SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
PRE -EFFECTIVE AMENDMENT NO. 1
TO
FORM N-4
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
CUNA Mutual Life Variable Account
(Exact name of trust)
CUNA Mutual Life Insurance Company
(Name of depositor)
2000 Heritage Way
Waverly, Iowa 50677
(Complete address of depositor's principal executive offices)
Kevin S. Thompson, Esq.
CUNA Mutual Life Insurance Company
5910 Mineral Point Road
Madison, WI 53705
(Name and complete address of agent for service)
Copy to:
David Goldstein, Esq.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2404
Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement
Title of Securities Being Offered: Interest in the Separate Account issued
through Variable Annuity Policies.
The Registrant hereby amends this Registration Statement on such dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS October 31, 2000
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MEMBERS Choice Variable Annuity
A Flexible Premium Deferred Variable Annuity Contract
Issued by
CUNA Mutual Life Insurance Company
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Inside this Prospectus, you will find basic information about the Contract and
the Variable Account that you should know before investing. Please read it
carefully and keep it for future reference. The Company may sell the Contract to
individuals, or to or in connection with retirement plans, including plans that
qualify for special federal tax treatment under the Internal Revenue Code of
1986, as amended.
The investment performance of the mutual fund portfolios underlying the
Subaccounts you select will affect the Contract Value to the Payout Date, and
will affect the size of variable income payments after the Payout Date. You bear
the entire investment risk on any amounts you allocate to the Variable Account.
The following mutual funds are available through the Subaccounts of the CUNA
Mutual Life Variable Annuity Account:
Ultra Series Fund
Money Market Fund
Bond Fund
Balanced Fund
Growth and Income Stock Fund
Capital Appreciation Stock Fund
Mid-Cap Stock Fund
Emerging Growth Fund
High Income Fund
International Stock Fund
Global Securities Fund
This Prospectus must be accompanied by a current prospectus for the Ultra Series
Fund.
The Statement of Additional Information ("SAI") contains additional information
about the Contract and the Variable Account. You will find its table of contents
on the last page of this Prospectus. The SAI has been filed with the Securities
and Exchange Commission (SEC) and is incorporated by reference. You may obtain a
copy of the SAI dated October 31, 2000 free of charge by contacting the Company.
Additionally, the SEC maintains a website at http://www.sec.gov that contains
the SAI material incorporated by reference and other information.
Investment in a variable annuity contract is subject to risks, including the
possible loss of money. Unlike credit union and bank accounts, money invested in
the Variable Account is not insured. Money in the Variable Account is not
deposited in or guaranteed by any credit union or bank and is not guaranteed by
any government agency.
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The Securities and Exchange Commission has not approved or disapproved of these
securities or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
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<PAGE>
Table of Contents
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DEFINITIONS.................................................................1
EXPENSE TABLES..............................................................3
FINANCIAL HIGHTLIGHTS.......................................................5
SUMMARY.....................................................................5
The Contract................................................................5
Charges and Deductions......................................................6
Payout Provisions...........................................................6
Federal Tax Status..........................................................6
CUNA MUTUAL LIFE INSURANCE COMPANY, THE CUNA MUTUAL LIFE VARIABLE ANNUITY
ACCOUNT, AND THE UNDERLYING FUNDS..........................................6
CUNA Mutual Life Insurance Company..........................................6
CUNA Mutual Life Variable Annuity Account...................................7
The Underlying Funds........................................................7
Availiability of Funds......................................................9
Voting Rights...............................................................9
Material Conflicts..........................................................9
Substitution of Securities.................................................10
DESCRIPTION OF THE CONTRACT................................................10
Issuance of a Contract.....................................................10
Right to Examine...........................................................10
Purchase Payments..........................................................10
Allocation of Purchase Payments............................................10
Contract Value.............................................................11
Transfer Privileges........................................................11
Surrenders (Redemption) and Partial Withdrawals............................13
Contract Loans.............................................................14
Death Benefit Before Payout Date...........................................14
Proportional Adjustment for Partial Withdrawals............................15
MISCELLANEOUS MATTERS......................................................15
Payments...................................................................15
Modification...............................................................16
Reports to Owners..........................................................16
Inquiries..................................................................16
INCOME PAYMENT OPTION......................................................17
Payout Date and Proceeds...................................................17
Election of Income Payment Options.........................................17
Fixed Income Payments......................................................17
Variable Income Payments...................................................17
Description of Income Payment Options......................................18
Death Benefit After the Payout Date........................................19
CHARGES AND DEDUCTIONS.....................................................20
Mortality and Expense Risk Charge..........................................20
Fund Expenses..............................................................20
Annual Contract Fee........................................................20
Transfer Processing Fee....................................................20
Lost Contract Request......................................................20
Premium Taxes..............................................................20
Other Taxes................................................................21
RIDERS AND ENDORSEMENTS....................................................22
Maximum Anniversary Value Death Benefit....................................22
5% Annual Guarantee Death Benefit..........................................22
Enhanced Death Benefit Rider Charges.......................................23
ADVERTISING AND SUBACCOUNT PERFORMANCE SUMMARY.............................23
FEDERAL TAX MATTERS........................................................25
Introduction...............................................................25
Tax Status of the Contract.................................................25
Taxation of Annuities......................................................26
Transfers, Assignments or Exchanges of a Contract..........................28
Withholding................................................................28
Multiple Contracts.........................................................28
Taxation of Qualified Plans................................................29
Possible Charge for the Company's Taxes....................................31
Other Tax Consequences.....................................................31
LEGAL PROCEEDINGS..........................................................32
FINANCIAL STATEMENTS.......................................................32
<PAGE>
Definitions
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Accumulation Unit
A unit of measure used to calculate Variable Contract Value.
Annuitant
The person or persons named in the application and on whose life the first
income payment is to be made. The maximum number of joint Annuitants is two and
provisions referring to the death of an Annuitant mean the death of the last
surviving Annuitant. Only spouses may be joint Annuitants.
Beneficiary
The person to whom the proceeds payable on the death of an Annuitant will be
paid.
Code
The Internal Revenue Code of 1986, as amended.
Contract Anniversary
The same date in each Contract Year as the Contract Issue Date.
Contract Issue Date
The date on which the Company issues the Contract and upon which the Contract
becomes effective. This date is shown on the data page of the Contract and is
also used to determine Contract Years and Contract Anniversaries.
Contract Value
The total amount invested under the Contract. It is the sum of the Variable
Contract Value and the Loan Account Value.
Contract Year
A twelve-month period beginning on the Contract Issue Date or on a Contract
Anniversary.
Due Proof of Death
Proof of death satisfactory to the Company. Such proof may consist of the
following if acceptable to the Company: (a) a certified copy of the death
record; (b) a certified copy of a court decree reciting a finding of death; (c)
any other proof satisfactory to the Company.
Fund
An investment portfolio of Ultra Series Fund or any other open-end management
investment company or unit investment trust in which a Subaccount invests.
General Account
The assets of the Company other than those allocated to the Variable Account or
any other separate account of the Company.
Home Office
The Company's principal office at 2000 Heritage Way, Waverly, Iowa 50677.
Income Payment
One of several periodic payments made by the Company to the Payee under an
Income Payment Option.
Income Payment Option
The form of Income Payments selected by the Owner under the Contract.
Income Unit
A unit of measure used to calculate variable Income Payments.
Loan Account
For any Contract, a portion of the Company's General Account to which Contract
Value is transferred to provide collateral for any loan taken under the
Contract.
Loan Amount
The sum of your loan principal plus any accrued loan interest.
Net Purchase Payment
A purchase payment less any deduction for premium expense charges.
Owner
The person(s) ("you") who own(s) the Contract and who is (are) entitled to
exercise all rights and privileges provided in the Contract.
Payee
The Annuitant is the Payee unless the Owner specifies otherwise.
Payout Date
The date on which Payout Proceeds are applied to an Income Payment Option.
Payout Proceeds
The Contract Value less any Loan Amount, less any premium expense charge, less a
pro-rated portion of the annual Contract fee, and less any applicable rider
charges as of the Payout Date.
Premium Expense Charge
An amount we may deduct from your purchase payments to cover taxes we are
charged by your state of residence.
Qualified Contract
A contract that is issued in connection with retirement plans that qualify for
special federal income tax treatment under Section(s) 401, 403(b), 408, 408A or
457 of the Code.
Subaccount
A subdivision of the Variable Account, the assets of which are invested in a
corresponding Fund.
Subaccount Value
Before the Payout Date, that part of any Net Purchase Payment allocated to the
Subaccount plus any Contract Value transferred to that Subaccount, adjusted by
interest income, dividends, net capital gains or losses (realized or
unrealized), and decreased by withdrawals (including any applicable surrender
charges, administrative fee or Premium Expense Charge) and any Contract Value
transferred out of that Subaccount.
Surrender Value
The Contract Value less any applicable Premium Expense Charges, annual contract
fee, any charge for riders and Loan Amount.
Valuation Day
For each Subaccount, each day that the New York Stock Exchange is open for
business except days that the Subaccount's corresponding Fund does not value its
shares.
Valuation Period
The period beginning at the close of regular trading on the New York Stock
Exchange on any Valuation Day and ending at the close of regular trading on the
next succeeding Valuation Day.
Variable Account
CUNA Mutual Life Variable Annuity Account.
Variable Contract Value
The sum of the Subaccount Values.
Written Request
A Written Request or request in a form satisfactory to the Company which is
signed by the Owner and received at the Home Office. A Written Request includes
a telephone or fax request made pursuant to the terms of an executed telephone
or fax authorization, with original signature, on file at the Home Office.
<PAGE>
Expense Tables
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The following expense information assumes that the entire Contract Value is
Variable Contract Value.
Owner Transaction Expenses
Sales Charge Imposed on
Purchase Payments................................None
Transfer Processing Fee...........................$10*
Maximum Annual Contract Fee............................$30**
Annual Rider Charges
(as a percentage of monthly average Contract Value)
Maximum Anniversary Value Death
Benefit Rider.........................................0.15%
5% Annual Guarantee Death Benefit Rider................0.15%
Variable Account Annual Expenses
(as a percentage of net assets)
Mortality and Expense Risk Charge.................1.15%
Total Variable Account Expenses...................1.15%
Annual Fund Expenses
(as percentage of average net assets)
<TABLE>
<CAPTION>
Other Total Annual
Portfolio Name Management Fees Expenses Fund Expenses
-------------- --------------- --------- -------------
<S> <C> <C> <C>
Money Market Fund 0.45% 0.01% 0.46%
Bond Fund 0.55% 0.01% 0.56%
Balanced Fund 0.70% 0.01% 0.71%
Growth and Income Stock Fund 0.60% 0.01% 0.61%
Capital Appreciation Stock Fund 0.80% 0.01% 0.81%
Mid-Cap Stock Fund 1.00% 0.01% 1.01%
Emerging Growth Fund 0.85% 0.01% 0.86%
High Income Fund 0.75% 0.01% 0.76%
International Stock Fund 1.20% 0.01% 1.21%
Global Securities Fund 0.95% 0.01% 0.95%
</TABLE>
* Currently, no fee is charged for transfers. However, the Company reserves the
right to charge a $10 transfer fee on each transfer after the first 12
transfers in any Contract Year.
**The Company does not deduct the annual Contract fee if the Contract Value is
$25,000 or more.
The 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 Variable Account and for each of the underlying Funds available as
investment options for the fiscal year ended December 31, 1999. Expenses of the
Funds are not fixed or specified under the terms of the Contract, and actual
expenses may vary. Premium taxes may be applicable, depending on the laws of the
various jurisdictions.
An Owner would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
-------------------------- ------------ ------------- ------------ -------------
Subaccount 1 Year 3 Years 5 Years 10 Years
-------------------------- ------------ ------------- ------------ -------------
Money Market $20 $62 $106 $230
-------------------------- ------------ ------------- ------------ -------------
Bond $21 $65 $111 $240
-------------------------- ------------ ------------- ------------ -------------
Balanced $23 $69 $119 $255
-------------------------- ------------ ------------- ------------ -------------
High Income $23 $71 $122 $261
-------------------------- ------------ ------------- ------------ -------------
Growth and Income $22 $66 $114 $245
-------------------------- ------------ ------------- ------------ -------------
Capital Appreciation $24 $72 $124 $266
-------------------------- ------------ ------------- ------------ -------------
Mid-Cap Stock $26 $78 $134 $286
-------------------------- ------------ ------------- ------------ -------------
Emerging Growth $24 $74 $127 $271
-------------------------- ------------ ------------- ------------ -------------
International Stock $28 $84 $144 $305
-------------------------- ------------ ------------- ------------ -------------
Global Securities $25 $77 $132 $281
-------------------------- ------------ ------------- ------------ -------------
The examples provided above assume that no transfer charges, or Premium Expense
Charges, have been assessed. The examples also assume that the annual Contract
fee is $30, that the average Contract Value is $50,000, (which translates the
Contract fee into an assumed 0.0006% charge for the purposes of the examples
based on a $1,000 investment) and that all optional riders and endorsements are
selected.
The examples should not be considered a representation of past or future
expenses. The assumed 5% annual rate of return is hypothetical and should not be
considered a representation of past or future annual returns, which may be
greater or less than this assumed rate. Also, actual expenses may be greater or
less than those shown.
<PAGE>
Financial Highlights
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Although the Separate Account and many of the Funds have been in existence for
some time, the Subaccounts for this contract are new and do not have any
history. Accordingly, there is no Subaccount information to report at this time.
In future years, the prospectus will contain financial information for each
class of Accumulation Units. The value of an Accumulation Unit is determined on
the basis of changes in the per share value of the underlying mutual funds and
the assessment of various charges.
Summary
================================================================================
The following section summarizes certain provisions that we describe in more
detail later in the prospectus.
The Contract
Issuance of a Contract. The Company issues Contracts to individuals or to
employers or other groups in connection with retirement plans.
Right to Examine Period. You have the right to return the Contract within 10
days after you receive it and the Company will return the Contract Value or the
amount required by law. State or federal law may require additional return
privileges. If you return the Contract, it will become void.
Purchase Payments. Generally, the minimum initial purchase payment is $25,000.
Allocation of Purchase Payments. You may allocate purchase payments to one or
more of the Subaccounts of the Variable Account. Each Subaccount invests solely
in a corresponding underlying Fund. The investment performance of the Fund(s)
will affect the Subaccount in which you invest your money and your Contract
Value.
Transfers. On or before the Payout Date, you may transfer all or part of the
Contract Value between Subaccount(s) subject to certain restrictions.
No fee is charged for transfers, but the Company reserves the right to charge
$10 for each transfer over 12 during a Contract Year.
Partial Withdrawal. You may withdraw part of your Contract's Surrender Value by
Written Request to the Company on or before the Payout Date, subject to certain
limitations.
Surrender. You may surrender the Contract and receive its Surrender Value, by
Written Request to the Company.
Charges and Deductions
The Contract contains the following charges and deductions:
Annual Contract Fee. The Contract has an annual Contract fee of $30. (This fee
is waived if the Contract Value is $25,000 or more.)
Mortality and Expense Risk Charge. The Company deducts a daily mortality and
expense risk charge to compensate it for assuming certain mortality and expense
risks. The Company may use any profits from this charge to finance other
expenses, including expenses incurred in the administration of the Contracts and
in the distribution of the Contracts. The charges are deducted from the Variable
Account at a rate of 0.003151% per day which is an annual rate of 1.15%.
Premium Expense Charges. The Company charges for any state or local premium
taxes applicable to a Contract. The Company reserves the right to deduct premium
taxes at the time it pays such taxes.
Rider Charges. The Company deducts a charge on each Contract Anniversary for
each of two optional death benefit riders. This charge is at an annual rate of
0.15% of the average monthly Contract Value for the prior Contract Year.
Payout Provisions
You select the Payout Date, subject to certain limitations.
On the Payout Date, the Payout Proceeds will be applied to an Income Payment
Option, unless you choose to receive the Surrender Value in a lump sum.
Federal Tax Status
Generally, any distribution from your Contract may result in taxable income. In
certain circumstances, a 10% penalty tax may apply. For a further discussion of
the federal income status of variable annuity contracts, see Federal Tax
Matters.
<PAGE>
CUNA Mutual Life Insurance Company - The CUNA Mutual Life Variable Annuity
Account, and the Funds
================================================================================
CUNA Mutual Life Insurance Company
CUNA Mutual Life Insurance Company is a mutual life insurance company originally
organized under the laws of Iowa in 1879 and incorporated on June 21, 1882. The
Home Office of the Company is located at 2000 Heritage Way, Waverly, Iowa
50677-9202. The telephone number is 1-800-798-5500.
As of December 31, 1999, the Company had more than $4 billion in assets and more
than $12 billion of life insurance in force. Effective June 1999, and through
the date of this Prospectus, A.M. Best rated the Company A (Excellent).
Effective March 1999, and through the date of this Prospectus, Duff & Phelps
rated the Company AA. These are the most recent ratings available as of the date
of this Prospectus. Periodically, the rating agencies review the ratings of the
Company. To obtain the most current ratings, contact the Company at the address
or telephone number shown above.
CUNA Mutual Life Variable Annuity Account
The Variable Account was established by the Company as a separate account on
December 14, 1993. The Variable Account invests in the Funds described below.
The Variable Account has been registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act") and meets the
definition of a separate account under the federal securities laws. Registration
with the SEC does not involve supervision of the management or investment
practices or policies of the Variable Account or of the Company by the SEC. The
Variable Account is also subject to the laws of the State of Iowa which regulate
the operations of insurance companies domiciled in Iowa.
The Variable Account is divided into Subaccounts. In the future, the number of
Subaccounts may change. Each Subaccount invests exclusively in shares of a
single corresponding Fund. The income, gains and losses, are credited to or
charged against that Subaccount reflect only the Subaccount's investment
experience and not the investment experience of the Company's other assets.
Although the assets in the Variable Account are the property of the Company, the
assets in the Variable Account attributable to the Contracts are not chargeable
with liabilities arising out of any other business which the Company may
conduct. The assets of the Variable Account that exceed the Company's
liabilities arising under the Contracts may be transferred by the Company to the
General Account and used to pay its liabilities. All obligations arising under
the Contracts are general corporate obligations of the Company.
The Contracts are distributed by the principal underwriter, CUNA Brokerage
Services, Inc., 2000 Heritage Way, Waverly, Iowa 50677. CUNA Brokerage is an
indirect wholly-owned subsidiary of CUNA Mutual, and is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer and is a member of
the National Association of Securities Dealers, Inc.
The Underlying Funds
The Subaccounts invest in the Ultra Series Fund. The Ultra Series Fund is a
management investment company of the series type with one or more Funds. Each is
an open-end, management investment company.
The investment objectives and policies of each Fund are summarized below. There
is no assurance that any Fund will achieve its stated objectives. More detailed
information, including a description of risks and expenses, may be found in the
Fund's prospectuses which must accompany or precede this Prospectus. The
prospectuses should be read carefully and retained for future reference.
The Ultra Series Fund
Currently, the Ultra Series Fund offers Funds as investment options under the
Contracts.
Money Market Fund. This Fund seeks high current income from money market
instruments consistent with preservation of capital and liquidity. An investment
in the Money Market Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Money Market Fund will be able to
maintain a stable net asset value of $1.00 per share.
Bond Fund. This Fund seeks a high level of current income, consistent with the
prudent limitation of investment risk, through investment in a diversified
portfolio of fixed-income securities with maturities of up to 30 years. It
principally invests in securities of intermediate term maturities.
Balanced Fund. This Fund seeks a high total return through the combination of
income and capital growth. It pursues this objective by investing in the types
of common stocks owned by the Capital Appreciation Stock Fund and the Growth and
Income Stock Fund, the type of bonds owned by the Bond Fund, and the type of
money market instruments owned by the Money Market Fund.
Growth and Income Stock Fund. This Fund seeks long-term growth of capital with
income as a secondary consideration. It pursues this objective by investing in
common stocks of companies with financial and market strengths and long-term
records of performance.
Capital Appreciation Stock Fund. This Fund seeks a high level of long-term
growth of capital. It pursues this objective by investing in common stocks,
including those of smaller companies and of companies undergoing significant
change.
Mid-Cap Stock Fund. This Fund seeks long-term capital appreciation by investing
in mid-size and small companies. It pursues this objective by purchasing the
common stock of generally smaller, less-developed issuers with valuations,
fundamentals and/or prospects that are attractive to the investment adviser.
Emerging Growth Fund. This Fund seeks long-term growth of capital through
investments primarily in common stock of emerging growth companies.
High Income Fund. This Fund seeks high current income by investing primarily in
a diversified portfolio of lower-rated higher-yielding income bearing
securities. The Fund also seeks capital appreciation but only when consistent
with its primary goal.
