Farm Bureau shall have no right to compensation
for the performance of any activities pursuant to this Section 11. Associated
persons of EquiTrust Marketing shall have no interest in this Agreement or
right to any compensation to be paid by or on behalf of EquiTrust Marketing
hereunder prior to their receipt thereof.
12. INDEMNIFICATION
Farm Bureau agrees to indemnify EquiTrust Marketing for any losses incurred as a
result of any action taken or omitted by EquiTrust Marketing or any of its
officers, agents, or employees in performing their responsibilities under this
Agreement in good faith and without willful misfeasance, gross negligence, or
reckless disregard of such obligations.
13. INVESTIGATIONS AND PROCEEDINGS
EquiTrust Marketing and Farm Bureau agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Contracts distributed under this Agreement. EquiTrust
Marketing and Farm Bureau further agree to cooperate fully in any securities
regulatory inspection, inquiry, investigation or proceeding or any judicial
proceeding with respect to Farm Bureau, EquiTrust Marketing, their affiliates,
or the associated persons to the extent that such inspection, inquiry,
investigation or proceeding is in connection with the Contracts distributed
under this Agreement. Without limiting the foregoing:
(a) EquiTrust Marketing will be notified promptly of any customer
complaint or notice of any regulatory inspection, inquiry,
investigation or proceeding or judicial proceeding received by
Farm Bureau with respect to EquiTrust Marketing or any
associated person or which may affect Farm Bureau's issuance
of any Contract marketed under this Agreement; and
(b) EquiTrust Marketing will promptly notify Farm Bureau of any
customer complaint or notice of any regulatory inspection,
inquiry, investigation or proceeding received by EquiTrust
Marketing or its affiliates with respect to EquiTrust
Marketing or any associated person in connection with any
Contract distributed under this Agreement or any activity in
connection with any such Contract. In the case of a customer
complaint, EquiTrust Marketing and Farm Bureau will cooperate
in investigating such complaint and arrive at a mutually
satisfactory response.
6
<PAGE>
14. TERMINATION
This Agreement may be terminated by either party hereto upon 60 days' written
notice to the other party without the payment of any penalty. This Agreement may
be terminated upon written notice of one party to the other party hereto in the
event of bankruptcy or insolvency of such party to which notice is given. This
Agreement may be terminated at any time upon the mutual written consent of the
parties hereto. This Agreement shall terminate automatically if it shall be
assigned.
Upon termination of this Agreement, all authorizations, rights and obligations
hereunder shall cease except (a) the obligation to settle accounts hereunder,
including commissions on premiums subsequently received for 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.
15. EXCLUSIVITY
The services of EquiTrust Marketing hereunder are not to be deemed exclusive and
EquiTrust Marketing shall be free to render similar services to others so long
as its services hereunder are not impaired or interfered with hereby.
16. REGULATION
This Agreement shall be subject to the provisions of the 1940 Act and the 1934
Act and the rules, regulations, and rulings thereunder and of the NASD, from
time to time in effect, including such exemptions from the 1940 Act as the SEC
may grant and the terms hereof shall be interpreted and construed in accordance
therewith.
EquiTrust Marketing shall submit to all regulatory and administrative bodies
having jurisdiction over the operations of Farm Bureau or the 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, EquiTrust Marketing shall furnish the Iowa Department of Insurance
with any information or reports which the Department may request in order to
ascertain whether the variable 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.
17. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
7
<PAGE>
18. APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and governed
by the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized as of the day and year
first above written.
Attest:
FARM BUREAU LIFE INSURANCE COMPANY
William J. Oddy,
Chief Executive Officer
Attest:
EQUITRUST MARKETING SERVICES, LLC
Dennis M. Marker,
Vice President - Investment Administration
EXHIBIT A
[EquiTrust Marketing Services, LLC Letterhead]
[Letter of Instruction from EquiTrust Marketing to Farm Bureau]
Farm Bureau Insurance Company
To Whom it May Concern:
With reference to the agreement (the "Agreement") between you and the
undersigned regarding the payment of commissions for securities transactions to
our associated persons ("Reps"), you are hereby directed to follow these
instructions:
8
<PAGE>
- You shall pay commissions to Reps for the sale of securities
effected on behalf of EquiTrust Marketing in accordance with
the compensation schedules attached as Attachment A hereto.