International Stock Fund. This Fund seeks long-term growth of capital through
investments primarily in common stocks of non-U.S. companies.
Global Securities Fund. This Fund seeks capital appreciation by investing mainly
in common stocks of U.S. and foreign companies.
MEMBERS Capital Advisors, Inc. (f/k/a CIMCO Inc. ("CIMCO")) serves as investment
adviser to the Ultra Series Fund and manages its assets in accordance with
general policies and guidelines established by the trustees of the Ultra Series
Fund.
The mutual funds described above are not available for purchase directly by the
general public, and are not the same as other mutual fund portfolios with very
similar or nearly identical names that are sold directly to the public. The
investment performance and results of the portfolios available under the policy
may be lower, or higher, than the investment results of such other (publicly
available) portfolios. There can be no assurance, and no representation is made,
that the investment results of any of the portfolios available under the policy
will be comparable to the investment results of any other mutual fund portfolio,
even if the other portfolio has the same investment adviser or manager and the
same investment objectives and policies, and a very similar name.
Availability of Funds
The Variable Account purchases shares of the Ultra Series Fund in accordance
with a participation agreement. If the participation agreement terminates, the
Variable Account may not be able to purchase additional shares of the Fund(s)
covered by the agreement. Likewise, in certain circumstances, it is possible
that shares of a Fund may not be available to the Variable Account even if the
participation agreement relating to that Fund has not been terminated. In either
even, Owners will no longer be able to allocate purchase payments or transfer
Contract Value to the Subaccount investing in that Fund.
Voting Rights
Owners with Variable Contract Value are entitled to certain voting rights for
the Funds underlying the Subaccounts in which they are invested. The Company
will vote Fund shares attributable to Owners at special shareholder meetings
based on instructions from such Owners. However, if the law changes and the
Company is allowed to vote in its own right, it may elect to do so.
Owners with voting interests in a Fund will be notified of issues requiring the
shareholders' vote as soon as possible before the shareholder meeting.
Notification will contain proxy materials and a form with which to give the
Company voting instructions. The Company will vote shares for which no
instructions are received in the same proportion as those that are received.
Before the Payout Date, the number of shares which an Owner may vote is
determined by dividing the Subaccount Value by the net asset value of that Fund.
On or after the Payout Date, an Owner's voting interest, if any, is determined
by dividing the dollar value of the liability for future variable Income
Payments to be paid from the Subaccount by the net asset value of the Fund
underlying the Subaccount. The Company will designate a date for this
determination not more than 90 days before the shareholder meeting.
Material Conflicts
The Funds are offered through other separate accounts of the Company and
directly to employee benefit plans affiliated with the Company. The Company does
not anticipate any disadvantages to this. However, it is possible that a
conflict may arise between the interest of the variable account and one or more
of the other separate accounts in which these Funds participate.
Materials conflicts may occur due to a change in law affecting the operations of
variable life insurance policies and variable annuity contracts, or differences
in the voting instructions of the Owners and those of Owners of other types of
contacts issues by the Company. If a material conflict occurs, the Company will
take steps to protect Owners and variable annuity Payees, including withdrawal
of the Variable Account from participation in the Fund(s) involved in the
conflict.
Substitution of Securities
The Company may substitute, eliminate, or combine shares of another mutual fund
for shares already purchased or to be purchased in the future if either of the
following occurs:
1) shares of a current Fund are no longer available for investment; or
2) further investment in a Fund is inappropriate.
No substitution, elimination, or combination of shares may take place without
the prior approval of the SEC and state insurance departments.
<PAGE>
DESCRIPTION OF THE CONTRACT
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Issuance of a Contract
In order to purchase a Contract, application must be made through a
representative of CUNA Brokerage Services, Inc. ("CUNA Brokerage"). Contracts
may be sold to or in connection with retirement plans that do not qualify for
special tax treatment as well as retirement plans that qualify for special tax
treatment under the Code. Neither the Owner nor the Annuitant may be older than
age 85 (78 in Pennsylvania) on the Contract Issue Date.
Right to Examine
Owners have a ten day period to examine the contract. The contract may be
returned to the Home Office for any reason within ten days of receipt and the
Company will refund the Contract Value or another amount required by law. The
refunded Contract Value will reflect the deduction of any contract charges,
unless otherwise required by law. State and/or federal law may provide
additional return privileges.
Liability of the Variable Account under this provision is limited to the
Contract Value in each Subaccount on the date of revocation. Any additional
amounts refunded to the Owner will be paid by the Company.
Purchase Payments
Generally, the minimum amount required to purchase a Contract is $25,000.
The minimum size for a subsequent purchase payment is $100, unless the payment
is made through an automatic purchase payment plan in which case the minimum
size is $25. Purchase payments may be made at any time during the Annuitant's
lifetime and before the Payout Date. Additional purchase payments after the
initial purchase payment are not required.
The Company reserves the right not to accept: (1) purchase payments received
after the Contract Anniversary following the Annuitant's 85th birthday (78th
birthday in Pennsylvania), (2) purchase payments of less than $100, and (3)
purchase payments in excess of $1 million.
Allocation of Purchase Payments
The Company allocates purchase payments to Subaccounts as instructed by the
Owner. An allocation to a Subaccount must be for at least 1% of a purchase
payment and be in whole percentages. If the application for a Contract is
properly completed and is accompanied by all the information necessary to
process it, including payment of the initial purchase payment, the initial Net
Purchase Payment will be allocated to one or more of the Subaccounts within two
Valuation Days of receipt by the Company. If the application is not properly
completed, the Company reserves the right to retain the purchase payment for up
to five Valuation Days while it attempts to complete the application. If the
application is not complete at the end of the 5-day period, the Company will
inform the applicant of the reason for the delay and the initial purchase
payment will be returned immediately, unless the applicant specifically consents
to the Company retaining the purchase payment until the application is complete.
Once the application is complete, the initial Net Purchase Payment will be
allocated as designated by the Owner within two Valuation Days.
Contract Value
The Contract Value is the sum of Variable Contract Value, and the Loan Account.
Determining the Variable Contract Value. The Variable Contract Value is
determined at the end of each Valuation Period and reflects the investment
experience of the selected Subaccounts, after applicable charges. The value will
be the total of the values attributable to the Contract in each of the
Subaccounts (i.e., Subaccount Value). The Subaccount Values are determined by
multiplying that Subaccount's Accumulation Unit value by the number of
Accumulation Units.
Determination of Number of Accumulation Units. Any Subaccount is converted into
Accumulation Units of that Subaccount. The number of Accumulation Units is
determined by dividing the dollar amount being allocated or transferred to a
Subaccount by the Accumulation Unit value for that Subaccount. The number of
Accumulation Units is increased by additional purchase payments or allocations.
The number of Accumulation Units does not change as a result of investment
experience.
Any Contract Value transferred, surrendered or deducted from a Subaccount is
processed by canceling or liquidating Accumulation Units. The number of
Accumulation Units canceled is determined by dividing the dollar amount being
removed from a Subaccount by the Accumulation Unit value.
Determination of Accumulation Unit Value. The Accumulation Unit value for a
Subaccount is calculated for each Valuation Period by subtracting (2) from (1)
and dividing the result by (3), where:
(1) Is:
(a) the net assets of the Subaccount as of the end of the Valuation
Period;
(b) plus or minus the net charge or credit with respect to any taxes
paid or any amount set aside as a provision for taxes during the
Valuation Period.
(2) The daily charge for mortality and expense risks and for
administration multiplied by the number of days in the Valuation
Period.
(3) The number of Accumulation Units outstanding as of the end of the
Valuation Period.
The value of an Accumulation Unit may increase or decrease as a result of
investment experience.
Transfer Privileges
General. Before the Payout Date, the Owner may make transfers between the
Subaccounts as described below.
Amounts transferred to a Subaccount will receive the Accumulation Unit value
next determined after the transfer request is received.
Subject to the above, there is currently no limit on the number of transfers
that can be made among or between Subaccounts.
Transfers may be made by Written Request or by telephone.
The Company will send a written confirmation of all transfers made pursuant to
telephone instructions. The Company will use reasonable procedures to confirm
that telephone instructions are genuine and will not be liable for following
telephone instructions that are reasonably determined to be genuine.
The Company may modify or terminate the transfer privileges at any time for any
reason.
Dollar-Cost Averaging. Dollar Cost Averaging is a long-term transfer program
that allows you to make regular (monthly, quarterly, semi-annual or annual)
level investments over time. The level investments will purchase more
Accumulation Units when their value is lower and fewer units when their value is
higher. Over time, the cost per unit averages out to be less than if all
purchases had been made at the highest value and greater than if all purchases
had been made at the lowest value. If continued over an extended period of time,
the dollar-cost averaging method of investment reduces the risk of making
purchases only when the price of Accumulation Units is high. It does not
guarantee a profit or protect against a loss.
Dollar Cost Averaging (DCA) Transfers. An Owner may choose to systematically or
automatically transfer (on a monthly, quarterly, semi-annual or annual basis) a
specified dollar amount from the Money Market Subaccount to one or more
Subaccounts.
Portfolio Rebalancing. An Owner may instruct the Company to automatically
transfer (on a monthly, quarterly, semi-annual or annual basis) Variable
Contract Value between and among specified Subaccounts in order to achieve a
particular percentage allocation of Variable Contract Value among the
Subaccounts. Owners may start and stop automatic Variable Contract Value
rebalancing at any time and may specify any percentage allocation of Contract
Value between or among as many Subaccounts as are available at the time the
rebalancing is elected. (If an Owner elects automatic Variable Contract Value
rebalancing without specifying such percentage allocation(s), the Company will
allocate Variable Contract Value in accordance with the Owner's currently
effective purchase payment allocation schedule.) If the Owner does not specify a
frequency for rebalancing, we will rebalance quarterly.
Other Types of Automatic Transfers. An Owner may also choose to systematically
or automatically transfer (on a monthly, quarterly, semi-annual or annual basis)
Variable Contract Value from one Subaccount to another. Such automatic transfers
may be: (1) a specified dollar amount, (2) a specified number of Accumulation
Units, (3) a specified percent of Variable Contract Value in a particular
Subaccount, or (4) in an amount equal to the excess of a specified amount of
Variable Contract Value in a particular Subaccount.
The minimum DCA or automatic transfer amount is the equivalent of $100 per
month. If less than $100 remains in the Subaccount from which transfers are
being made, the entire amount will be transferred. The amount transferred to a
Subaccount must be at least 1% of the amount transferred and must be stated in
whole percentages. Once elected, automatic transfers remain in effect until the
earliest of: (1) the Variable Contract Value in the Subaccount from which
transfers are being made is depleted to zero; (2) the Owner cancels the
election; or (3) for three successive months, the Variable Contract Value in the
Subaccount from which transfers are being made has been insufficient to
implement the automatic transfer instructions. The Company will notify the Owner
when automatic transfer instructions are no longer in effect. There is no
additional charge for using automatic transfers. The Company reserves the right
to stop the automatic transfer programs.
Surrenders (Redemption) and Partial Withdrawals
Surrender. At any time before the Payout Date, the Owner may surrender the
Contract and receive its Surrender Value. The Surrender Value will be paid in a
lump sum unless the Owner requests payment under an Income Payment Option.
Partial Withdrawals. At any time before the Payout Date, an Owner may make
withdrawals of the Surrender Value. There is no minimum amount which may be
withdrawn but the maximum amount is that which would leave the remaining
Surrender Value equal to $2,000. A partial withdrawal request that would reduce
the Surrender Value to less than $2,000 is treated as a request for a full
surrender of the Contract. The Company will withdraw the amount requested on the
Valuation Day the request is received.
The Owner may specify the amount of the partial withdrawal to be made from
Subaccounts. If the Owner does not so specify, or if the amount in the
designated Subaccounts not enough to comply with the request, the partial
withdrawal will be made proportionately from the accounts.
Systematic Withdrawals. An Owner may elect to receive periodic partial
withdrawals under the Company's systematic withdrawal plan. Under the plan, the
Company will make partial withdrawals (on a monthly, quarterly, semi-annual or
annual basis) from designated Subaccounts. Such withdrawals must be at least
$100 each and may only be made from Variable Contract Value. Generally, Owners
must be at least age 59 1/2 to participate in the systematic withdrawal plan
unless they elect to receive substantially equal periodic payments.
The withdrawals may be: (1) a specified dollar amount, (2) a specified whole
number of Accumulation Units, (3) a specified whole percent of Variable Contract
Value in a particular Subaccount, (4) in an amount equal to the excess of a
specified amount of Variable Contract Value in a particular Subaccount, and (5)
in an amount equal to an Owner's required minimum distribution under the Code.
Participation in the systematic withdrawal plan will terminate on the earliest
of the following events: (1) the Variable Contract Value in a Subaccount from
which partial withdrawals are being made becomes zero, (2) a termination date
specified by the Owner is reached, or (3) the Owner requests that his or her
participation in the plan cease.
Restrictions on Distributions from Certain Types of Contracts. There are certain
restrictions on surrenders of and partial withdrawals from Contracts used as
funding vehicles for Code Section 403(b) retirement programs. Section 403(b)(11)
of the Code restricts the distribution under Section 403(b) annuity contracts
of: (i) elective contributions made in years beginning after December 31, 1988;
(ii) earnings on those contributions; and (iii) earnings in such years on
amounts held as of the last year beginning before January 1, 1989. Distributions
of those amounts may only occur upon the death of the employee, attainment of
age 59 1/2, separation from service, disability, or financial hardship. In
addition, income attributable to elective contributions may not be distributed
in the case of hardship.
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.
There are federal income tax consequences to surrenders and partial withdrawals.
Owners should consult with their tax adviser. The Company reserves the right to
stop offering the systematic withdrawal plan at any time.
Contract Loans
Owners of Contracts issued in connection with retirement programs meeting the
requirements of Section 403(b) of the Code (other than those programs subject to
Title 1 of the Employee Retirement Income Security Act of 1974) may borrow from
the Company using their Contracts as collateral. Loans are subject to the terms
of the Contract, the retirement program and the Code. Loans are described in
more detail in the SAI.
Death Benefit Before the Payout Date
Death of an Owner. If any Owner dies before the Payout Date, any surviving Owner
becomes the sole Owner. If there is no surviving Owner, the Annuitant becomes
the new Owner unless the deceased Owner was also the Annuitant. If the sole
deceased Owner was also the Annuitant, then the provisions relating to the death
of an Annuitant (described below) will govern unless the deceased Owner was one
of two joint Annuitants. In the latter event, the surviving Annuitant becomes
the Owner.
The following options are available to a sole surviving Owner or a new Owner:
(1) If the Owner is the spouse of the deceased Owner, he or she may
continue the Contract as the new Owner.
(2) If the Owner is not the spouse of the deceased Owner he or she may
elect, within 60 days of the date the Company receives Due Proof of
Death:
(a) to receive the Surrender Value in a single sum within 5 years of
the deceased Owner's death; or
(b) to apply the Surrender Value within 1 year of the deceased
Owner's death to one of the Income Payment Options provided that
payments under the option are payable over the new Owner's life
or over a period not greater than the new Owner's life
expectancy.
If he or she does not elect one of the above options, the Company will pay the
Surrender Value five years from the date of the deceased Owner's death.
Under any of these options, sole surviving Owners or new Owners may exercise all
Ownership rights and privileges from the date of the deceased Owner's death
until the date that the Surrender Value is paid.
Death of the Annuitant. If the Annuitant dies before the Payout Date, the
Company will pay the death benefit described below to the Beneficiary named by
the Owner in a lump sum. (Owners and Beneficiaries also may name successor
Beneficiaries.) If there is no surviving Beneficiary, the Company will pay the
death benefit to the Owner or the Owner's estate. In lieu of a lump sum payment,
the Beneficiary may elect, within 60 days of the date the Company receives due
proof of the Annuitant's death, to apply the death benefit to an Income Payment
Option.
If the Annuitant who is also an Owner dies, the provisions described immediately
above apply except that the Beneficiary may only apply the death benefit payment
to an Income Payment Option if:
(1) payments under the option begin within 1 year of the Annuitant's
death; and
(2) payments under the option are payable over the Beneficiary's life or
over a period not greater than the Beneficiary's life expectancy.
Basic Death Benefit. If the Annuitant is age 75 or younger on the Contract Issue
Date, the basic death benefit is an amount equal to the greater of:
(1) aggregate Net Purchase Payments made under the Contract less a
proportional adjustment for partial withdrawals as of the date the
Company receives Due Proof of Death of the deceased;
(2) Contract Value as of the date the Company receives Due Proof of Death;
or
For Contracts issued after the Annuitant's 76th birthday, the death benefit is
always equal to the Contract Value as of the date the Company receives due proof
of the Annuitant's death. The death benefit will be reduced by any outstanding
Loan Amount and any applicable Premium Expense Charges not previously deducted.
The contract also offers additional guaranteed death benefit choices as riders
to the contract. These additional choices enhance the death benefit and are
available at an additional charge. Please see the Riders section for more
details.
Proportional Adjustment for Partial Withdrawals
When calculating the death benefit amount, as described above, an adjustment is
made to aggregate Net Purchase Payments for partial withdrawals taken from the
contract. The proportional adjustment for partial withdrawals is calculated by
dividing (1) by (2) and multiplying the result by (3) where:
(1) Is the partial withdrawal amount;
(2) Is the Contract Value immediately prior to the partial withdrawal; and
(3) Is the sum of Net Purchase Payments immediately prior to the partial
withdrawal less any adjustment for prior partial withdrawals.
<PAGE>
MISCELLANEOUS MATTERS
================================================================================
Payments
Any surrender, partial withdrawal, Contract loan or death benefit usually will
be paid within seven days of receipt of a Written Request, any information or
documentation reasonably necessary to process the request, and (in the case of a
death benefit) receipt and filing of Due Proof of Death. However, payments may
be postponed if:
(1) the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on the exchange is restricted as
determined by the SEC; or
(2) the SEC permits the postponement for the protection of Owners; or
(3) the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the
determination of the value of the Variable Account's net assets not
reasonably practicable.
If a recent check or draft has been submitted, the Company has the right to
delay payment until it has assured itself that the check or draft has been
honored.
Modification
Upon notice to the Owner, the Company may modify the Contract:
(1) to permit the Contract or the Variable Account to comply with any
applicable law or regulation issued by a government agency; or
(2) to assure continued qualification of the Contract under the Code or other
federal or state laws relating to retirement annuities or variable annuity
contracts; or
(3) to reflect a change in the operation of the Variable Account; or
(4) to provide for the addition or substitution of investment options.
(5) to combine the Variable Account with any of our other separate accounts; or
(6) to eliminate or combine any Subaccounts and transfer the assets of any
Subaccount to any other Subaccount; or
(7) to add new Subaccounts and make such Subaccounts available to any class of
contracts as we deem appropriate; or
(8) to substitute a different Fund for any existing Fund, if shares or units of
a Fund are no longer available for investment or if we determine that
investment in a Fund is no longer appropriate; or
(9) to deregister the Variable Account under the 1940 Act if such registration
is no longer required; or
(10) to operate the Variable Account as a management investment company under
the 1940 Act (including managing the Variable Account under the direction
of a committee) or in any other form permitted by law; or
(11) to restrict or eliminate any voting rights of Owners or other persons
having such rights as to the Variable Account; or
(12) to make any other changes to the Variable Account or its operations as may
be required by the 1940 Act or other applicable law or regulation.
In the event of most such modifications, the Company will make appropriate
endorsement to the Contract.
Reports to Owners
At least annually, the Company will mail to each Owner, at such Owner's last
known address of record, a report setting forth the Contract Value (including
the Contract Value in each Subaccount ) of the Contract, purchase payments paid
and charges deducted since the last report, partial withdrawals made since the
last report and any further information required by any applicable law or
regulation.
Inquiries
Inquiries regarding a Contract may be made in writing to the Company at its Home
Office.
<PAGE>
INCOME PAYMENT OPTIONS
================================================================================
Payout Date and Proceeds
The Owner selects the Payout Date. For Non-Qualified Contracts, the Payout Date
may not be after the later of the Contract Anniversary following the Annuitant's
85th birthday or 10 years after the Contract Issue Date. For Qualified
Contracts, the Payout Date must be no later than the Annuitant's age 70 1/2 or
any other date meeting the requirements of the Code.
The Owner may change the Payout Date subject to the following limitations: (1)
the Owner's Written Request must be received at the Home Office at least 30 days
before the current Payout Date, and (2) the requested Payout Date must be a date
that is at least 30 days after receipt of the Written Request.
On the Payout Date, the Payout Proceeds will be applied under the life Income
Payment Option with ten years guaranteed, unless the Owner elects to have the
proceeds paid under another payment option or to receive the Surrender Value in
a lump sum. Unless the Owner instructs the Company otherwise, amounts in the
Variable Account will be used to provide a variable Income Payment Option.
The Payout Proceeds equal the Contract Value:
(1) minus the pro-rated portion of the annual Contract fee or rider
charges (unless the Payout Date falls on the Contract Anniversary);
(2) minus any applicable Loan Amount; and
(3) minus any applicable Premium Expense Charges not yet deducted.
Election of Income Payment Options
On the Payout Date, the Payout Proceeds will be applied under an Income Payment
Option, unless the Owner elects to receive the Surrender Value in a single sum.
If an election of an Income Payment Option is not on file at the Home Office on
the Payout Date, the proceeds will be paid as life income with payments for ten
years guaranteed. An Income Payment Option may be elected, revoked, or changed
by the Owner at any time before the Payout Date while the Annuitant is living.
The election of an option and any revocation or change must be made by Written
Request. The Owner may elect to apply any portion of the Payout Proceeds to
provide either variable Income Payments or fixed Income Payments or a
combination of both.
The Company reserves the right to refuse the election of an Income Payment
Option other than paying the Payout Proceeds in a lump sum if the total amount
applied to an Income Payment Option would be less than $2,500, or each Income
Payment would be less than $20.00.
Fixed Income Payments
Fixed Income Payments are periodic payments from the Company to the designated
Payee, the amount of which is fixed and guaranteed by the Company. The amount of
each payment depends only on the form and duration of the Income Payment Option
chosen, the age of the Annuitant, the gender of the Annuitant (if applicable),
the amount applied to purchase the Income Payments and the applicable income
purchase rates in the Contract. The income purchase rates in the Contract are
based on a minimum guaranteed interest rate of 3.5%. The Company may, in its
sole discretion, make Income Payments in an amount based on a higher interest
rate.
Variable Income Payments
The dollar amount of the first variable Income Payment is determined in the same
manner as that of a fixed Income Payment. Variable Income Payments after the
first payment are similar to fixed Income Payments except that the amount of
each payment varies to reflect the net investment performance of the
Subaccount(s) selected by the Owner or Payee.
The net investment performance of a Subaccount is translated into a variation in
the amount of variable Income Payments through the use of Income Units. The
amount of the first variable Income Payment associated with each Subaccount is
applied to purchase Income Units at the Income Unit value for the Subaccount as
of the Payout Date. The number of Income Units of each Subaccount attributable
to a Contract then remains fixed unless an exchange of Income Units is made as
described below. Each Subaccount has a separate Income Unit value that changes
with each Valuation Period in substantially the same manner as do Accumulation
Units of the Subaccount.
The dollar value of each variable Income Payment after the first is equal to the
sum of the amounts determined by multiplying the number of Income Units by the
Income Unit value for the Subaccount for the Valuation Period which ends
immediately preceding the date of each such payment. If the net investment
return of the Subaccount for a payment period is equal to the pro-rated portion
of the 3.5% annual assumed investment rate, the variable Income Payment for that
period will equal the payment for the prior period. To the extent that such net
investment return exceeds an annualized rate of 3.5% for a payment period, the
payment for that period will be greater than the payment for the prior period
and to the extent that such return for a period falls short of an annualized
rate of 3.5%, the payment for that period will be less than the payment for the
prior period.
After the Payout Date, a Payee may change the selected Subaccount(s) by Written
Request up to four times per Contract Year. Such a change will be made by
exchanging Income Units of one Subaccount for another on an equivalent dollar
value basis. See the Statement of Additional Information for examples of Income
Unit value calculations and variable Income Payment calculations.
Surrenders and partial withdrawals may be made after the Payout Date, when a
Variable Income Payment is chosed for a fixed period of time.
Description of Income Payment Options
Option 1 - Interest Option. (Fixed Income Payments Only) The proceeds are left
with the Company to earn interest at a compound annual rate to be determined by
the Company but not less than 3.5%. Interest will be paid every month or every
12 months as the Owner or Payee selects. Under this option, the Payee may
withdraw part or all of the proceeds at any time. This option may not be
available in all states.
Option 2 - Installment Option. The proceeds are paid out in monthly installments
for a fixed number of years between 5 and 30. In the event of the Payee's death,
a successor Payee may receive the payments or may elect to receive the present
value of the remaining payments (computed as described in the Contract) in a
lump sum. If there is no successor Payee or if the successor Payee dies, the
present value of the remaining payments will be paid to the estate of the last
surviving Payee.
If variable Income Payments are elected under Option 2, the Payee may elect to
receive the commuted value of any remaining payments in a lump sum. The commuted
value of the payments will be calculated as described in the contract.
Option 3A - Life Income Guaranteed Period Certain. The proceeds are paid in
monthly installments during the Payee's lifetime with the guarantee that
payments will be made for a period of five, ten, fifteen, or twenty years. In
the event of the Payee's death before the expiration of the specified number of
years, a successor Payee may receive the remaining payments or may elect to
receive the present value of the remaining payments (computed as described in
the Contract) in a lump sum. If there is no successor Payee or if the successor
Payee dies, the present value of the remaining payments will be paid to the
estate of the last surviving Payee.
Option 3B - Life Income. The same as Option 3A except that payments are not
guaranteed for a specific number of years but only for the lifetime of the
Payee. Under this option, a Payee could receive only one payment if the Payee
dies after the first payment, two payments if the Payee dies after the second
payment, etc.
Option 4 - Joint and Survivor Life Income - 10 Year Guaranteed Period Certain.
The proceeds are paid out in monthly installments for as long as either of two
joint Annuitants remain alive. If after the second Annuitant dies, payments have
been made for fewer than 10 years, payments will be made to any successor Payee
who was not a joint Annuitant or such successor Payee may elect to receive the
present value of the remaining payments (computed as described in the Contract)
in a lump sum. If there is no such successor Payee or if the successor Payee
dies, the present value of the remaining payments will be paid to the estate of
the last surviving Payee.
The minimum amount of each fixed payment and the initial payment amount for
variable income payout options will be determined from the tables in the
Contract that apply to the particular option using the Payee's age (and if
applicable, gender). Age will be determined from the last birthday at the due
date of the first payment.
Alternate Payment Option. In lieu of one of the above options, the Payout
Proceeds or death benefit, as applicable, may be applied to any other payment
option made available by the Company or requested and agreed to by the Company.
Death Benefit After the Payout Date
If an Owner dies after the Payout Date, any surviving Owner becomes the sole
Owner. If there is no surviving Owner, the Payee receiving Income Payments
becomes the new Owner. Such Owners will have the rights of Owners during the
annuity period, including the right to name successor Payees if the deceased
Owner had not previously done so. The death of an Annuitant after the Payout
Date will have the effect stated in the Income Payment Option pursuant to which
Income Payments are being made.
<PAGE>
CHARGES AND DEDUCTIONS
================================================================================
Mortality and Expense Risk Charges
The Company deducts a mortality and expense risk charge from the Variable
Account. The charges are computed on a daily basis, and are equal to an annual
rate of 1.15% of the average daily net assets of the Variable Account.
The mortality risk the Company assumes is that Annuitants may live for a longer
period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the Income Payments received. The mortality
risk that the Company assumes also includes a guarantee to pay a death benefit
if the Annuitant dies before the Payout Date. The expense risk that the Company
assumes is the risk that the administrative fees and transfer fees (if imposed)
may be insufficient to cover actual future expenses.
The Company may use any profits from this charge to finance other expenses,
including expenses incurred in the administration of the Contracts and
distribution expenses related to the Contracts.
Fund Expenses
Because the Variable Account purchases shares of the Funds, the net assets of
the Variable Account will reflect the investment management fees and other
operating expenses incurred by such Funds.
Annual Contract Fee
On each Contract Anniversary before the Payout Date, the Company deducts an
annual Contract fee of $30 to pay for administrative expenses. The fee is
deducted from each Subaccount based on a proportional basis. The annual Contract
fee also is deducted upon surrender of a Contract on a date other than a
Contract Anniversary. A pro-rated portion of the fee is deducted upon
application to an income payment option. After the Payout Date, the annual
Contract fee is deducted from variable Income Payments. The Company does not
deduct the annual Contract fee on Contracts with a Contract Value of $25,000 or
more on the Contract Anniversary. The Contract fee will not be charged after the
Payout Date when a Contract with a Contract Value of $25,000 or more has been
applied to a payout option.
Transfer Processing Fee
Currently no fee is charged for transfers. However, the Company reserves the
right to charge $10 for the 13th transfer and each additional transfer during a
Contract Year. The transfer charge is not applicable to transfers from the DCA
Fixed Period. Each written request is considered to be one transfer, regardless
of the number of Subaccounts or Fixed Amounts affected by the transfer. The
transfer fee is deducted from the account from which the transfer is made. If a
transfer is made from more than one account at the same time, the transfer fee
is deducted pro-rata from the account. Automatic transfers, including Dollar
Cost Averaging, do not count against the twelve free transfers.
Lost Contract Request
You can obtain a certification of your contract at no charge. There will be a
$30 charge for a duplicate contract.
Premium Taxes
Various states and other governmental entities levy a premium tax on annuity
contracts issued by insurance companies. Premium tax rates currently range from
0% to 3.5%. This range is subject to change. If premium taxes are applicable to
a Contract, the jurisdiction may require payment (a) from purchase payments as
they are received, (b) from Contract Value upon withdrawal or surrender, (c)
from Payout Proceeds upon application to an Income Payment Option, or (d) upon
payment of a death benefit. The Company will forward payment to the taxing
jurisdiction when required by law. Although the Company reserves the right to
deduct premium taxes at the time such taxes are paid to the taxing authority,
currently the Company does not deduct premium tax from the Owner's Contract
Value until the Contract is annuitized.
Other Taxes
Currently, no charge is made against the Variable Account for any federal, state
or local taxes (other than premium taxes) that the Company incurs or that may be
attributable to the Variable Account or the Contracts. The Company may, however,
make such a charge in the future from Surrender Value, death benefits or Income
Payments, as appropriate.
<PAGE>
RIDERS AND ENDORSEMENTS
================================================================================
Maximum Anniversary Value Death Benefit
This rider provides a minimum death benefit equal to the maximum anniversary
value less any Loans Amount and Premium Expense Charges not previously deducted.
On the issue date, the maximum anniversary value is equal to the initial Net
Purchase Payment. After the issue date, the maximum anniversary value will be
calculated on three different dates:
(1) the date an additional purchase payment is received by the company,
(2) the date of payment of a partial withdrawal, and
(3) on each Contract Anniversary.
When a purchase payment is received, the maximum anniversary value is equal to
the most recently calculated maximum anniversary value plus the Net Purchase
Payment. When a partial withdrawal is paid, the maximum anniversary value is
equal to the most recently calculated maximum anniversary value less an
adjustment for the partial withdrawal. The adjustment for each partial
withdrawal is (1) divided by (2) with the result multiplied by (3) where:
(1) is the partial withdrawal amount;
(2) is the Contract Value immediately prior to the partial withdrawal; and
(3) is the most recently calculated maximum anniversary value less any
adjustments for prior partial withdrawals.
This rider is available for Annuitant's age 75 or less on the issue date. This
rider may not be available in all states.
5% Annual Guarantee Death Benefit
This rider provides a minimum death benefit equal to the 5% annual guarantee
death benefit less any Loan Amount and Premium Expense Charges not previously
deducted. On the Issue Date the 5% annual guarantee value is equal to the
initial Net Purchase Payment. Thereafter, the 5% annual guarantee value on each
Contract Anniversary is the lessor of:
(1) the sum of all Net Purchase Payments received minus an adjustment for
partial withdrawals plus interest compounded at a 5% annual effective rate;
or
(2) 200% of all Net Purchase Payments received.
The adjustment for each partial withdrawal is equal to (1) divided by (2) with
the result multiplied by (3) where:
(1) is the partial withdrawal amount;
(2) is the Contract Value immediately prior to the withdrawal; and (3) is the
5% annual guarantee death benefit immediately prior to the withdrawal, less
any adjustments for earlier withdrawals.
This rider is available for Annuitant's age 75 or less on the issue date. This
rider may not be available in all states.
Enhanced Death Benefit Rider Charges
Each death benefit rider will carry an annual charge of 0.15% of Contract Value.
This charge will be assessed on each Contract Anniversary . The charge will be
based on the average Contract Value for the previous 12 months. The charge will
be deducted from the Subaccounts pro-rata. A pro-rata portion of this charge
will be deducted upon contract surrender if the contract is surrendered on a
date other than the Contract Anniversary.
<PAGE>
ADVERTISING AND SUBACCOUNT PERFORMANCE SUMMARY
================================================================================
From time to time, the Company may advertise or include in sales literature
yields, effective yields and total returns for the Subaccounts. These figures
are based on historical earnings and do not indicate or project future
performance. The Company also may, from time to time, advertise or include in
sales literature Subaccount performance relative to certain performance rankings
and indices compiled by independent organizations. More detailed information as
to the calculation of performance appears in the Statement of Additional
Information.
Effective yields and total returns for the Subaccounts are based on the
investment performance of the corresponding Fund. The performance of a Fund in
part reflects its expenses. See the prospectuses for the Funds.
The yield of the Money Market Subaccount refers to the annualized income
generated by an investment in the Subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in the Subaccount is assumed
to be reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
The yield of a Subaccount (except the Money Market Subaccount) refers to the
annualized income generated by an investment in the Subaccount over a specified
30-day or one-month period. The yield is calculated by assuming that the income
generated by the investment during that 30-day or one-month period is generated
each month over a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount refers to return quotations assuming an
investment under a Contract has been held in the Subaccount for various periods
of time. For periods prior to the date the Variable Account commenced
operations, non-standard performance information will be calculated based on the
performance of the various Funds and the assumption that the Subaccounts were in
existence for the same periods as those indicated for the Funds, with the level
of Contract charges that were in effect at the inception of the Subaccounts for
the Contracts. When a Subaccount has been in operation for one, five, and ten
years, respectively, the total standard returns for these periods will be
provided.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average annual 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 (excluding any deductions for
premium taxes).
In addition to the standard version described above, total return performance
information computed on two different non-standard bases may be used in
advertisements or sales literature. Average annual total return information may
be presented, computed on the same basis as described above. In addition, the
Company may from time to time disclose cumulative total returns for Contracts
funded by Subaccounts.
From time to time, yields, standard average annual total returns, and
non-standard total returns for the Funds may be disclosed, including such
disclosures for periods prior to the date the Variable Account commenced
operations.
Non-standard performance data will only be disclosed if the standard performance
data for the required periods is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the
Statement of Additional Information.
In advertising and sales literature, the performance of each Subaccount may be
compared with the performance of other variable annuity issuers in general or to
the performance of particular types of variable annuities investing in mutual
funds, or investment portfolios of mutual funds with investment objectives
similar to the Subaccount. Lipper Analytical Services, Inc. ("Lipper"), Variable
Annuity Research Data Service ("VARDS") and Morningstar, Inc. ("Morningstar")
are independent services which monitor and rank the performance of variable
annuity issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS's rankings compare variable life and
variable universal life issuers. The performance analyses prepared by Lipper,
VARDS and Morningstar each rank such issuers on the basis of total return,
assuming reinvestment of distributions, but do not take sales charges,
redemption fees, or certain expense deductions at the separate account level
into consideration. In addition, VARDS prepares risk rankings, which consider
the effects of market risk on total return performance. This type of ranking
provides data as to which Funds provide the highest total return within various
categories of Funds defined by the degree of risk inherent in their investment
objectives.
Advertising and sales literature may also compare the performance of each
Subaccount to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for transaction costs or expenses
of operating and managing an investment portfolio. The Lehman Bond Indexes
represent unmanaged groups of securities of various issuers and terms to
maturity which are representative of bond market performance. The Consumer Price
Index is a statistical measure of changes in the prices of goods and services
over time published by the U.S. Bureau of Labor Statistics. Lipper Performance
Summary Averages represent the average annual total return of all the Funds
(within a specified investment category) that are covered by the Lipper
Analytical Services Variable Insurance Products Performance Analysis Service.
Other independent ranking services and indices may also be used for performance
comparisons.
The Company may also report other information including the effect of
tax-deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts. All income and
capital gains derived from Subaccount investments are reinvested on a
tax-deferred basis which can lead to substantial long-term accumulation of
assets, provided that the Subaccount investment experience is positive.
<PAGE>
FEDERAL TAX MATTERS
================================================================================
The Following Discussion is General and Is Not Intended as Tax Advice
Introduction
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about specific tax
implications should consult a competent tax adviser before making a transaction.
This discussion is based upon the Company's understanding of the present federal
income tax laws, as they are currently interpreted by the Internal Revenue
Service ("IRS"). No representation is made as to the likelihood of the
continuation of the present federal income tax laws or of the current
interpretation by the IRS. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
The Contract may be purchased on a non-qualified basis or purchased and used in
connection with plans qualifying for favorable tax treatment. The Qualified
Contract is designed for use by individuals whose purchase 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, 408A or 457 of the Code. The ultimate effect
of federal income taxes on the amounts held under a Contract, or Income
Payments, and on the economic benefit to the Owner, the Annuitant, or the
Beneficiary depends on the type of retirement plan, on the tax and employment
status of the individual concerned, and on the Company's tax status. In
addition, certain requirements must be satisfied in purchasing a Qualified
Contract with proceeds from a tax-qualified plan and receiving distributions
from a Qualified Contract in order to continue receiving favorable tax
treatment. Therefore, purchasers of Qualified Contracts should seek competent
legal and tax advice regarding the suitability of a Contract for their
situation, the applicable requirements, and the tax treatment of the rights and
benefits of a Contract. The following discussion assumes that Qualified
Contracts are purchased with proceeds from and/or contributions under retirement
plans that qualify for the intended special federal income tax treatment.
Tax Status of the Contract
Diversification Requirements. Section 817(h) of the Code provides that separate
account investment underlying a contract must be "adequately diversified" in
accordance with Treasury regulations in order for the contract to qualify as an
annuity contract under Section 72 of the Code. The Variable Account, through
each underlying Fund, intends to comply with the diversification requirements
prescribed in regulations under Section 817(h) of the Code, which affect how the
assets in the various Subaccounts may be invested. Although the Company does not
have direct control over the Funds in which the Variable Account invests, we
believe that each Fund in which the Variable Account owns shares will meet the
diversification requirements, and therefore, the Contract will be treated as an
annuity contract under the Code.
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 Owner's gross income. The IRS has stated in published rulings
that a variable Owner will be considered the Owner of separate account assets if
the Owner possesses incidents of ownership in those assets, such as the ability
to exercise investment control over the assets. The Treasury Department has 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 Owner), rather than the insurance
company, to be treated as the Owner of the assets in the account." This
announcement also states that guidance would be issued by way of regulations or
rulings on the "extent to which policyholders may direct their investments to
particular Subaccounts without being treated as Owners of the underlying
assets."
The ownership rights under the Contracts are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that Owners were not Owners of separate account assets. For example,
the Owner of a Contract has the choice of one or more Subaccounts in which to
allocate Net Purchase Payments and Contract Values, and may be able to transfer
among Subaccounts more frequently than in such rulings. These differences could
result in an Owner being treated as the Owner of the assets of the Variable
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 Owner from being considered
the Owner of the assets of the Variable Account.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires any
Non-Qualified Contract to provide that: (a) if any Owner dies on or after the
Payout Date but prior to the time the entire interest in the contract has been
distributed, the remaining portion of such interest will be distributed at least
as rapidly as under the method of distribution being used as of the date of that
Owner's death; and (b) if any Owner dies prior to the Payout Date, the entire
interest in the contract will be distributed within five years after the date of
the Owner's death. These requirements will be considered satisfied as to any
portion of the Owner's interest which is payable to or for the benefit of a
"designated Beneficiary" and which is distributed over the life of such
Annuitant or over a period not extending beyond the life expectancy of that
Annuitant, 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 an Annuitant and to whom ownership of the contract passes by
reason of death and must be a natural person. However, if the Owner's
"designated Annuitant" is the surviving spouse of the Owner, the contract may be
continued with the surviving spouse as the new Owner.
The Non-Qualified Contracts contain provisions which are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise.
Other rules may apply to Qualified Contracts.
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 by withdrawing all or part
of the Contract Value (e.g., partial withdrawals and surrenders) or as Income
Payments under the payment option elected. For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the Contract 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.
Any annuity Owner who is not a natural person generally must include in income
any increase in the excess of the Contract Value over the "investment in the
contract" during the taxable year. There are some exceptions to this rule, and a
prospective Owner that is not a natural person may wish to discuss these with a
competent tax adviser.