- You will be furnished information regarding compensation
payable to each Rep for each processing period through [ ],
which information may include instructions with regard to the
payment of advances on commissions payable.
- Funds will be transferred to you by [describe monetary
transfer procedures].
- Payments made to Reps may be aggregated with other
compensation payable for other products and services for
which you act as payor.
- You must furnish a statement to each Rep detailing the
compensation paid on behalf of EquiTrust Marketing and
indicating that such portion is paid on behalf of EquiTrust
Marketing.
- You may make deductions from commissions that have been
authorized by EquiTrust Marketing or by the Rep.
- [In the case of a Rep who is your common law employee, you are
authorized to include securities compensation in the base of
compensation payable to the Rep, and to make deductions for
fringe benefits from such base so long there is no
differential in the proportionate amount of securities
compensation earned by the Rep that is allocated to fringe
benefits as compared with the amount of non-securities
compensation earned by the Rep that is allocated to the same
fringe benefits.]
- You are authorized to make any deductions from compensation
payable to a Rep for wage garnishments ordered by a court of
competent jurisdiction against such Rep.
- You will furnish us on a monthly basis with a report
concerning compensation paid by you during the month pursuant
to the Agreement.
[Signed: EquiTrust Marketing Services, LCC]
Attachment
<PAGE>
ATTACHMENT A
EQUITRUST MARKETING COMPENSATION SCHEDULE
[TO BE ATTACHED TO LETTER FROM EQUITRUST MARKETING TO FARM BUREAU]
<PAGE>
[Farm Bureau letterhead]
April 26, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statements on Form N-4 filed by Farm Bureau
Life Insurance Company ("Company") and its Farm Bureau Life Annuity Account with
the Securities and Exchange Commission covering certain variable annuity
contracts, I have examined such documents and such law as I considered necessary
and appropriate, and on the basis of such examinations, it is my opinion that:
(1) The Company is duly organized and validly existing under the laws of
the State of Iowa.
(2) The variable annuity contracts, when issued as contemplated by the said
Form N-4 Registration Statements will constitute legal, validly issued
and binding obligations of Farm Bureau Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to the said Form
N-4 Registration Statements and to the reference to my name under the caption
"Legal Matters" in the Statement of Additional Information contained in the said
Registration Statements. In giving this consent, I am not admitting that I am in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
/s/ Stephen M. Morain
Stephen M. Morain
Senior Vice President
& General Counsel
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LLP]
April 25, 2000
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Re: Farm Bureau Life Annuity Account (File No. 333-67538)
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of Post-Effective Amendment Number 8 to
the registration statement on Form S-6 for Farm Bureau Life Variable Account
(File No. 333-67538). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /S/ STEPHEN E. ROTH
---------------------
Stephen E. Roth, Esq.
<PAGE>
[Ernst & Young Letterhead]
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Financial
Statements" in the Prospectus and "Experts" in Part B and to the use of our
reports dated March 10, 2000 with respect to the financial statements of Farm
Bureau Life Annuity Account and February 14, 2000 with respect to the financial
statements and schedules of Farm Bureau Life Insurance Company, in
Post-Effective Amendment No. 8 to the Registration Statement (Form N-4
No. 33-67538) and related Prospectus of Farm Bureau Life Annuity Account dated
May 1, 2000.