The following discussion generally applies to Contracts owned by natural
persons.
Partial Withdrawals. In the case of a partial withdrawal from a Qualified
Contract, under Section 72(e) of the Code, a ratable portion of the amount
received is taxable, generally based on the ratio of the "investment in the
contract" to the participant's total accrued benefit or balance under the
retirement plan. The "investment in the contract" generally equals the portion,
if any, of any purchase payments paid by or on behalf of the individual under a
Contract which were not excluded from the individual's gross income. For
Contracts issued in connection with qualified plans, the "investment in the
contract" can be zero. Special tax rules may be available for certain
distributions from Qualified Contracts.
In the case of a partial withdrawal (including systematic withdrawals) from a
Non-Qualified Contract, under Section 72(e), any amounts received are generally
first treated as taxable income to the extent that the Contract Value
immediately before the partial withdrawal exceeds the "investment in the
contract" at that time. Any additional amount withdrawn is not taxable. With
respect to a Non-Qualified Contract, partial withdrawals are generally treated
as taxable income to the extent that the Contract Value immediately before the
withdrawal exceeds the "investment in the contract" at that time.
In the case of a full surrender under a Qualified or Non-Qualified Contract, the
amount received generally will be taxable only to the extent it exceeds the
"investment in the contract."
Section 1035 of the Code generally provides that no gain or loss shall be
recognized on the exchange of one annuity contract for another. Special rules
and procedures apply to Section 1035 transactions. Prospective Owners wishing to
take advantage of Section 1035 should consult their tax adviser.
Income Payments. Tax consequences may vary depending on the payment option
elected under an annuity contract. Generally, under Code Section 72(b), (prior
to recovery of the investment in the Contract) taxable income does not include
that part of any amount received as an annuity under an annuity contract that
bears the same ratio to such amount as the investment in the contract bears to
the expected return at the annuity starting date. For variable Income Payments,
the taxable portion is generally determined by an equation that establishes a
specific dollar amount of each payment that is not taxed. The dollar amount is
determined by dividing the "investment in the contract" by the total number of
expected periodic payments. However, the entire distribution will be taxable
once the recipient has recovered the dollar amount of his or her "investment in
the contract." For fixed Income Payments, in general, there is no tax on the
portion of each payment which represents the same ratio that the "investment in
the contract" bears to the total expected value of the Income Payments for the
term of the payments; however, the remainder of each Income Payment is taxable
until the recovery of the investment in the contract, and thereafter the full
amount of each Income Payment is taxable. If death occurs before full recovery
of the investment in the contract, the unrecovered amount may be deducted on the
Annuitant's final tax return.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a Contract
because of the death of the Owner or Annuitant. Generally, such amounts are
includable in the income of the recipient as follows: (i) if distributed in a
lump sum, they are taxed in the same manner as a full surrender of the contract
or (ii) if distributed under a payment option, they are taxed in the same way as
Income Payments.
Penalty Tax on Certain Withdrawals. In the case of a distribution pursuant to a
Non-Qualified Contract, there may be imposed a federal penalty tax equal to 10%
of the amount treated as taxable income. In general, however, there is no
penalty on distributions:
(1) made on or after the taxpayer reaches age 59 1/2;
(2) made on or after the death of the holder (or if the holder is not an
individual, the death of the primary Annuitant);
(3) attributable to the taxpayer's becoming disabled;
(4) as part of a series of substantially equal periodic payments not less
frequently than annually for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the
taxpayer and the designated Beneficiary;
(5) made under certain annuities issued in connection with structured
settlement agreements; and
(6) made under an annuity contract that is purchased with a single
purchase payment when the Payout 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 Income Payment
period.
Other tax penalties may apply to certain distributions under a Qualified
Contract.
Possible Changes in Taxation. Although the likelihood of legislative change is
uncertain, there is always the possibility that the tax treatment of the
Contracts could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted, would
adversely modify the federal taxation of the Contracts. It is also possible that
any change could be retroactive (that is, effective prior to the date of the
change). A tax adviser should be consulted with respect to legislative
developments and their effect on the Contract.
Transfers, Assignments or Exchanges of a Contract
A transfer of ownership of a Contract, the designation of an Annuitant, Payee or
other Beneficiary who is not also the Owner, the selection of certain Payout
Dates or the exchange of a Contract may result in certain tax consequences to
the Owner that are not discussed herein. An Owner contemplating any such actions
should contact a competent tax adviser with respect to the potential tax
effects.
Withholding
Distributions from Contracts generally are subject to withholding for the
Owner's federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status. The Owner will be provided
the opportunity to elect to not have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans and section 403(b)
tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An eligible rollover distribution is the taxable portion of
any distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the Owner chooses a "direct
rollover" from the plan to another tax-qualified plan or IRA.
Multiple Contracts
All non-qualified deferred annuity Contracts 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 includable in gross
income under Section 72(e). In addition, the Treasury Department has specific
authority to issue regulations that prevent the avoidance of Section 72(e)
through the serial purchase of annuity contracts or otherwise. There may also be
other situations in which the Treasury may conclude that it would be appropriate
to aggregate two or more annuity Contracts purchased by the same Owner.
Accordingly, an Owner should consult a competent tax adviser before purchasing
more than one annuity Contract.
Taxation of Qualified Plans
The Contracts are designed for use with several types of qualified plans. The
tax rules applicable to participants in these qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Therefore, no
attempt is made to provide more than general information about the use of the
Contracts with the various types of qualified retirement plans. 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 the Company's Contract
administration procedures. Brief descriptions follow of the various types of
qualified retirement plans in connection with a Contract. The Company will amend
the Contract as necessary to conform it to the requirements of such plans.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the Owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent Owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year following the calendar year in which the Owner (or plan
participant) reaches age 70 1/2. For IRAs described in Section 408,
distributions generally must commence no later than the later of April 1 of the
calendar year following the calendar year in which the Owner (or plan
participant) reaches age 70 1/2.
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 to
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.
The Contract includes a Death Benefit that in some cases may exceed the greater
of the purchase payments or the Contract Value. The Death Benefit could be
characterized as an incidental benefit, the amount of which is limited in any
pension or profit-sharing plan. Because the Death Benefit may exceed this
limitation, employers using the Contract in connection with such plans should
consult their tax adviser.
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." IRA contributions are limited each
year to the lesser of $2,000 or 100% of the Owner's adjusted gross income and
may be deductible in whole or in part depending on the individual's income.
Distributions from certain other types of qualified plans, however, may be
"rolled over" on a tax-deferred basis into an IRA without regard to this limit.
Earnings in an IRA are not taxed while held in the IRA. All 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
also subject to a 10% penalty tax. Sales of the Contract for use with IRAs may
be subject to special requirements of the Internal Revenue Service. The Internal
Revenue Service has not reviewed the Contract for qualification as an IRA, and
has not addressed in a ruling of general applicability whether a death benefit
provision such as the provision in the Contract comports with IRA qualifications
requirements.
Roth IRAs. Effective January 1, 1998, Section 408A of the Code permits certain
eligible individuals to contribute to a Roth IRA. Contributions to a Roth IRA,
which are subject to certain limitations, are not deductible and must be made in
cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover
from or conversion of an IRA to a Roth IRA may be subject to tax and other
special rules may apply. You should consult a tax adviser before combining any
converted amounts with any other Roth IRA contributions, including any other
conversion amounts from other tax years. Distributions from a Roth IRA generally
are not taxed, except that, once aggregate distributions exceed contributions to
the Roth IRA, income tax and a 10% penalty tax may apply to distributions made
(1) before age 59 1/2 (subject to certain exceptions) or (2) during the five
taxable years starting with the year in which the first contribution is made to
the Roth IRA.
Simplified Employee Pension (SEP) IRAs. Employers may establish Simplified
Employee Pension (SEP) IRAs under Code section 408(k) 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.
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 purchase payments paid, within certain limits, on a Contract that
will provide an annuity for the employee's retirement. These purchase payments
may be subject to FICA (Social Security) taxes. Owners of certain Section 403(b)
annuities may receive Contract loans. Contract loans that satisfy certain
requirements with respect to Loan Amount and repayment are not treated as
taxable distributions. If these requirements are not satisfied, or if the
Contract terminates while a loan is outstanding, the loan balance will be
treated as a taxable distribution and may be subject to penalty tax, and the
treatment of the Contract under Section 403(b) may be adversely affected. Owners
should seek competent advice before requesting a Contract loan. The Contract
includes a Death Benefit that in some cases may exceed the greater of the
Purchase Payments or the Contract Value. The Death Benefit could be
characterized as an incidental benefit, the amount of which is limited in any
tax-sheltered annuity under section 403(b). Because the Death Benefit may exceed
this limitation, employers using the Contract in connection with such plans
should consult their tax adviser.
Certain Deferred Compensation Plans. Code Section 457 provides for certain
deferred compensation plans. These plans may be offered with respect to service
for state governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax-exempt
organizations. These plans are subject to various restrictions on contributions
and distributions. The plans may permit participants to specify the form of
investment for their deferred compensation account. In general, all investments
are owned by the sponsoring employer and are subject to the claims of the
general creditors of the employer. Depending on the terms of the particular
plan, the employer may be entitled to draw on deferred amounts for purposes
unrelated to its Section 457 plan obligations. In general, all amounts
distributed under a Section 457 plan are taxable and are subject to federal
income tax withholding as wages.
Possible Charge for the Company's Taxes
At the present time, the Company makes no charge to the Subaccounts for any
Federal, state, or local taxes that the Company incurs which may be attributable
to such Subaccounts or the Contracts. The Company, however, reserves the right
in the future to make a charge for any such tax or other economic burden
resulting from the application of the tax laws that it determines to be properly
attributable to the Subaccounts or to the Contracts.
Other Tax Consequences
As noted above, the foregoing comments about the Federal tax consequences under
these Contracts are not exhaustive, and special rules are provided with respect
to other tax situations not discussed in this Prospectus. Further, the Federal
income tax consequences discussed herein reflect the Company's understanding of
current law and the law may change. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each Owner or
recipient of the distribution. A competent tax adviser should be consulted for
further information.
<PAGE>
LEGAL PROCEEDINGS
================================================================================
The Company and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving 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 not pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Separate Account or the Company.
FINANCIAL STATEMENTS
================================================================================
The audited financial statements of the Variable Annuity Account as of December
31, 1999, including a statement of assets and liabilities, a statement of
operations for the year then ended, a statement of changes in net assets for the
years ended December 31, 1999, 1998,and 1997, and accompanying notes, are
included in the Statement of Additional Information.
The statutory basis statements of admitted assets, liabilities, and surplus for
the Company as of December 31, 1999, and 1998,and 1997, and the related
statutory basis statements of operations, changes in unassigned surplus, and
cash flows for the years ended December 31, 1999, 1998, and 1997, as well as the
Independent Auditors' Report are contained in the Statement of Additional
Information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
================================================================================
TABLE OF CONTENTS
ADDITIONAL CONTRACT PROVISIONS........................1
The Contract.....................................1
Incontestability.................................1
Misstatement of Age or Gender....................1
Participation....................................1
Contract Loans...............................1
Loan Amounts.................................1
Loan Processing..............................1
Loan Interest................................2
PRINCIPAL UNDERWRITER.................................2
CALCULATION OF YIELDS AND TOTAL RETURNS...............2
Money Market Subaccount Yields...................2
Other Subaccount Yields..........................4
Average Annual Total Returns.....................5
Other Total Returns..............................5
Effect of the Annual Contract Fee on Performance
Data...........................................8
VARIABLE INCOME PAYMENTS..............................8
Assumed Investment Rate..........................8
Amount of Variable Income Payments...............8
Annuity Unit Value...............................8
LEGAL MATTERS........................................10
EXPERTS..............................................10
OTHER INFORMATION....................................11
FINANCIAL STATEMENTS.................................11
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT............
CUNA MUTUAL LIFE INSURANCE COMPANY...................
You may obtain a copy of the Statement of Additional Information free of charge
by writing to or calling us at the address or telephone number shown at the
beginning of this Prospectus.
<PAGE>
MEMBERS CHOICE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
CUNA Mutual Life Insurance Company
2000 Heritage Way
Waverly, Iowa 50677
(800) 798-5500
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Individual Flexible Premium Deferred Variable Annuity Contract
This Statement of Additional Information contains additional information to that
already provided in the Prospectus for the individual flexible premium deferred
variable annuity contract (the "Contract") offered by CUNA Mutual Life Insurance
Company (the "Company").
This Statement of Additional Information is not a Prospectus, and it should be
read only in conjunction with Prospectuses for the following:
1. Contract;
2. Ultra Series Fund
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.
October 25, 2000
<PAGE>
TABLE OF CONTENTS
ADDITIONAL CONTRACT PROVISIONS................................................1
The Contract.........................................................1
Incontestability.....................................................1
Misstatement of Age or Gender........................................1
Participation........................................................1
Contract Loans.......................................................1
Loan Amounts.........................................................1
Loan Processing......................................................1
Loan Interest........................................................2
PRINCIPAL UNDERWRITER.........................................................2
CALCULATION OF YIELDS AND TOTAL RETURNS.......................................2
Money Market Subaccount Yields.......................................2
Other Subaccount Yields..............................................4
Average Annual Total Returns.........................................6
Other Total Returns..................................................6
Effect of the Annual Contract Fee on Performance Data................6
VARIABLE INCOME PAYMENTS......................................................7
Assumed Investment Rate..............................................7
Amount of Variable Income Payments...................................7
Annuity Unit Value...................................................7
LEGAL MATTERS.................................................................9
EXPERTS.......................................................................9
OTHER INFORMATION............................................................10
FINANCIAL STATEMENTS.........................................................10
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT....................................11
CUNA MUTUAL LIFE INSURANCE COMPANY...........................................25
<PAGE>
ADDITIONAL CONTRACT PROVISIONS
The Contract
The application, endorsements and all other attached papers are part of the
Contract. The statements made in the application are representations and not
warranties. The Company will not use any statement in defense of a claim or to
void the Contract unless it is contained in the application.
Incontestability
The Company will not contest the Contract.
Misstatement of Age or Gender
If the age or gender (if applicable) of the Annuitant has been misstated, the
amount which will be paid is that which the proceeds would have purchased at the
correct age and sex (if applicable).
Participation
The Contract may participate in the Company's divisible surpluses but no
dividends are expected to be paid. Any dividends paid after the Annuity Date
would be paid with each income payment.
Contract Loans
Loan Amounts
Generally, Owners may borrow up to 90% of the Surrender Value of their Contract
unless a lower minimum is required by law. Loans in excess of the maximum amount
permitted under the Code may be treated as a taxable distribution rather than a
loan. The Company will only make Contract loans after approving a Written
Request by the Owner. The written consent of all irrevocable beneficiaries must
be obtained before a loan will be given.
Loan Processing
When a loan is made, the Company transfers an amount equal to the amount
borrowed from the Variable Contract Value to the Loan Account. The Loan Account
is part of the Company's General Account and Contract Value in the Loan Account
does not participate in the investment experience of any Subaccount. The Owner
must indicate in the loan application from which Subaccount and in what amounts,
Contract Value is to be transferred to the Loan Account. If no instructions are
given by the Owner, the transfer(s) are made pro-rata from all Subaccounts
having Variable Contract Value. Loans may be repaid by the Owner at any time
before the Payout Date. Upon the repayment of any portion of a loan, an amount
equal to the repayment will be transferred from the Loan Account to the
Subaccount(s) as requested by the Owner.
Loan Interest
The Company charges 6.5% interest on Contract loans. The Company pays interest
on the Contract Value in the Loan Account at rates it determines from time to
time, but never less than 3.0%. Consequently, the net cost of a loan is the
difference between 6.5% and the rate being paid on the Contract Value in the
Loan Account. Interest on Contract loans accrues on a daily basis from the date
of the loan and is due and payable at the end of each Contract Year. If the
Owner does not pay the interest due at that time, an amount equal to such
interest less interest earned on the Contract Value in the Loan Account is
transferred from his or her Variable Contract Value (as described above for the
loan itself) to the Loan Account. This transfer increases the Loan Amount.
Specific loan terms are disclosed at the time of loan application or issuance.
Any Loan Amount outstanding upon the death of the Owner or Annuitant is deducted
from any death benefit paid.
PRINCIPAL UNDERWRITER
CUNA Brokerage Services, Inc., ("CUNA Brokerage"), an affiliate of CUNA Mutual,
is the principal underwriter of the variable annuity contracts described herein.
The offering of the contract is continuous. CUNA Mutual does not anticipate
discontinuing the offering of the Contract, but does reserve the right to do so.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, the Company may disclose yields, total returns, and other
performance data pertaining to the Contracts for a Subaccount. Such performance
data will be computed, or accompanied by performance data computed, in
accordance with the standards defined by the SEC.
Money Market Subaccount Yields
From time to time, advertisements and sales literature may quote the current
annualized yield of the Money Market Subaccount for a seven-day period in a
manner which does not take into consideration any realized or unrealized gains
or losses, or income other than investment income, on shares of the Ultra Series
Fund's Money Market Fund or on that Fund's portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation), and exclusive of income other than investment
income at the end of the seven-day period in the value of a hypothetical account
under a Contract having a balance of 1 unit of the Money Market Subaccount at
the beginning of the period. Then dividing such net change in account value by
the value of the hypothetical account at the beginning of the period to
determine the base period return, and annualizing this quotient on a 365-day
basis.
The net change in account value reflects: 1) net income from the Fund
attributable to the hypothetical account; and 2) charges and deductions imposed
under the Contract which are attributable to the hypothetical account.
The charges and deductions include the per unit charges for the hypothetical
account for: 1) the annual Contract fee; 2) the mortality and expense risk
charge.
For purposes of calculating current yields for a Contract, an average per unit
Contract fee is used based on the $30 annual Contract fee deducted at the end of
each Contract Year. Current Yield is calculated according to the following
formula:
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Money Market Fund (exclusive of
realized gains or losses on the sale of securities and unrealized
appreciation and depreciation), and exclusive of 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 Money Market Fund (exclusive of
realized gains or losses on the sale of securities and unrealized
appreciation and depreciation) 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.
Because of the charges and deductions imposed under the Contract, the yield for
the Money Market Subaccount is lower than the yield for the Money Market Fund.
The current and effective yields on amounts held in the Money Market Subaccount
normally fluctuate on a daily basis. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. The Money Market Subaccount's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Money Market Fund, the types and quality of portfolio securities held by
the Money Market Fund and the Money Market Fund's operating expenses. Yields on
amounts held in the Money Market Subaccount may also be presented for periods
other than a seven-day period.
Other Subaccount Yields
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Subaccounts (except the Money Market
Subaccount) for a Contract for 30-day or one-month periods. The annualized yield
of a Subaccount refers to income generated by the Subaccount during a 30-day or
one-month period and is assumed to be generated each period over a 12-month
period.
The yield is computed by:
1) dividing the net investment income of the Fund attributable to the
Subaccount units less Subaccount expenses for the period; by
2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period; by
3) compounding that yield for a six-month period; and by
4) multiplying that result by 2.
Expenses attributable to the Subaccount include the annual contract fee, the
asset-based administration charge and the mortality and expense risk charge. The
yield calculation assumes a contract fee of $30 per year per Contract deducted
at the end of each Contract Year. For purposes of calculating the 30-day or
one-month yield, an average contract fee based on the average Contract Value in
the Variable Account 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:
Yield = 2 X (((NI - ES)/(U X UV) + 1)6 - 1)
Where:
NI = net income of the portfolio for the 30-day or one-month period
attributable to the Subaccount's units.
ES = expenses of the Subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in the 30-day
or one-month period.
Because of the charges and deductions imposed under the Contracts, the yield for
the Subaccount is lower than the yield for the corresponding Fund.
The yield on the amounts held in the Subaccounts normally fluctuates over time.
Therefore, the disclosed yield for any given past period is not an indication or
representation of future yields or rates of return. A Subaccount's actual yield
is affected by the types and quality of portfolio securities held by the
corresponding Fund and that Fund's operating expenses.
Average Annual Total Returns
From time to time, sales literature or advertisements may also quote average
annual total returns for one or more of the Subaccounts for various periods of
time.
When a Subaccount or Fund has been in operation for 1, 5, and 10 years,
respectively, the average annual total return for these periods will be
provided. Average annual total returns for other periods of time may, from time
to time, also be disclosed.
Standard average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 under a
Contract to the redemption value of that investment as of the last day of each
of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent calendar quarter-end
practicable, considering the type of the communication and the media through
which it is communicated.
Standard average annual total returns are calculated using Subaccount unit
values which the Company calculates on each Valuation Day based on the
performance of the Subaccount's underlying Fund, the deductions for the
mortality and expense risk charge, the deductions for the asset-based
administration charge and the annual Contract fee. The calculation assumes that
the Contract fee is $30 per year per Contract deducted at the end of each
Contract year. For purposes of calculating average annual total return, an
average per-dollar per-day Contract fee attributable to the hypothetical account
for the period is used. The calculation also assumes surrender of the Contract
at the end of the period for the return quotation. The total return is
calculated according to the following formula:
TR = ((ERV/P)1/N) - 1 Where:
TR = the average annual total return net of Subaccount recurring charges.
ERV = the ending redeemable value 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.
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date the Variable Account or any
Subaccount commenced operations. The Money Market, Bond, Balanced, and Growth &
Income Stock Funds commenced operations in January, 1985. The Capital
Appreciation Stock Fund commenced operations in January, 1994. The Mid-Cap Stock
Fund commenced operations in May, 1999. The Emerging Growth, High Income,
International Stock and Global Securities Funds commenced operations on
October 31, 2000.
Performance information for the Subaccounts for periods prior to the inception
of the Variable Account is calculated according to the formula shown on the
previous page, based on the performance of the Funds and the assumption that the
corresponding Subaccounts were in existence for the same periods as those
indicated for the Funds, with the level of Contract charges that were in effect
at the inception of the Subaccounts.
Such average annual total return information for the Subaccounts is as follows:
<TABLE>
<CAPTION>
For the For the For the For the period
1-year 5-year 10-Year from date
period period period of inception
ended ended ended of fund to
Subaccount 12/31/99 12/31/99 12/31/99 12/31/99
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Money Market 3.23% 3.49% 3.20% 4.01%
Bond -0.76% 5.00% 5.08% 6.33%
Balanced 12.79% 13.79% 9.84% 10.51%
Growth and Income Stock 16.18% 22.25% 14.51% 14.30%
Capital Appreciation Stock 23.35% 24.05% N/A 20.47%
Mid-Cap Stock* N/A N/A N/A N/A
Emerging Growth N/A N/A N/A N/A
High Income N/A N/A N/A N/A
International Stock N/A N/A N/A N/A
Global Securities N/A N/A N/A N/A
</TABLE>
Other Total Returns
The Company may disclose cumulative total returns in conjunction with the
standard formats described above. The cumulative total returns will be
calculated using the following formula:
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.
Effect of the Annual Contract Fee on Performance Data
The Contract provides for a $30 annual Contract fee to be deducted annually at
the end of each Contract Year, from the Subaccounts based on the proportion of
the Variable Contract Value invested in each such Subaccount. For purposes of
reflecting the Contract fee in yield and total return quotations, the annual
charge is converted into a per-dollar per-day charge based on the average
Variable Contract Value in the Variable Account of all Contracts on the last day
of the period for which quotations are provided. The per-dollar per-day average
charge will then be adjusted to reflect the basis upon which the particular
quotation is calculated.
VARIABLE INCOME PAYMENTS
Assumed Investment Rate
The discussion concerning the amount of variable income payments which follows
this section is based on an assumed investment rate of 3.5% per year. The
assumed investment rate is used merely in order to determine the first monthly
payment per thousand dollars of applied value. This rate does not bear any
relationship to the actual net investment experience of the Variable Account or
of any Subaccount.
Amount of Variable Income Payments
The amount of the first variable income payment to a Payee will depend on the
amount (i.e., the adjusted Contract Value, the Surrender Value, the death
benefit) applied to effect the variable income payment as of the Annuity Date,
the income payment option selected, and the age and sex (if, applicable) of the
Annuitant. The Contracts contain tables indicating the dollar amount of the
first income payment under each income payment option for each $1,000 applied at
various ages. These tables are based upon the Annuity 2000 Table (promulgated by
the Society of Actuaries) and an assumed investment rate of 3.5% per year.
The portion of the first monthly variable income payment derived from a
Subaccount is divided by the Income Unit value for that Subaccount (calculated
as of the date of the first monthly payment). The number of such units will
remain fixed during the annuity period, assuming the Payee makes no exchanges of
Income Units for Income Units of another Subaccount.
In any subsequent month, for any Contract, the dollar amount of the variable
income payment derived from each Subaccount is determined by multiplying the
number of Income Units of that Subaccount attributable to that Contract by the
value of such Income unit at the end of the Valuation Period immediately
preceding the date of such payment.
The Income Unit value will increase or decrease from one payment to the next in
proportion to the net investment return of the Subaccount or Subaccounts
supporting the variable income payments, less an adjustment to neutralize the
3.5% assumed investment rate referred to above. Therefore, the dollar amount of
income payments after the first will vary with the amount by which the net
investment return of the appropriate Subaccounts is greater or less than 3.5%
per year. For example, for a Contract using only one Subaccount to generate
variable income payments, if that Subaccount has a cumulative net investment
return of 5% over a one year period, the first income payment in the next year
will be approximately 1 1/2% greater than the payment on the same date in the
preceding year. If such net investment return is 1% over a one year period, the
first income payment in the next year will be approximately 2 1/2 percentage
points less than the payment on the same date in the preceding year. (See also
"Variable Income Payments" in the Prospectus.)
Income Unit Value
The value of an Income Unit is calculated at the same time that the value of an
Accumulation Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Variable Contract Value" in the
Prospectus.) The Income Unit value for each Subaccount's first Valuation Period
was set at $100. The Income Unit value for a Subaccount is calculated for each
subsequent Valuation Period by dividing (1) by (2), then multiplying this
quotient by (3) and then multiplying the result by (4), where:
(1) is the Accumulation Unit value for the current Valuation Period; (2) is
the Accumulation Unit value for the immediately preceding Valuation
Period;
(3) is the Income unit value for the immediately preceding Valuation
Period; and
(4) is a special factor designed to compensate for the assumed investment
rate of 3.5% built into the table used to compute the first variable
income payment.
The following illustrations show, by use of hypothetical examples, the method of
determining the Income unit value and the amount of several variable income
payments based on one Subaccount.
<TABLE>
<CAPTION>
Illustration of Calculation of Income Unit Value
<S> <C>
1. Accumulation Unit value for current Valuation Period 12.56
2. Accumulation Unit value for immediately preceding Valuation Period 12.55
3. Income Unit value for immediately preceding Valuation Period 103.41
4. Factor to compensate for the assumed investment rate of 3.5% 0.99990575
5. Income Unit value of current Valuation Period ((1) / (2)) x (3) x (4) 103.48
Illustration of Variable Income Payments
1. Number of Accumulation Units at Annuity Date 1,000.00
2. Accumulation Unit value $18.00
3. Adjusted Contract Value (1)x(2) $18,000.00
4. First monthly income payment per $1,000 of adjusted Contract Value $5.63
5. First monthly income payment (3)x(4) , 1,000 $101.34
6. Income Unit value $98.00
7. Number of Income Units (5) , (6) 1.034
8. Assume Income Unit value for second month equal to $99.70
9. Second monthly income payment (7)x(8) $103.09
10. Assume Income Unit value for third month equal to $95.30
11. Third monthly income payment (7)x(10) $98.54
</TABLE>
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 Kevin S. Thompson, Associate Counsel of the Company.
EXPERTS
The financial statements of the Variable Annuity Account as of December 31,
1999, including a statement of assets and liabilities, a statement of operations
for the year then ended, a statement of changes in net assets for the years
ended December 31, 1999 and 1998, and accompanying notes are included in this
Statement of Additional Information. The 1999 financial statements have been
audited by PricewaterhouseCoopers LLP, independent accountants, as set forth in
their report herein, and are included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The statutory basis statements of admitted assets, liabilities and surplus of
the Company as of December 31, 1999 and 1998, and the related statements of
operations, changes in unassigned surplus, and cash flows for the years ended
December 31, 1999, 1998, and 1997, are included in this Statement of Additional
Information. The 1999 financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report herein, and are included herein in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The report of PricewaterhouseCoopers LLP covering the December 31, 1999,
financial statements contains an explanatory paragraph that states that the
Company prepared the financial statements using accounting practices prescribed
or permitted by the Iowa Department of Commerce, Insurance Division, which
practices differ from generally accepted accounting principles.
<PAGE>
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, as amended, with respect to the Contracts discussed in this Statement of
Additional Information. Not all the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the Contracts and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The audited financial statements of the Variable Account as of December 31,
1999, including a statement of assets and liabilities, a statement of operations
for the year then ended, a statement of changes in net assets for the years
ended December 31, 1999 and 1998, and accompanying notes, are included in this
Statement of Additional Information.
The Company's statutory basis statements of admitted assets, liabilities and
surplus as of December 31, 1999 and 1998, and the related statutory basis
statements of operations, changes in unassigned surplus, and cash flows for the
years ended December 31, 1999, 1998, and 1997, as well as the Independent
Accountant's Reports, which are 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 Variable
Account.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Report on Audits of Financial Statements -
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Assets and Liabilities
December 31, 1999
Capital
Money Growth and Appreciation Mid-Cap
Market Bond Balanced Income Stock Stock Stock
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
Assets: ---------- ---------- ---------- ---------- ---------- ----------
Investments in Ultra Series Fund:
(note 2)
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund,
42,288,931 shares at net asset value of
$1.00 per share (cost $42,288,931) $42,288,931$ -- $ --$ -- $ --$ --
Bond Fund,
7,683,188 shares at net asset value of
$10.05 per share (cost $80,763,952) -- 77,192,120 -- -- -- --
Balanced Fund,
20,526,307 shares at net asset value of
$20.44 per share (cost $351,295,934) -- -- 419,471,431 -- -- --
Growth and Income Stock Fund,
17,623,680 shares at net asset value of
$33.58 per share (cost $453,606,758) -- -- -- 591,762,029 -- --
Capital Appreciation Stock Fund,
11,469,593 shares at net asset value of
$25.59 per share (cost $201,816,014) -- -- -- -- 293,507,530 --
Mid-Cap Stock Fund,
845,419 shares at net asset value of
$11.15 per share (cost $8,765,849) -- -- -- -- -- 9,422,814
---------- ---------- ----------- ----------- ----------- ---------
Total assets 42,288,931 77,192,120 419,471,431 591,762,029 293,507,530 9,422,814
---------- ---------- ----------- ----------- ----------- ---------
Liabilities:
Accrued adverse mortality and
expense charges 44,869 82,118 437,866 612,375 300,475 8,915
Other accrued expenses 5,384 9,854 52,544 73,485 36,057 1,070
---------- ---------- ----------- ----------- ----------- ---------
Total liabilities 50,253 91,972 490,410 685,860 336,532 9,985
---------- ---------- ----------- ----------- ----------- ---------
Net assets $42,238,678 $77,100,148 $418,981,021 $591,076,169 $293,170,998 $9,412,829
========== ========== =========== =========== =========== =========
Contract owners' equity:
Contracts in accumulation period
(note 5) $42,228,258 $77,094,129 $418,799,682 $590,737,672 $293,122,958 $9,412,829
Contracts in annuity payment period
(note 2 and note 5) 10,420 6,019 181,339 338,497 48,040 --
---------- ---------- ----------- ----------- ----------- ---------
Total contract owners' equity $42,238,678 $77,100,148 $418,981,021 $591,076,169 $293,170,998 $9,412,829
========== ========== =========== =========== =========== =========
Total units outstanding
(note 5 and note 6) 3,485,839 6,071,064 22,086,578 21,928,818 9,927,977 835,797
========== ========== =========== =========== =========== =========
Net asset value per unit $12.12 $12.70 $18.97 $26.95 $29.53 $11.26
========== ========== =========== =========== =========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Assets and Liabilities, continued
December 31, 1999
International Global Emerging High Developing
Stock Governments Growth Income Markets
Subaccount Subaccount Subaccount Subaccount Subaccount
Assets: ---------- ---------- ---------- ---------- ----------
Investments in T. Rowe Price
<S> <C> <C> <C> <C> <C>
International Fund, Inc.:
International Stock Portfolio,
5,081,603 shares at net asset value of
$19.04 per share (cost $64,237,903) $96,753,712 $ -- $ -- $ -- $ --
Investments in MFS(R) Variable Insurance Trust(SM):
Global Governments Series,
1,186,136 shares at net asset value of
$10.03 per share (cost $12,203,108) -- 11,896,939 -- -- --
Investments in MFS(R) Variable Insurance Trust(SM):
Emerging Growth Series,
4,340,874 shares at net asset value of
$37.94 per share (cost $71,452,562) -- -- 164,692,774 -- --
Investments in Oppenheimer
Variable Account Funds:
High Income Series,
4,668,713 shares at net asset value of
$10.72 per share (cost $52,150,556) -- -- -- 50,048,599 --
Investments in Templeton
Variable Products Series Fund:
Developing Markets Series,
1,065,575 shares at net asset value of
$7.74 per share (cost $7,424,880) -- -- -- -- 8,247,553
---------- ---------- ---------- ---------- ---------
Total assets 96,753,712 11,896,939 164,692,774 50,048,599 8,247,553
---------- ---------- ---------- ---------- ---------
Liabilities
Accrued adverse mortality and
expense charges 96,388 12,620 153,019 52,977 8,153
Other accrued expenses 11,567 1,514 18,362 6,357 978
---------- ---------- ---------- ---------- ---------
Total liabilities 107,955 14,134 171,381 59,334 9,131
---------- ---------- ---------- ---------- ---------
Net assets $96,645,757 $11,882,805 $164,521,393 $49,989,265 $8,238,422
========== ========== ========== ========== =========
Contract owners' equity:
Contracts in accumulation period
(note 5) $96,611,206 $11,880,871 $164,457,558 $49,964,387 $8,238,422
Contracts in annuity payment period
(note 2 and note 5) 34,551 1,934 63,835 24,878 --
---------- ---------- ----------- ---------- ----------
Total contract owners' equity $96,645,757 $11,882,805 $164,521,393 $49,989,265 $8,238,422
========== ========== =========== ========== ==========
Total units outstanding
(note 5 and note 6) 5,099,856 1,028,390 5,885,301 4,471,934 1,052,898
========== ========== =========== ========== =========
Net asset value per unit $18.95 $11.55 $27.95 $11.18 $7.82
========== ========== =========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Operations
Year Ended December 31, 1999
Capital
Money Growth and Appreciation Mid-Cap
Market Bond Balanced Income Stock Stock Stock
Investment income (loss): Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount*
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dividend income $1,522,055 $4,277,081 $10,169,612 $5,124,994 $226,205 $10,882
Adverse mortality and expense charges
(note 3) (402,770) (867,332) (4,505,676) (6,533,293) (3,016,735) (35,716)
Administrative charges (48,332) (104,080) (540,681) (783,995) (362,008) (4,286)
---------- --------- ---------- ---------- ---------- --------
Net investment income (loss) 1,070,953 3,305,669 5,123,255 (2,192,294) (3,152,538) (29,120)
---------- --------- ---------- ---------- ---------- --------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- 932 9,279,868 34,833,810 22,666,544 161,382
Proceeds from sale of securities 31,971,511 2,664,667 3,751,858 5,608,783 3,268,059 170,297
Cost of securities sold (31,971,511) (2,704,864) (3,104,055) (4,019,449) (2,206,505) (165,867)
---------- --------- ---------- ---------- ---------- --------
Net realized gain (loss) on security
transactions -- (39,265) 9,927,671 36,423,144 23,728,098 165,812
Net change in unrealized appreciation
or depreciation on investments -- (3,692,698) 28,064,336 39,831,071 32,577,970 656,965
---------- --------- ---------- ---------- ---------- --------
Net gain (loss) on investments -- (3,731,963) 37,992,007 76,254,215 56,306,068 822,777
---------- --------- --------- ---------- ---------- --------
Net increase (decrease) in net assets
resulting from operations $1,070,953 ($426,294) $43,115,262 $74,061,921 $53,153,530 $793,657
========== ========= ========== ========== ========== ========
International Global Emerging High Developing
Stock Governments Growth Income Markets
Investment income (loss): Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ----------
Dividend income $349,630 $704,569 $ -- $2,912,591 $59,822
Adverse mortality and expense charges
(note 3) (955,515) (156,137) (1,275,520) (577,108) (74,634)
Administrative charges (114,662) (18,736) (153,062) (69,253) (8,956)
---------- -------- ---------- --------- ---------
Net investment income (loss) (720,547) 529,696 (1,428,582) 2,266,230 (23,768)
---------- -------- ---------- --------- ---------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions 1,098,836 -- -- -- --
Proceeds from sale of securities 3,441,993 1,928,284 2,948,887 2,496,815 675,899
Cost of securities sold (2,827,743) (1,928,216) (1,811,377) (2,623,502) (739,788)
---------- -------- ---------- --------- ---------
Net realized gain (loss) on security
transactions 1,713,086 68 1,137,510 (126,687) (63,889)
Net change in unrealized appreciation
or depreciation on investments 22,008,904 (1,022,529) 69,201,365 (1,022,154) 2,636,489
---------- -------- ---------- --------- ---------
Net gain (loss) on investments 23,721,990 (1,022,461) 70,338,875 (1,148,841) 2,572,600
---------- -------- ---------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $23,001,443 ($492,765) $68,910,293 $1,117,389 $2,548,832
========== ======== ========== ========= =========
</TABLE>
See accompanying notes to financial statements.
*The data is for the period beginning May 1, 1999 (date of initial activity).
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets
Years Ended December 31, 1999 and 1998
MONEY MARKET SUBACCOUNT BOND SUBACCOUNT
Operations: 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income (loss) $1,070,953 $703,868 $3,305,669 $2,254,028
Net realized gain (loss) on
security transactions -- -- (39,265) 57,978
Net change in unrealized appreciation
or depreciation on investments -- -- (3,692,698) (318,903)
----------- ----------- ----------- -----------
Change in net assets from operations 1,070,953 703,868 (426,294) 1,993,103
----------- ----------- ----------- -----------
Capital unit transactions (note 5):
Proceeds from sales of units 108,025,036 94,300,896 71,191,403 54,431,468
Cost of units repurchased (93,597,976) (85,815,744) (51,892,110) (31,471,803)
Actuarial adjustments for mortality
experience on annuities in payment period 214 1,043 536 --
Annuity benefit payments (815) (565) (283) --
----------- ----------- ----------- -----------
Change in net assets from capital
unit transactions 14,426,459 8,485,630 19,299,546 22,959,665
----------- ----------- ----------- -----------
Increase (decrease) in net assets 15,497,412 9,189,498 18,873,252 24,952,768
Net assets:
Beginning of period 26,741,266 17,551,768 58,226,896 33,274,128
----------- ----------- ----------- -----------
End of period $42,238,678 $26,741,266 $77,100,148 $58,226,896
=========== =========== =========== ===========
BALANCED SUBACCOUNT GROWTH AND INCOME STOCK SUBACCOUNT
Operations: 1999 1998 1999 1998
---- ---- ---- ----
Net investment income (loss) $5,123,255 $4,495,569 ($2,192,294) ($729,501)
Net realized gain (loss) on
security transactions 9,927,671 301,386 36,423,144 16,746,571
Net change in unrealized appreciation
or depreciation on investments 28,064,336 22,339,305 39,831,071 36,859,343
----------- ----------- ----------- ----------
Change in net assets from operations 43,115,262 27,136,260 74,061,921 52,876,413
----------- ----------- ----------- ----------
Capital unit transactions (note 5):
Proceeds from sale of units 253,387,516 201,699,655 324,474,244 259,426,762
Cost of units repurchased (174,777,068) (116,452,760) (237,335,322) (164,872,612)
Actuarial adjustments for mortality
experience on annuities in payment period 3,206 5,666 8,597 24,088
Annuity benefit payments (25,514) (8,767) (38,478) (23,863)
----------- ----------- ----------- ----------
Change in net assets from capital
unit transactions 78,588,140 85,243,794 87,109,041 94,554,375
----------- ----------- ----------- ----------
Increase (decrease) in net assets 121,703,402 112,380,054 161,170,962 147,430,788
Net assets:
Beginning of period 297,277,619 184,897,565 429,905,207 282,474,419
----------- ----------- ----------- ----------
End of period $418,981,021 $297,277,619 $591,076,169 $429,905,207
=========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets, continued
Years Ended December 31, 1999 and 1998
CAPITAL APPRECIATION STOCK SUBACCOUNT MID-CAP STOCK SUBACCOUNT
Operations: 1999 1998 1999*
---- ---- -----
<S> <C> <C> <C>
Net investment income (loss) ($3,152,538) ($1,822,377) ($29,120)
Net realized gain (loss) on
security transactions 23,728,098 5,406,078 165,812
Net change in unrealized appreciation
or depreciation on investments 32,577,970 26,215,883 656,965
----------- ----------- ----------
Change in net assets from operations 53,153,530 29,799,584 793,657
----------- ----------- ----------
Capital unit transactions (note 5):
Proceeds from sales of units 176,946,680 144,717,642 9,591,635
Cost of units repurchased (142,267,223) (104,154,942) (972,463)
Actuarial adjustments for mortality
experience on annuities in payment period (40) 1,604 --
Annuity benefit payments (3,690) (2,040) --
----------- ----------- ----------
Change in net assets from capital
unit transactions 34,675,727 40,562,264 8,619,172
----------- ----------- ----------
Increase (decrease) in net assets 87,829,257 70,361,848 9,412,829
Net assets:
Beginning of period 205,341,741 134,979,893 --
----------- ----------- ----------
End of period $293,170,998 $205,341,741 $9,412,829
=========== =========== ==========
INTERNATIONAL STOCK SUBACCOUNT GLOBALGOVERNMENTS SUBACCOUNT
Operations: 1999 1998 1999 1998
---- ---- ---- ----
Net investment income (loss) ($720,547) $217,383 $529,696 ($20,398)
Net realized gain (loss) on
security transactions 1,713,086 179,367 68 26,108
Net change in unrealized appreciation
or depreciation on investments 22,008,904 7,712,376 (1,022,529) 812,043
---------- ---------- ---------- ----------
Change in net assets from operations 23,001,443 8,109,126 (492,765) 817,753
---------- ---------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sale of units 75,751,302 69,543,570 12,623,162 12,632,833
Cost of units repurchased (73,522,825) (61,375,314) (13,481,702) (14,130,911)
Actuarial adjustments for mortality
experience on annuities in payment period 150 1,013 13 163
Annuity benefit payments (2,564) (1,418) (186) (95)
---------- ---------- ---------- ----------
Change in net assets from capital
unit transactions 2,226,063 8,167,851 (858,713) (1,498,010)
---------- ---------- ---------- ----------
Increase (decrease) in net assets 25,227,506 16,276,977 (1,351,478) (680,257)
Net assets:
Beginning of period 71,418,251 55,141,274 13,234,283 13,914,540
---------- ---------- ---------- ----------
End of period $96,645,757 $71,418,251 $11,882,805 $13,234,283
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
*The data is for the period beginning May 1, 1999 (date of initial activity).
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Statements of Changes in Net Assets, continued
Years Ended December 31, 1999 and 1998
EMERGING GROWTH SUBACCOUNT HIGH INCOME SUBACCOUNT
Operations: 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income (loss) ($1,428,582) ($360,514) $2,266,230 $522,625
Net realized gain (loss) on
security transactions 1,137,510 201,695 (126,687) (32,367)
Net change in unrealized appreciation
or depreciation on investments 69,201,365 17,967,979 (1,022,154) (1,183,574)
----------- ---------- ---------- ----------
Change in net assets from operations 68,910,293 17,809,160 1,117,389 (693,316)
----------- ---------- ---------- ----------
Capital unit transactions (note 5):
Proceeds from sales of units 88,662,009 66,101,724 42,750,865 40,076,447
Cost of units repurchased (74,742,597) (47,694,150) (32,579,557) (14,246,691)
Actuarial adjustments for mortality
experience on annuities in payment period 254 2,039 (243) 616
Annuity benefit payments (3,421) (1,964) (6,484) (844)
----------- ---------- ---------- ----------
Change in net assets from capital
unit transactions 13,916,245 18,407,649 10,164,581 25,829,528
----------- ---------- ---------- ----------
Increase (decrease) in net assets 82,826,538 36,216,809 11,281,970 25,136,212
Net assets:
Beginning of period 81,694,855 45,478,046 38,707,295 13,571,083
----------- ---------- ---------- ----------
End of period $164,521,393 $81,694,855 $49,989,265 $38,707,295
=========== ========== ========== ==========
DEVELOPING MARKETS SUBACCOUNT
Operations: 1999 1998
---- ----
Net investment income (loss) ($23,768) $28,189
Net realized gain (loss) on
security transactions (63,889) (254,209)
Net change in unrealized appreciation
or depreciation on investments 2,636,489 (665,933)
--------- ---------
Change in net assets from operations 2,548,832 (891,953)
--------- ---------
Capital unit transactions (note 5):
Proceeds from sales of units 5,286,209 4,921,625
Cost of units repurchased (4,090,271) (2,583,701)
Actuarial adjustments for mortality
experience on annuities in payment period -- --
Annuity benefit payments -- --
--------- ---------
Change in net assets from capital
unit transactions 1,195,938 2,337,924
--------- ---------
Increase (decrease) in net assets 3,744,770 1,445,971
Net assets:
Beginning of period 4,493,652 3,047,681
--------- ---------
End of period $8,238,422 $4,493,652
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Notes to Financial Statements
(1) Organization
The CUNA Mutual Life Variable Annuity Account (the Variable Account) is a
unit investment trust registered under the Investment Company Act of 1940
with the Securities and Exchange Commission (SEC). The Variable Account was
established as a separate investment account within CUNA Mutual Life
Insurance Company (the Company) to receive and invest net premiums paid
under variable annuity contracts (Contracts).
Although the assets in the Variable Account are the property of the
Company, the assets in the Variable Account attributable to the Contracts
are not chargeable with liabilities arising out of any other business which
the Company may conduct. The assets of the Variable Account are available
to cover the general liabilities of the Company only to the extent that the
Variable Account's assets exceed its liabilities arising under the
Contracts. The Company has the right to transfer to the general account any
assets of the Variable Account which are in excess of reserves and other
contract liabilities. All obligations arising under the Contracts are
general corporate obligations of the Company.
(2) Significant Accounting Policies
Investments
The Variable Account currently is divided into eleven subaccounts but may,
in the future, include additional subaccounts. Each subaccount invests
exclusively in shares of a single underlying fund. (The term fund is used
to mean an investment portfolio sometimes called a fund, i.e., Ultra Series
Fund (Class Z shares), T. Rowe Price International Fund, Inc., MFS(R)
Variable Insurance TrustSM, Oppenheimer Variable Account Funds, Templeton
Variable Products Series Fund, or any other open-end management investment
company or unit investment trust in which a subaccount invests.) The
income, gains and losses, realized or unrealized, from the assets allocated
to each subaccount are credited to or charged against that subaccount
without regard to income, gains or losses from any other subaccount.
The Variable Account invests in shares of Ultra Series Fund, T. Rowe Price
International Fund, Inc., MFS(R) Variable Insurance TrustSM, Oppenheimer
Variable Account Funds, and Templeton Variable Products Series Fund. Each
is a management investment company of the series type with one or more
funds. Each is registered with the SEC as an open-end, management
investment company. Such registration does not involve supervision of the
management or investment practices or policies of the companies or their
funds by the SEC.
The Ultra Series Fund currently has six funds available as investment
options under the Contracts. The T. Rowe Price International Series, Inc.
has one fund available as an investment option under the Contracts, the MFS
Variable Insurance Trust has two funds available as investment options
under the Contracts, the Oppenheimer Variable Account Funds has one fund
available as an investment option under the Contracts and the Templeton
Variable Products Series Fund has one fund available as an investment
option under the Contracts. The Ultra Series Fund, MFS Variable Insurance
Trust, Oppenheimer Variable Account Funds and Templeton Variable Products
Series Fund also have other funds that are not available under the
Contracts. All five investment companies may, in the future, create
additional funds or classes that may or may not be available as investment
options under the Contracts. Each fund has its own investment objective and
the income, gains and losses for each fund are determined separately for
that fund or class.
CIMCO Inc. (CIMCO) serves as the investment adviser to the Ultra Series
Fund and manages its assets in accordance with general policies and
guidelines established by the board of trustees of the Ultra Series Fund.
The Company owns one half of CIMCO's outstanding stock and one half is
owned indirectly by CUNA Mutual Insurance Society.
<PAGE>
Rowe Price-Fleming International, Inc. (RPFI) serves as the investment
adviser to the International Stock Portfolio and manages its assets in
accordance with general policies and guidelines established by the board of
directors of T. Rowe Price International Fund, Inc.
Massachusetts Financial Services Company (MFS) serves as the investment
adviser to the MFS Global Governments Series (formerly known as the MFS
World Governments Series) and Emerging Growth Series and manages their
assets in accordance with general policies and guidelines established by
the board of trustees of MFS(R) Variable Insurance TrustSM.
OppenheimerFunds, Inc. (the Manager) serves as the investment adviser to
the Oppenheimer High Income Fund and manages its assets in accordance with
general policies and guidelines established by the board of trustees of the
Oppenheimer Variable Account Funds.
Templeton Asset Management Ltd. serves as the investment adviser to the
Templeton Developing Markets Fund: Class 2 and manages its assets and makes
its investments decisions.
The assets of each fund are held separate from the assets of the other
funds, and each fund is offered at a price equal to its respective net
asset value per share, without sales charge. Dividends and capital gain
distributions from each fund are reinvested in that fund. Investments in
shares of the funds are stated at market value which is the net asset value
per share as determined by the funds. Realized gains and losses from
security transactions are reported on an average cost basis. Dividend
income is recorded on the ex-dividend date.
Federal Income Taxes
Currently, no charge is made against the Variable Account for any federal,
state or local taxes (other than premium taxes) that the Company incurs or
that may be attributable to the Variable Account or the Contracts. The
Company may, however, make such a charge in the future from surrender
value, death benefits or annuity payments, as appropriate. Such taxes may
include taxes (levied by any government entity) which the Company
determines to have resulted from: (1) the establishment or maintenance of
the Variable Account, (2) receipt by the Company of purchase payments, (3)
issuance of the Contracts, or (4) the payment of annuity payments.
Annuity Reserves
Annuity reserves are computed for contracts in the payout stage according
to the 1983a Individual Annuitant Mortality Table. The assumed investment
return is 3.5%. The mortality risk is fully borne by the Company and may
result in additional amounts being transferred into the variable annuity
account by the Company to cover greater longevity of annuitants than
expected. Conversely, if reserves exceed amounts required, transfers may be
made to the insurance company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
(3) Fees and Charges
Contract Charges
Surrender Charge (Contingent Deferred Sales Charge). At the time purchase
payments are paid, no charge is deducted for sales expenses. However, a
surrender charge is deducted upon surrender or partial
<PAGE>
withdrawal of purchase payments within 7 years of their being paid and, in
certain circumstances, upon payment of a death benefit or the election of
certain annuity payment options.
For purchase payments withdrawn or surrendered within one year of having
been paid, the charge is 7% of the amount of the payment withdrawn or
surrendered. The surrender charge decreases by 1% for each full year that
has elapsed since the purchase payment was made. No surrender charge is
assessed upon the withdrawal or surrender of the contract value in excess
of aggregate purchase payments or on purchase payments made more than 7
years prior to the withdrawal or surrender.
Subject to certain restrictions for the first partial withdrawal (or
surrender) in each contract year, an amount equal to 10% of aggregate
purchase payments subject to a surrender charge (as of the time of
withdrawal or surrender) may be surrendered without a surrender charge. The
surrender charge also may be waived in certain circumstances as provided in
the Contracts.
Annual Contract Fee. On each contract anniversary (or upon surrender of the
Contract) prior to the annuity date, the Company deducts an annual contract
fee of $30 from the variable contract value. After the annuity date, the
Company deducts this fee from variable annuity payments. A pro-rated
portion of the fee is deducted upon annuitization of a Contract except on a
contract anniversary.
Transfer Fee. No charge is made for transfers. However, the Company
reserves the right to charge $10 for the 13th and each subsequent transfer
during a Contract year.
Premium Taxes. If state or other premium taxes are applicable to a
Contract, they will be deducted either: (a) from purchase payments as they
are received, (b) from contract value upon surrender or partial withdrawal,
(c) upon application of adjusted contract value to an annuity payment
option, or (d) upon payment of a death benefit. The Company, however,
reserves the right to deduct premium taxes at the time it pays such taxes.
Variable Account Charges
Mortality and Expense Risk Charge. The Company deducts a daily mortality
and expense risk charge to compensate it for assuming certain mortality and
expense risks. The charge is deducted from the assets of the Variable
Account at an annual rate of 1.25% (approximately 0.85% for mortality risk
and 0.40% for expense risks).
Asset-Based Administration Charge. The Company deducts a daily
administration charge to compensate it for certain expenses it incurs in
administration of the Contract. The charge is deducted from the assets of
the Variable Account at an annual rate of 0.15%.
<PAGE>
(4) Investment Transactions
The cost of shares purchased, including reinvestment of dividend
distributions, during the year ended December 31, 1999, was as follows:
Money Market Fund............................................ $47,509,252
Bond Fund.................................................... 25,340,633
Balanced Fund................................................ 97,121,035
Growth and Income Stock Fund.................................125,881,974
Capital Appreciation Stock Fund.............................. 57,717,680
Mid-Cap Stock Fund........................................... 8,931,715
International Stock Portfolio................................ 6,127,083
Global Governments Series.................................... 1,608,359
Emerging Growth Series....................................... 15,577,084
High Income Fund............................................. 14,972,248
Developing Markets Fund...................................... 1,855,486
(5)............................................................Accumulation Unit
Activity from Contract Transactions
Transactions in accumulation units of each subaccount of the Variable
Account for the years ended December 31, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
Capital
Money Growth and Appreciation Mid-Cap
Market Bond Balanced Income Stock Stock Stock
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ---------- ----------
Units for contracts in accumulation period:
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31, 1997 1,551,829 2,725,770 12,307,622 14,176,543 6,732,473 --
Sold 8,181,344 4,340,906 12,797,304 12,088,415 6,677,442 --
Repurchased (7,453,236) (2,512,411) (7,416,551) (7,720,236) (4,825,236) --
--------- --------- --------- --------- -------- --------
Outstanding at December 31, 1998 2,279,937 4,554,265 17,688,375 18,544,722 8,584,679 --
Sold 9,061,675 5,596,028 14,144,468 12,580,706 6,829,980 928,691
Repurchased (7,856,633) (4,079,703) (9,755,824) (9,209,170) (5,488,309) (92,894)
--------- --------- --------- --------- --------- --------
Outstanding at December 31, 1999 3,484,979 6,070,590 22,077,019 21,916,258 9,926,350 835,797
--------- --------- --------- --------- --------- --------
Units for annuitized contracts:
Outstanding at December 31, 1997 -- -- 3,394 9,339 248 --
Sold 851 -- 3,734 3,012 1,610 --
Repurchased (49) -- (560) (1,116) (95) --
--------- --------- --------- --------- --------- --------
Outstanding at December 31, 1998 802 -- 6,568 11,235 1,763 --
Sold 129 496 4,636 2,914 10 --
Repurchased (71) (22) (1,645) (1,589) (146) --
--------- --------- --------- --------- --------- --------
Outstanding at December 31, 1999 860 474 9,559 12,560 1,627 --
--------- --------- --------- --------- --------- --------
Total units outstanding December 31, 1999 3,485,839 6,071,064 22,086,578 21,928,818 9,927,977 835,797
========= ========= ========= ========= ========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
International Global Emerging High Developing
Stock Governments Growth Income Markets
Units for contracts in accumulation period: Subaccount Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31, 1997 4,373,475 1,232,126 3,752,045 1,234,868 458,727
Sold 5,084,334 1,096,046 4,842,925 3,628,181 896,126
Repurchased (4,503,797) (1,227,192) (3,503,194) (1,303,283) (486,052)
--------- --------- --------- --------- ---------
Outstanding at December 31, 1998 4,954,012 1,100,980 5,091,776 3,559,766 868,801
Sold 4,987,211 1,075,683 4,879,364 3,836,333 826,182
Repurchased (4,843,190) (1,148,440) (4,088,123) (2,926,390) (642,085)
--------- --------- --------- --------- ---------
Outstanding at December 31, 1999 5,098,033 1,028,223 5,883,017 4,469,709 1,052,898
--------- --------- --------- --------- ---------
Units for annuitized contracts:
Outstanding at December 31, 1997 -- -- 1,491 -- --
Sold 2,090 190 1,112 1,617 --
Repurchased (106) (8) (143) (78) --
--------- --------- --------- --------- ---------
Outstanding at December 31, 1998 1,984 182 2,460 1,539 --
Sold 13 1 15 1,433 --
Repurchased (174) (16) (191) (747) --
--------- --------- --------- --------- ---------
Outstanding at December 31, 1999 1,823 167 2,284 2,225 --
--------- --------- --------- --------- ---------
Total units outstanding December 31, 1999 5,099,856 1,028,390 5,885,301 4,471,934 1,052,898
========= ========= ========= ========= =========
</TABLE>
<PAGE>
(6) Condensed Financial Information
The table below gives per unit information about the financial history of
each subaccount for each period.
<TABLE>
<CAPTION>
Money Market Bond Balanced Growth & Income
Subaccount Subaccount Subaccount Stock Subaccount
Unit value: 1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning of period $11.72 $11.31 $12.79 $12.21 $16.80 $15.02 $23.17 $19.91
End of period 12.12 11.72 12.70 12.79 18.97 16.80 26.95 23.17
Percentage increase (decrease)
in unit value during period 3.41% 3.63% (0.70%) 4.75% 12.92% 11.85% 16.31% 16.37%
Number of units outstanding
at end of period 3,485,839 2,280,739 6,071,064 4,554,265 22,086,578 17,694,943 21,928,818 18,555,957
Capital Appreciation Mid-Cap International Global Governments
Stock Subaccount Stock Subaccount Stock Subaccount Subaccount
---------------- ---------------- ---------------- ----------
Unit value: 1999 1998 1999* 1999 1998 1999 1998
---- ---- ----- ---- ---- ---- ----
Beginning of period $23.91 $20.05 $10.00 $14.41 $12.61 $12.02 $11.29
End of period 29.53 23.91 11.26 18.95 14.41 11.55 12.02
Percentage increase (decrease)
in unit value during period 23.50% 19.25% 12.60%** 31.51% 14.27% (3.91%) 6.47%
Number of units outstanding
at end of period 9,927,977 8,586,442 835,797 5,099,856 4,955,996 1,028,390 1,101,162
</TABLE>
*1999 data is for the eight-month period ended December 31, 1999.
**Not annualized.
<PAGE>
<TABLE>
<CAPTION>
Emerging Growth High Income Developing Markets
Subaccount Subaccount Subaccount
Unit value: 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Beginning of period $16.04 $12.12 $10.87 $10.99 $5.17 $6.64
End of period 27.95 16.04 11.18 10.87 7.82 5.17
Percentage increase (decrease)
in unit value during period 74.25% 32.34% 2.85% (1.09%) 51.26% (22.14%)
Number of units outstanding
at end of period 5,885,301 5,094,236 4,471,934 3,561,305 1,052,898 868,801
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ANNUITY ACCOUNT
Report of Independent Accountants
To the Board of Directors of CUNA Mutual Life Insurance Company and
Contract Owners of CUNA Mutual Life Variable Annuity Account
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the CUNA Mutual Life Variable
Annuity Account (comprising, respectively, the Money Market, Bond, Balanced,
Growth and Income Stock, Capital Appreciation Stock, Mid-Cap Stock,
International Stock, Global Governments, Emerging Growth, High Income and the
Developing Markets Subaccounts) as of December 31, 1999, the results of each of
their operations and the changes in each of their net assets for the year or the
period then ended in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of CUNA
Mutual Life Insurance Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included direct confirmation of the number of
shares owned at December 31, 1999 with Ultra Series Fund, T. Rowe Price
International Series, Inc., MFS Variable Insurance Trust, Oppenheimer High
Income Fund and Templeton Developing Markets Fund, provide a reasonable basis
for the opinion expressed above. The financial statements of the CUNA Mutual
Life Variable Annuity Account as of December 31, 1998 and for the period then
ended were audited by other independent accountants whose report dated February
5, 1999 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 11, 2000
<PAGE>
Independent Auditors' Report
The Board of Directors
CUNA Mutual Life Insurance Company and Contract Owners of CUNA Mutual Life
Variable Annuity Account:
We have audited the statements of changes in net assets and the condensed
financial information of Capital Appreciation Stock Subaccount, Growth and
Income Stock Subaccount, Balanced Subaccount, Bond Subaccount, Money Market
Subaccount, International Stock Subaccount, World Governments Subaccount,
Emerging Growth Subaccount, High Income Subaccount, and Developing Markets
Subaccount of CUNA Mutual Life Variable Annuity Account for the year ended
December 31, 1998. These financial statements and condensed financial
information are the responsibility of the Accounts' management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information 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 financial statements and condensed financial information
referred to above present fairly, in all material respects, the results of
operations and condensed financial information of Capital Appreciation Stock
Subaccount, Growth and Income Stock Subaccount, Balanced Subaccount, Bond
Subaccount, Money Market Subaccount, International Stock Subaccount, World
Governments Subaccount, Emerging Growth Subaccount, High Income Subaccount, and
Developing Markets Subaccount of CUNA Mutual Life Variable Annuity Account for
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Des Moines, Iowa
February 5, 1999
<PAGE>
CUNA Mutual Life Insurance Company
Report on Audits of Financial Statements -
Statutory Basis
For the Years Ended December 31, 1999, 1998 and 1997
<PAGE>
Report of Independent Accountants
The Board of Directors
CUNA Mutual Life Insurance Company:
We have audited the accompanying statutory statement of admitted assets,
liabilities and surplus of CUNA Mutual Life Insurance Company (the "Company") as
of December 31, 1999, and the related statutory statements of operations,
changes in surplus and cash flows for the year then ended. 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 audit. The statutory financial statements of the Company as of December 31,
1998, and for each of the two years in the period then ended were audited by
other independent accountants whose report dated March 19, 1999, expressed an
unqualified opinion on those statements as to conformity with the basis of
accounting described in Note 2. The other independent accountants also expressed
an adverse opinion with regard to accounting principles generally accepted in
the United States, as a result of the material differences between the basis of
accounting described in Note 2 and accounting principles generally accepted in
the United States.
We conducted our audit 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 audit provides a reasonable basis for our
opinion.
As described in Note 2 to the financial statements, the Company prepared these
financial statements using accounting practices prescribed or permitted by the
Iowa Department of Commerce, Insurance Division, which practices differ from
accounting principles generally accepted in the United States. The effects on
the 1998 and 1997 financial statements of the variances between the statutory
basis of accounting and generally accepted accounting principles are also
described in Note 2. The effects of such variances on the 1999 financial
statements, although not reasonably determinable as of this date, are presumed
to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of the Company as of December 31, 1999, or the results of
its operations or its cash flows for the year then ended.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities and surplus of the
Company as of December 31, 1999, and the results of its operations and its cash
flows for the year then ended, on the basis of accounting described in Note 2.
Our audit was conducted for the purpose of forming an opinion on the basic
statutory financial statements taken as a whole. The accompanying Supplemental
Schedule of Assets and Liabilities of the Company as of December 31, 1999, and
for the year then ended, is presented for purposes of additional analysis and is
not a required part of the basic statutory financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic statutory financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic statutory financial
statements taken as a whole.
March 31, 2000
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus
December 31, 1999 and 1998
(in thousands)
Admitted Assets 1999 1998
--------------- ---- ----
<S> <C> <C>
Investments:
Bonds and notes 1,509,325 $1,517,147
Stocks
Preferred 41 71
Common 82,086 77,036
Mortgage loans on real estate 325,603 306,037
Real estate 58,746 62,345
Policy loans 101,830 101,569
Other invested assets 18,311 16,799
Receivable for securities 7,250 19,886
Cash and short-term investments 87,518 74,740
-----------------------------------------------------------------------------------------------
Total cash and investments 2,190,710 2,175,630
Premiums receivable 16,274 15,147
Accrued investment income 26,680 28,005
Electronic data processing equipment
at cost, less accumulated depreciation
(1999 - 7,070; 1998 - 6,744)
1,610 2,230
Receivable from affiliates 12,169 8,121
Other assets 1,685 2,295
Separate accounts 2,611,459 1,830,012
-----------------------------------------------------------------------------------------------
Total admitted assets $4,860,587 $4,061,440
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Surplus 1999 1998
----------------------- ---- ----
<S> <C> <C>
Liabilities:
Policy reserves:
Life insurance and annuity contracts $1,649,573 $1,672,272
Accident and health insurance 14,106 12,611
Supplementary contracts without life contingencies 80,747 76,131
Policyholders' dividend accumulation 157,858 156,216
Policy and contract claims 10,373 9,850
Other policyholders' funds
Dividends payable to policyholders 25,190 24,450
Premiums and other deposit funds 3,573 4,194
Interest maintenance reserve 3,482 5,694
Payable to affiliates 17,959 13,525
Amounts held for others 18,952 18,923
Commissions, expenses, taxes, licenses and fees accrued 17,728 14,594
Asset valuation reserve 56,762 48,395
Loss contingency reserve for investments 5,800 5,800
Federal income taxes due and accrued 15,906 5,025
Note payable 1,300 1,300
Payable for securities 2,887 2,031
Other liabilities 577 83
Separate accounts 2,555,312 1,784,589
-----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets,
Liabilities and Capital and Surplus
December 31, 1999 and 1998 (continued)
(in thousands)
Liabilities and Surplus 1999 1998
----------------------- ---- ----
<S> <C> <C>
Total liabilities 4,638,085 3,855,683
-----------------------------------------------------------------------------------------------
Surplus:
Unassigned surplus 222,502 205,757
-----------------------------------------------------------------------------------------------
Total surplus 222,502 205,757
-----------------------------------------------------------------------------------------------
Total liabilities and surplus $4,860,587 $4,061,440
-----------------------------------------------------------------------------------------------
See accompanying notes to statutory financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income:
Premiums and other considerations:
Life and annuity contracts $515,917 $466,203 $414,724
Accident and health 21,892 18,292 14,886
Supplementary contracts and dividend accumulations 38,294 43,547 44,194
Other deposit funds 254,015 159,786 114,825
Net investment income 148,915 148,998 168,192
Reinsurance commissions 8,661 7,871 9,601
Separate accounts income and fees 22,723 15,892 9,907
Other income 6,362 5,760 5,840
-------------------------------------------------------------------------------------------------------------
Total income 1,016,779 866,349 782,169
-------------------------------------------------------------------------------------------------------------
Benefits and Expenses:
Death and annuity benefits 224,978 123,982 86,525
Surrender benefits 207,924 189,343 176,291
Payments on supplementary contracts without life
contingencies and dividend accumulations 41,862 47,431 44,747
Other benefits to policyholders and beneficiaries 20,494 18,244 17,509
Decrease in policy reserves - life and annuity
contracts and accident and health insurance (21,204) (76,839) (78,148)
Increase in liabilities for supplementary contracts
without life contingencies and policyholders' dividend
accumulations 6,271 5,687 6,954
Decrease in group annuity reserves (523) (225) (2)
Increase in benefit fund 902 870 3,975
General insurance expenses, including cost of collection
in excess of loading on due and deferred premiums and
other expenses 64,451 60,126 60,722
Insurance taxes, licenses, fees and commissions 59,186 49,305 43,956
Net transfers to separate accounts 367,835 408,384 369,788
-------------------------------------------------------------------------------------------------------------
Total benefits and expenses 972,176 826,308 732,317
-------------------------------------------------------------------------------------------------------------
Income before dividends to policyholders, federal
income taxes, and net realized capital gains 44,603 40,041 49,852
Dividends to policyholders 25,107 24,441 23,670
-------------------------------------------------------------------------------------------------------------
Income before federal income taxes and
net realized capital gains 19,496 15,600 26,182
Federal income taxes 7,802 4,436 12,208
-------------------------------------------------------------------------------------------------------------
Income before net realized capital gains 11,694 11,164 13,974
Net realized capital gains (losses), less federal income
taxes and transfers to the interest maintenance reserve 7,099 (317) 3,885
-------------------------------------------------------------------------------------------------------------
Net income $18,793 $10,847 $17,859
-------------------------------------------------------------------------------------------------------------
See accompanying notes to statutory financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Changes in Capital and Surplus
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $205,757 $190,681 $163,304
-------------------------------------------------------------------------------------------------------------
Additions (deductions):
Net income 18,793 10,847 17,859
Change in net unrealized gains 5,569 10,070 6,752
Change in asset valuation reserve (8,367) (6,639) 257
Change in nonadmitted assets 749 543 285
Change in surplus of separate accounts 76 (64) 209
Change in separate account seed money (77) 64 (189)
Change in loss contingency reserve for investments -- 250 2,200
Other miscellaneous changes 2 5 4
-------------------------------------------------------------------------------------------------------------
Net additions 16,745 15,076 27,377
-------------------------------------------------------------------------------------------------------------
Balance at end of year $222,502 $205,757 $190,681
-------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash from operations:
Premiums and other considerations:
Life and annuity contracts $513,927 $463,537 $412,840
Accident and health 22,298 17,903 14,754
Supplementary contracts and dividend accumulations 38,294 43,546 44,194
Other deposit funds 254,015 159,786 114,826
Net investment income received 154,266 160,304 177,984
Reinsurance commissions 8,661 7,871 8,425
Separate accounts income and fees 22,712 15,858 9,885
Other income 5,282 4,786 4,931
---------------------------------------------------------------------------------------------
Total provided from operations 1,019,455 873,591 787,839
---------------------------------------------------------------------------------------------
Life and accident and health claims paid 50,226 46,128 42,004
Surrender benefits 207,924 189,343 176,291
Other benefits to policyholders paid 236,415 140,575 105,505
Commissions, other expenses and taxes paid, excluding
federal income taxes 119,767 107,589 105,834
Dividends to policyholders paid 24,380 23,756 23,161
Federal income taxes 1,194 (181) 14,558
Net transfers to separate accounts 378,471 419,156 383,942
Interest paid on defined benefit plans 902 1,338 3,507
Other 77 -- 189
---------------------------------------------------------------------------------------------
Total used in operations 1,019,356 927,704 854,991
---------------------------------------------------------------------------------------------
Net cash provided from (used in) operations 99 (54,113) (67,152)
---------------------------------------------------------------------------------------------
Cash from investments:
Proceeds from investments sold, matured or repaid:
Bonds and notes 826,675 296,732 285,135
Stocks 37,955 17,412 17,223
Mortgage loans on real estate 29,034 77,980 47,892
Other invested assets 1,091 562 969
Investment real estate 6,427 3,950 17,701
---------------------------------------------------------------------------------------------
Total investment proceeds 901,182 396,636 368,920
---------------------------------------------------------------------------------------------
Cost of investments acquired:
Bonds and notes 819,514 243,804 200,692
Stocks 26,969 24,923 29,724
Mortgage loans on real estate 48,571 17,956 4,704
Investment real estate 5,471 5,222 10,929
Other invested assets -- 10,461 --
Other cash used 3,165 109 4,098
---------------------------------------------------------------------------------------------
Total investments acquired 903,690 302,475 250,147
Increase (decrease) in policy loans and premium notes 262 500 (475)
---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Cash Flow (continued)
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
<S> <C> <C> <C>
Net cash (used in) provided from investments (2,770) 93,661 119,248
---------------------------------------------------------------------------------------------
Cash from financing and miscellaneous sources -
Transfer of defined benefit pension plan assets -- -- (42,247)
Other cash provided (applied), net 15,449 7,932 (15,879)
---------------------------------------------------------------------------------------------
Net change in cash and short-term investments 12,778 47,480 (6,030)
Cash and short-term investments at beginning of year 74,740 27,260 33,290
---------------------------------------------------------------------------------------------
Cash and short-term investments at end of year $87,518 $74,740 $27,260
---------------------------------------------------------------------------------------------
See accompanying notes to statutory financial statements.
</TABLE>
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(1) Nature of Business
CUNA Mutual Life Insurance Company (the Company), a mutual life insurer
domiciled in Iowa, offers a full range of ordinary life and health
insurance products through face-to-face and direct response distribution
systems. The Company's operations are conducted in 49 states and the
District of Columbia. The Company is subject to regulation by the Insurance
Departments of states in which it is licensed and undergoes periodic
examinations by those departments. The Company owns 50% of CIMCO, Inc., a
registered investment advisor.
(2) Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statutory financial statements have been prepared in
conformity with statutory accounting practices prescribed or permitted by
the Iowa Department of Commerce, Insurance Division (Insurance Department),
which differ in some respects from generally accepted accounting principles
in the United States (GAAP). The Company currently does not apply any
significant permitted accounting practices. The following summary
identifies the significant differences from GAAP:
-Acquisition costs such as commissions, premium taxes, and other items
are expensed in the year incurred, rather than deferred and amortized
over the periods benefited;
-Bonds are generally recorded at amortized cost rather than fair
value, and are not classified as either held to maturity securities,
trading securities, or available for sale securities;
-Majority owned subsidiaries are not consolidated, and are carried at
their underlying statutory book value;
-Policy reserves are based on statutory mortality and interest
requirements, without consideration for withdrawals, which may differ
from reserves established for GAAP based on reasonably conservative
estimates of mortality, interest and withdrawals;
-Derivative investment contract hedging fixed income securities are
carried on the statutory financial statements at the amortized cost,
if any, versus at the estimated fair value of the contract;
-Tax expense is recorded for amounts currently due or recoverable, and
deferred federal income taxes are not provided for unrealized gains or
losses and the temporary differences between the statutory book basis
and tax basis of assets and liabilities;
-"Nonadmitted assets" (principally, an airplane, prepaid expenses,
furniture, equipment and certain receivables) are excluded from the
statutory statements of admitted assets, liabilities and surplus
through a direct charge to unassigned surplus;
<PAGE>
-The asset valuation reserve (AVR), a statutory reserve established
for the purpose of stabilizing the surplus of the Company against
fluctuations in the market value of assets, is recorded as a liability
by a direct charge to unassigned surplus;
-The interest maintenance reserve (IMR) defers recognition of
interest-related gains and losses from the disposal of investment
securities and amortizes them into income over the remaining lives of
those securities versus immediate recognition;
-Reserves established for potential bond and mortgage loan defaults or
real estate impairments are recorded as liabilities by direct charges
to unassigned surplus;
-Pension cost is equal to the amount to be funded in accordance with
accepted actuarial cost methods rather than recognizing pension cost
over the period participants render service to the Company and
recording a liability currently for all unfunded costs;
-Certain postretirement benefits are accrued when employees become
vested for benefits rather than over the vesting period;
-Amounts due from reinsurers for their share of ceded reserves are
netted against liabilities rather than shown as assets; and
-Deposits, surrenders, and benefits on annuity contracts are recorded
as revenue and expense in the statutory statements of operations.
Under GAAP, amounts collected are credited directly to policyholder
account balances, and benefits and claims that are charged to expense
include benefits incurred in the period that are in excess of related
policyholder account balances.
<PAGE>
A reconciliation of net income and surplus between amounts presented herein
and amounts stated in conformity with GAAP as of December 31 are as follows
(000s omitted):
<TABLE>
<CAPTION>
=================================================== ===================== ====================
1998 1997
--------------------------------------------------- --------------------- --------------------
As Restated
Net income
<S> <C> <C>
Statutory net income $ 10,847 $ 17,859
Adjustments:
Federal income taxes (7,623) 1,982
Deferred policy acquisition costs 20,322 18,593
Insurance reserves (9,478) (10,765)
Investments 2,885 (414)
Pension benefits 1,135 1,175
Other 2,998 (1,983)
--------- ----------
GAAP net income $ 21,086 $ 26,447
========= =========
Surplus
Statutory surplus $205,756 $190,681
Adjustments:
Federal income taxes (22,119) 9,411
Deferred policy acquisition costs 158,795 142,710
Insurance reserves (84,984) (75,506)
Investments 76,853 37,409
Employee benefits (19,183) (20,072)
Dividends payable to policyholders 12,225 11,890
Other 8,590 3,723
--------------------------------------------------- --------------------- --------------------
GAAP surplus $335,933 $300,246
=================================================== ===================== ====================
</TABLE>
The effects of these variances on net income and surplus at December 31,
1999, although not determined as of this date, are presumed to be material.
Investments
Investments are valued as prescribed by the National Association of
Insurance Commissioners (NAIC). Bonds and notes and short-term investments
are generally carried at amortized cost, preferred stocks are stated at
cost, common stocks of unaffiliated companies at market value, and mortgage
loans at the unpaid balance, adjusted for unamortized premium or discount.
Bonds that the NAIC has determined are impaired in value are carried at the
lower of amortized cost or estimated fair value. Real estate acquired in
satisfaction of debt is valued at the lower of the carrying value of the
outstanding mortgage loans or fair value of the acquired real estate at
time of foreclosure. The adjusted basis is subsequently depreciated.
Investments in limited partnerships are included in other invested assets,
and investments in subsidiaries are carried at the Company's share of the
underlying net equity of the investment. Home office real estate is carried
at depreciated cost. Policy loans are stated at their aggregate unpaid
balances.
Prepayment assumptions for loan-backed bonds and structured securities were
obtained from industry survey values or internal estimates. These
assumptions are consistent with the current
<PAGE>
interest rate environment. The retrospective adjustment method is used to
value all such securities.
Realized gains and losses on the sale of investments are reported in income
based upon the first-in, first-out method. The net unrealized gains and
losses attributable to the adjustment from book value to carrying value for
all investments are reflected in surplus.
Provision for Depreciation
The provision for depreciation of real estate is computed on a
straight-line basis using estimated useful lives of the assets ranging from
five to fifty years. The Company depreciates the cost of electronic data
processing equipment and operating software on a straight-line basis over
no more than three years.
Policy Reserves
During 1988, the Company began using the 1980 Commissioners' Standard
Ordinary (C.S.O.) Mortality Table. Prior to the adoption of the 1980 C.S.O.
table, reserves were recorded using the 1958 C.S.O. table. The 1958 C.S.O.
table is used with interest rate assumptions ranging from 2.5% to 5.0%. The
1980 C.S.O. table is used with interest rate assumptions ranging from 3.5%
to 5.5%. With respect to older policies, the mortality table and interest
assumptions vary from the American Experience table with 2.5% to 4%
interest to the 1941 C.S.O. table with 2.5% interest. Approximately 24% of
the life reserves are calculated on a net level reserve basis and 76% on a
modified reserve basis. The effect of the use of a modified reserve basis
is to partially offset the effect of immediately expensing acquisition
costs by providing a policy reserve increase in the first policy year which
is less than the reserve increase in renewal years. Fixed deferred annuity
reserves are calculated using the continuous Commissioners' Annuity Reserve
Valuation Method (CARVM) with interest assumptions ranging from 2.5% to
7.5%.
Provision for Participating Policy Dividends
The provision for participating policy dividends is based on the board of
directors' determination and declaration of an equitable current dividend
plus a provision for such dividend expected to be paid in the following
year, rather than being provided for ratably over the premium-paying period
in accordance with dividend scales contemplated at the time the policies
were issued. Participating business comprised 99.9% of ordinary life
insurance in force and premiums received during 1999.
Statutory Valuation Reserves
The IMR is maintained as prescribed by the NAIC for the purpose of
stabilizing the surplus of the Company against gains and losses on sales of
fixed income investments that are primarily attributable to changing
interest rates. The interest-related gains and losses are deferred and
amortized into income over the remaining lives of the securities sold. The
AVR provides a reserve for fluctuations in the values of invested assets.
Changes in the AVR are charged or credited directly to unassigned surplus.
<PAGE>
Revenue Recognition
Term life and whole life insurance premiums are recognized as premium
income when due. Modal payment dates on the underlying term and whole life
policies can be monthly, quarterly, semi-annually or annually. Annuity and
other fund deposits are credited to revenue when received. Health insurance
premiums and premiums for employee benefit coverages are recognized as
income when due.
Pension Costs
Pension costs relating to the Company's pension plans are computed on the
basis of accepted actuarial methods. The annual contributions are computed
according to the aggregate funding method, which produces an annual normal
cost at each valuation date. Such annual normal cost provides for spreading
the excess of the present value of future benefits over the value of the
assets of the plan as a level percentage of payroll over the remaining
period of service of active employees on the valuation date based upon the
actuarial assumptions adopted. Gains and losses which arise on each
valuation date as the result of differences between the actual experience
and that expected by the actuarial assumptions are spread over the
remaining period of service of active employees. The Company's policy is to
fund pension costs accrued.
Benefit Plans
The Company provides medical and life insurance benefits for its retirees.
Retirees become eligible to participate in the medical and life coverage
based upon age and years of service. Retirees pay a portion of the medical
coverage premium based upon age. Retirees can utilize sick leave balances
to reduce required premium payments. There is no retiree premium for life
coverage. The Company records an accrual for the estimated costs of retiree
medical and life benefits over the period during which employees render the
service that qualifies them for benefits. Benefits are generally funded on
a pay-as-you-go basis.
Derivative Financial Instruments
The Company enters into derivative contracts, such as interest rate swaps
and caps and stock index futures to reduce interest rate exposure for
long-term assets, to exchange fixed rates for floating interest rates and
to increase or decrease exposure to selected segments of the bond and stock
markets. Hedges of fixed maturity securities are stated at amortized cost,
if any, and hedges of equity securities are stated at market value.
Net interest receivable or payable on those contracts that hedge risks
associated with interest rate fluctuations are recognized in the period
incurred as an adjustment to investment income. Realized capital gains and
losses on equity swaps are recognized in the period incurred as an
adjustment to net realized capital gains and losses. Unrealized capital
gains and losses on equity swaps are charged or credited to surplus.
Interest rate cap agreements entitle the Company to receive from the
counter-parties the amounts, if any, by which the selected market interest
rates exceed the strike rates stated in the agreements. The amount paid to
purchase the interest rate caps is included in other invested assets and
amortized over the term of the agreements as an adjustment to investment
income.
<PAGE>
Reinsurance
Reinsurance premiums, commission expense reimbursements, and reserves
related to reinsured business ceded are accounted for on a basis consistent
with those used in accounting for the original policies issued and the
terms of the reinsurance contracts. Premiums and benefits ceded to other
companies have been reported as reductions of premium income and benefits
in the accompanying statements of operations.
Separate Accounts
Separate account assets are funds of separate account contractholders and
the Company, segregated into accounts with specific investment objectives.
The assets are generally carried at fair value. An offsetting liability is
maintained to the extent of contractholders' interests in the assets.
Appreciation or depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
policyholders' surplus. Contractholders' interests in net investment income
and realized and unrealized capital gains and losses on separate account
assets are not reflected in operations.
Risks and Uncertainties
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the statutory statements of admitted assets,
liabilities and surplus and operations for the reporting period. Actual
results could differ from those estimates. Investment valuations and
insurance reserves are most affected by the use of estimates and
assumptions.
The Company is subject to the risk that interest rates will change and
cause a decrease in the value of its investments. To the extent that
fluctuations in interest rates cause the duration of assets and liabilities
to differ, the Company may have to sell assets prior to their maturity and
realize losses. Interest rate exposure for the investment portfolio is
managed through asset/liability management techniques that attempt to match
the duration of the assets with the estimated duration of the liabilities.
The Company also uses derivative financial instruments at December 31, 1999
and 1998, to manage interest rate exposures.
The Company is subject to the risk that issuers of securities or mortgages
owned by the Company will default, or other parties, including reinsurers
or mortgagors who owe the Company money, will not pay. The Company
minimizes this risk by adhering to a conservative investment strategy and
by maintaining sound reinsurance and credit and collection policies.
The Company is subject to the risk that the legal or regulatory environment
in which the Company operates will change and create additional costs and
expenses not anticipated by the Company in pricing its products. In other
words, regulatory initiatives designed to reduce insurer profits or new
legal theories may create costs for the insurer beyond those recorded in
the statutory financial statements. The Company mitigates this risk by
operating in a geographically diverse area, thus reducing its exposure to
any single jurisdiction, closely monitoring the regulatory environment to
anticipate changes and by using underwriting and loss adjusting practices
that identify and minimize the potential adverse impact of this risk.
<PAGE>
The Company is also contingently liable for guaranty fund assessments
related to the insolvencies of unaffiliated insurance companies. Estimated
accruals of $1,300,000 for such assessments have been included in the
accompanying statutory financial statements for both 1999 and 1998.
Statutory Accounting Practices
The NAIC has developed a codification of Statements of Statutory Accounting
Principles (SSAPs) which, in accordance with the rules adopted by the
Insurance Department, will take effect January 1, 2001. The effect of
adopting the SSAPs will be reported as an adjustment to unassigned surplus
on the effective date. Although generally consistent with current statutory
practices, there are differences which could have a material impact on the
Company. The ultimate impact on unassigned surplus has not been determined.
(3) Disclosures About Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures
About Fair Value of FinancialInstruments, requires disclosure of fair value
information about certain on and off-balance sheet financial instruments.
In cases where quoted market prices are not readily available, fair values
are based on estimates using present value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rates and estimates of future cash flows. Although
fair value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could cause these
estimates to vary materially. 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 the immediate settlement of the
instruments. Certain financial instruments and all non-financial
instruments are excluded from disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company. In addition, the tax ramifications related to the
realization of unrealized gains and losses can have a significant effect on
fair value estimates and have not been taken into consideration.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for significant financial
instruments:
Cash, Short-term Investments and Accrued Investment Income
The carrying amounts reported in the statutory statements of admitted
assets, liabilities and surplus for these instruments approximate their
fair values.
Bonds and Stocks
Fair values for bonds and notes are based on quoted market prices, where
available. For bonds and notes not actively traded, fair values are
estimated using values obtained from independent pricing services or, in
the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality and maturity of the investments. The fair values of
preferred and unaffiliated common stocks are based on quoted market prices.
The carrying values and fair value for these instruments is disclosed in
Note 4.
<PAGE>
Derivative Financial Instruments
The carrying value and fair value of the derivative financial instruments
are disclosed in Note 4.
Mortgage Loans on Real Estate
The fair value for mortgage loans is estimated using discounted cash flow
analysis with interest rates currently being offered for similar loans to
borrowers with similar credit ratings. Loans with similar characteristics
are aggregated for purposes of the calculations. Fair values for mortgages
in default are reported at the estimated fair value of the underlying
collateral. The carrying and fair values for these instruments are
disclosed in Note 4.
Separate Account Assets and Liabilities
The fair value of assets held in separate accounts is based on quoted
market prices. The fair value of liabilities related to separate accounts
is the amount payable on demand. The carrying amounts reported in these
accounts approximate their fair values.
Investment-type Contracts
The fair values of the Company's liabilities under investment-type
insurance contracts such as annuities are estimated using the cash
surrender value of the contracts. The carrying value and estimated fair
value of these liabilities were $1,048,621,000 and $1,044,371,000 for 1999
and $1,100,994,000 and $1,096,826,000 for 1998, respectively.
<PAGE>
(4) Investments
Bonds and Notes
The statement value, which principally represents amortized cost, gross
unrealized gains and losses and the estimated fair value of investments in
bonds and notes as of December 31, 1999 and 1998 are as follows (000s
omitted):
<TABLE>
<CAPTION>
======================================= =============== =============================== ===============
Statement Gross Unrealized Estimated
December 31, 1999 Value Gains Losses Fair Value
--------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
United States governments
and agencies $ 98,891 325 (970) 98,246
Foreign government securities 18,425 352 (35) 18,742
Corporate securities 763,184 8,962 (15,533) 756,613
Mortgage-backed and other
structured securities 581,009 1,088 (24,074) 558,023
Other debt securities 47,816 495 (772) 47,539
--------------------------------------- --------------- --------------- --------------- ---------------
Total bonds and notes $ 1,509,325 $11,222 $(41,384) $1,479,163
======================================= =============== =============================== ===============
Statement Gross Unrealized Estimated
December 31, 1998 Value Gains Losses Fair Value
--------------------------------------- --------------- --------------- --------------- ---------------
United States governments
and agencies $ 56,037 $ 2,539 $ - $ 58,576
States and political subdivisions
Securities 38 - - 38
Foreign government securities 16,433 1,487 - 17,920
Corporate securities 885,831 52,988 (1,629) 937,190
Mortgage-backed and other
structured securities 524,821 9,794 (3,703) 530,912
Other debt securities 33,987 1,963 - 35,950
--------------------------------------- --------------- --------------- --------------- ---------------
Total bonds and notes $1,517,147 $68,771 $(5,332) $1,580,586
======================================= =============== =============== =============== ===============
</TABLE>
Cumulative unrealized losses of $158,000 and $409,000 at December 31, 1999
and 1998, respectively, have been recorded for bonds and notes that have
been determined by the NAIC to have an impairment in value. In addition to
the AVR provision, a loss contingency reserve of $1,700,000 has been
established at December 31, 1999 and 1998, for projected bond losses.
The statement value and estimated fair value of bonds and notes at December
31, 1999, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Because most mortgage-backed and other structured securities provide for
periodic payments throughout their lives, they are listed below in a
separate category.
<PAGE>
<TABLE>
<CAPTION>
=================================================== ====================== ======================
Statement Estimated
(000's omitted) Value Fair Value
--------------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Due in one year or less $ 44,936 $ 44,815
Due after one year through five years 559,458 557,268
Due after five years through ten years 228,070 225,330
Due after ten years 95,852 93,727
--------------------------------------------------- ---------------------- ----------------------
Total bonds 928,316 921,140
Mortgage-backed and other structured securities 581,009 558,023
--------------------------------------------------- ---------------------- ----------------------
Total bonds and notes $1,509,325 $1,479,163
=================================================== ====================== ======================
</TABLE>
Proceeds from sales of bonds and notes were $574,495,000, $66,335,000, and
$43,061,000 during 1999, 1998 and 1997, respectively. Gross gains of
$4,163,000, $1,735,000, and $589,000 and gross losses of $6,240,000,
$1,886,000, and $137,000 were realized on those sales in 1999, 1998 and
1997, respectively.
Stocks
The cost, gross unrealized gains and losses, and estimated fair value on
unaffiliated stocks are as follows (000s omitted):
<TABLE>
<CAPTION>
====================================== =============== =============================== ===============
Gross Unrealized Estimated
December 31, 1999 Cost Gains Losses Fair Value
-------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Common stock $ 55,959 $22,887 $(2,567) $76,279
Preferred stock 41 - (7) 34
====================================== =============== =============== =============== ===============
====================================== =============== =============================== ===============
Gross Unrealized Estimated
December 31, 1998 Cost Gains Losses Fair Value
-------------------------------------- --------------- --------------- --------------- ---------------
Common stock $55,551 $20,297 $(2,090) $73,758
Preferred stock 71 - (4) 67
====================================== =============== =============== =============== ===============
</TABLE>
Mortgage Loans on Real Estate
The Company's mortgage portfolio consists mainly of commercial mortgage
loans. The Company limits its concentrations of credit risk by diversifying
its mortgage loan portfolio so that loans made in any one state are not
greater than 20% (the largest State is Illinois with 14%) of the aggregate
mortgage loan portfolio balance and loans of no more than 2% of the
aggregate mortgage loan balance are made to any one borrower. In addition
to the AVR, a loss contingency reserve of $2,000,000 has been provided for
mortgage loans on real estate as of December 31, 1999 and 1998.
<PAGE>
The carrying value and estimated fair value of the mortgage loan portfolio
at December 31, 1999 and 1998 are as follows (000s omitted):
<TABLE>
<CAPTION>
=============== ====================== ======================
Carrying Estimated
Value Fair Value
--------------- ---------------------- ----------------------
<S> <C> <C>
1999 $ 325,603 $ 320,393
1998 306,037 328,591
=============== ====================== ======================
</TABLE>
Assets Designated
The statement value of assets designated for regulatory authorities and
held on deposit accordingly as of December 31 are as follows (000s
omitted):
<TABLE>
<CAPTION>
============================================= ====================== ======================
1999 1998
--------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Bonds and notes and short-term investments $ 1,454,904 $1,527,512
Mortgage loans on real estate 325,603 306,037
Policy loans 101,831 101,569
--------------------------------------------- ---------------------- ----------------------
Total assets designated $ 1,882,338 $1,935,118
============================================= ====================== ======================
</TABLE>
Net Investment Income
Components of net investment income for the years ended December 31 are as
follows (000s omitted):
<TABLE>
<CAPTION>
====================================== =================== =================== ===================
1999 1998 1997
-------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Bonds and notes $112,788 $114,421 $123,395
Stocks 1,431 1,198 458
Mortgage loans on real estate 27,133 29,057 34,372
Investment real estate 9,486 9,244 10,158
Policy loans 6,609 6,664 6,571
Other invested assets 2,060 (2,244) 4,711
Short-term investments 4,604 2,175 2,689
Derivative financial instruments (3,190) (1,835) (1,445)
Other 328 2,911 11
-------------------------------------- ------------------- ------------------- -------------------
Gross investment income 161,249 161,591 180,920
Less investment expenses 12,334 12,593 12,728
-------------------------------------- ------------------- ------------------- -------------------
Net investment income $148,998 $168,192 $148,915
====================================== =================== =================== ===================
</TABLE>
The Company incurs expense in managing its investment portfolio and
producing investment income. These expenses, which include salaries,
brokerage fees, securities custodial fees, and real estate expenses are
deducted from investment income to determine the net investment income
reported in the financial statements.
<PAGE>
Realized Gains and Losses
Net realized investment gains and losses for the years ended December 31
are summarized as follows (000s omitted):
<TABLE>
<CAPTION>
============================================= ================= ================= =================
1999 1998 1997
--------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Bonds and notes $(1,730) $(1,645) $1,843
Stocks 10,872 3,832 2,853
Mortgage loans on real estate 5 2,965 1,030
Investment real estate 1,172 413 3,056
Derivative financial instruments - (108) -
Short-term investments and other
invested assets - - 12
--------------------------------------------- ----------------- ----------------- -----------------
10,319 5,457 8,794
Less:
Capital gains tax 4,273 2,566 3,057
Transfer to interest maintenance reserve (1,053) 3,208 1,852
--------------------------------------------- ----------------- ----------------- -----------------
Net realized investment gains (losses) $ 7,099 $ (317) $3,885
============================================= ================= ================= =================
</TABLE>
Derivative Financial Instruments
As of December 31, 1999, the Company had an interest rate swap agreement
with a major financial institution, having a notional amount of $100
million. Under the agreement, the Company receives interest payments at a
floating rate based on an interest rate index, which was 5.95% as of
December 31, 1999, and pays interest on the same notional amount at a fixed
rate, which was 6.96%. Amounts exchanged as a part of the interest rate
differential are accounted for as adjustments to investment income. This
interest rate swap agreement is scheduled to terminate in 2000. As of
December 31, 1999 and 1998, the fair value of the interest rate swap
agreement was ($386,000) and ($3,420,000), respectively. This negative fair
value represents the estimated amount the Company would have to pay to
cancel the contract or transfer it to another party.
The Company had three interest rate cap agreements with two major financial
institutions which terminated in 1999. The Company paid $2,280,000 for
these agreements. The agreements entitled the Company to receive from the
counter-parties the amounts, if any, by which the selected market interest
rates exceed the strike rates stated in the agreements. The amount paid to
purchase the interest rate caps was amortized over the term of the
agreements.
The Company had a one-year total return swap agreement which terminated in
1999. The purpose was to increase exposure to the high yield bond market,
consistent with the Company's strategic asset allocation. The Company paid
interest on a notional amount of $25 million based on the one-month LIBOR
interest rate and received the total return of a high yield bond index on
the same notional amount. Net settlements were made quarterly. The position
was further hedged by ownership of a $25 million one-year bond that paid a
floating rate that was also based upon LIBOR. The net effect was the
equivalent of a $25 million investment in high-yield fixed maturities
without incurring the specific credit risks and transaction costs of
purchasing individual securities. The Company recognized ($930,000) and
$511,000 of income in 1999 and 1998, respectively, relating to this
derivative investment.
<PAGE>
During 1999, the Company invested in short Municipal Bond Index futures
with a face amount of approximately $14.1 million. The purpose of the
investment is to help reduce overall general account duration, consistent
with the Company's strategic asset allocation.
The Company is exposed to credit losses in the event of nonperformance by
the counter-party to its swap agreement. The Company anticipates, however,
that the counter-party will be able to fully satisfy its obligation under
the contract. The Company monitors the credit standing of the
counter-party. The futures contracts are traded on an exchange and have no
counter-party risk.
Real Estate
A summary of real estate held as of December 31 is as follows (000s
omitted):
<TABLE>
<CAPTION>
=================================== ================== ====================
1999 1998
----------------------------------- ------------------ --------------------
Cost:
<S> <C> <C>
Investment real estate $74,713 $83,537
Home office 16,390 16,064
----------------------------------- ------------------ --------------------
91,103 99,601
Less accumulated depreciation 32,357 37,256
----------------------------------- ------------------ --------------------
Total real estate $58,746 $62,345
=================================== ================== ====================
</TABLE>
Investment real estate and the home office buildings are being depreciated
using the straight-line basis over the useful lives of these assets. In
addition to the AVR provision, a loss contingency reserve of $2,100,000 at
December 31, 1999 and 1998, has been provided for potential impairments of
investment real estate.
Self-occupancy Rent
Under statutory accounting practices, the Company is required to include in
investment income and general insurance expense an amount representing
rental income for occupancy of its own buildings. Investment income
includes self-occupancy rental income of $1,077,181, $1,113,977 and
$1,092,600 in 1999, 1998 and 1997, respectively.
(5) Note Payable
As of December 31, 1999 and 1998, the Company has an outstanding liability
for borrowed money in the original amount of $1,300,000 as a result of a
non-recourse interest-free loan and grant made by the Community
Redevelopment Agency of the City of Los Angeles, California. The loan is
secured by real estate property with an appraisal value that exceeds the
loan principal balance. The loan will be amortized on a straight-line basis
over 240 months beginning in September 2001. The loan agreement includes a
grant provision forgiving 15% of the original balance in September 2001
upon the fulfillment of conditions specified in the loan agreement. It is
the Company's opinion that these conditions have been fully satisfied.
<PAGE>
(6) Related Party Transactions
The Company has entered into an agreement of permanent affiliation with
CUNA Mutual Insurance Society (CMIS), a mutual life insurer domiciled in
Wisconsin. The agreement is not a merger or consolidation, in that both
companies remain separate corporate entities, and both continue to be
separately owned and ultimately controlled by their respective policyholder
groups, who retain their voting rights without change. The agreement terms
include a provision for reinsurance of each company's individual life and
health business, joint development of business plans and distribution
systems for the sale of individual insurance and financial service products
within the credit union market, and a provision for the sharing of certain
resources and facilities. Expenses relating to shared resources and
facilities are allocated between the companies and their subsidiaries under
a jointly developed cost-sharing agreement. Expenses are allocated based on
specific identification or, if indeterminable, generally on the basis of
usage or benefit derived. These transactions give rise to intercompany
account balances, which are settled at least annually. Subsequent to each
year-end, the expense allocation process is subject to review by each
company. Based on these reviews, allocated expenses to each company may be
adjusted, if determined necessary.
CMLIC allocated expenses of $31,048,000 in 1999, $30,586,000 in 1998 and
$25,278,000 in 1997 to CMIS and its affiliates. CMIS allocated expenses to
the Company of $41,864,000 in 1999, $37,818,000 in 1998 and $34,096,000 in
1997.
Equity security investments on December 31, 1999 and 1998, include the
Company's wholly owned subsidiary, CMIA Wisconsin, Inc. and the 50%
ownership of CIMCO Inc. (CIMCO), a registered investment advisor. A wholly
owned subsidiary, Red Fox Motor Hotel Corporation, was dissolved in 1999
and the Company realized a gain of $213,000. The carrying value of the
subsidiary investments was $5,806,000 and $3,278,000 at December 31, 1999
and 1998, respectively.
The Company allocates expenses to its subsidiaries. These expenses, such as
salaries, rents, depreciation, and other operating expenses, represent the
subsidiaries' share of expenses and are allocated based on specific
identification or, if indeterminable, generally on the basis of usage or
benefit derived. These transactions give rise to intercompany account
balances, which are settled monthly.
The Company has a note receivable from CUNA Mutual Investment Corporation
(CMIC), a wholly owned subsidiary of CMIS, with a stated maturity date of
January 15, 2011. The effective yield on the date of the agreement in 1995
was 10.62%. The yield varies over the life of the note, as both the yield
and the payment stream are determined based on the pay-down activity of an
underlying notional pool of Federal National Mortgage Association
mortgages. The structure of this arrangement provides a hedge against the
Company's fixed maturity holdings, as the return varies inversely with the
return on the fixed maturity portfolio. The statement value of the note was
$3.4 million and $5.1 million at 1999 and 1998, respectively, and is
included in other invested assets. The Company recognized interest income
of $33,000 in 1999, $676,000 in 1998 and $1,074,000 in 1997 relating to
this note.
The Company is party to an agreement with CIMCO for investment advisory
services. CIMCO provides an investment program which complies with
policies, directives and guidelines
<PAGE>
established by the Company. For these services, the Company paid fees to
CIMCO totaling $2,350,000, $2,172,000, and $2,115,000 for 1999, 1998, and
1997, respectively.
CUNA Mutual created its own proprietary mutual funds entitled MEMBERS
Mutual Funds, which became available to the public in 1998. The carrying
value of the Company's investments in the funds was $12,533,000 and
$20,332,000 at 1999 and 1998, respectively, and is included with common
stocks.
(7) Separate Accounts
The Company has three separate account components. The first component is
used for the investment of premiums on flexible premium variable universal
life insurance policies and has ten subaccounts, which invest exclusively
in shares of a single corresponding fund. Nine of the funds - Capital
Appreciation Stock, Growth and Income Stock, Balanced (combination of
common stock and bond), Bond, Money Market, Treasury 2000, International
Stock, World Governments and Emerging Growth are offered as investment
options for the first generation of the Company's variable universal life
product. The tenth fund, Mid-