Ernst & Young LLP
Des Moines, Iowa
April 24, 2000
<PAGE>
[Farm Bureau letterhead]
April 26, 2000
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by Farm Bureau
Life Insurance Company of a flexible premium deferred variable annuity contract
("Contract") under the Securities Act of 1933, as amended. The prospectus
included in Post-Effective Amendment No. 8 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. 8 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>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULES
The Board of Directors and Stockholder
Farm Bureau Life Insurance Company
We have audited the consolidated balance sheets of Farm Bureau Life Insurance
Company as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholder's equity and cash flows for each
of the three years in the period ended December 31, 1999, and have issued our
report thereon dated February 14, 2000 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedules listed in Item 3 of this Registration Statement. These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 14, 2000
<PAGE>
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER
THAN INVESTMENTS IN RELATED PARTIES
FARM BUREAU LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
DECEMBER 31, 1999
COLUMN A COLUMN B COLUMN C COLUMN D
- ------------------------------------------------- --------------------- --------------------- ---------------------
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- ------------------------------------------------- --------------------- --------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities, held for investment-
mortgage-backed securities................. $ 339,362 $ 337,794 $ 339,362
---------------------
---------------------
Fixed maturity securities, available for sale:
Bonds:
United States Government and agencies........ 71,490 69,749 69,749
State, municipal and other governments....... 46,395 44,035 44,035
Public utilities............................. 118,099 115,822 115,822
Corporate securities......................... 1,009,067 963,069 963,069
Mortgage and asset-backed securities......... 722,779 703,404 703,404
Convertible bonds............................ 51,576 51,660 51,660
Redeemable preferred stock..................... 44,154 40,486 40,486
--------------------- --------------------- ---------------------
Total..................................... 2,063,560 $ 1,988,225 1,988,225
---------------------
---------------------
Equity securities, available-for-sale:
Common stocks:
Public utilities............................. 2,833 1,950 1,950
Banks, trusts, and insurance companies....... 7,671 7,683 7,683
Industrial, miscellaneous, and all other..... 19,953 18,622 18,622
Nonredeemable preferred stocks................. 7,690 7,090 7,090
--------------------- --------------------- ---------------------
Total..................................... 38,147 $ 35,345 35,345
---------------------
---------------------
Mortgage loans on real estate................... 315,329 314,523(2)
Investment real estate:
Acquired for debt............................ 783 783
Investment................................... 19,336 19,336
Policy loans.................................... 123,717 123,717
Other long-term investments..................... 9,953 4,822(2)
Short-term investments.......................... 78,101 78,101
--------------------- ---------------------
$ 2,988,288 $ 2,904,214
--------------------- ---------------------
--------------------- ---------------------
</TABLE>
(1) On the basis of cost adjusted for repayments and amortization of
premiums and accrual of discounts for fixed maturities, other long-term
investments and short-term investments; original cost for equity
securities; unpaid principal balance for mortgage loans on real estate
and policy loans, and original cost less accumulated depreciation for
investment real estate.
(2) Amount not equal to cost (Column B) because of allowance for possible
losses deducted from cost to determine reported amount.
<PAGE>
SCHEDULE IV - REINSURANCE
FARM BUREAU LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------------- -------------- -------------- -------------- --------------
PERCENT OF
CEDED TO AMOUNT
OTHER ASSUMED FROM ASSUMED TO
GROSS AMOUNT COMPANIES OTHER COMPANY NET AMOUNT NET
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Life insurance in force, at end
of year......................... $ 21,024,991 $ 1,826,299 $ 56 $ 19,198,748 -
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Insurance premiums and other
considerations:
Interest sensitive product
charges....................... $ 57,206 $ 1,846 $ 3 $ 55,363 -
Traditional life insurance and
accident and health premiums.. 99,420 3,490 - 95,930 -
-------------- -------------- -------------- -------------- --------------
$ 156,626 $ 5,336 $ 3 $ 151,293 - %
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Year ended December 31, 1998:
Life insurance in force, at end
of year......................... $ 19,665,773 $ 1,298,695 $ - $ 18,367,078 -
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Insurance premiums and other
considerations:
Interest sensitive product
charges....................... $ 53,976 $ 1,820 $ 1 $ 52,157 -
Traditional life insurance and
accident and health premiums.. 97,591 4,118 - 93,473 -
-------------- -------------- -------------- -------------- --------------
$ 151,567 $ 5,938 $ 1 $ 145,630 - %
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Year ended December 31, 1997:
Life insurance in force, at end
of year......................... $ 18,380,799 $ 1,248,564 $ - $ 17,132,235 -
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Insurance premiums and other
considerations:
Interest sensitive product -
charges....................... $ 49,793 $ 1,814 $ - $ 47,979 -
Traditional life insurance and -
accident and health premiums.. 96,708 4,180 - 92,528 -
-------------- -------------- -------------- -------------- --------------
$ 146,501 $ 5,994 $ - $ 140,507 - %
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
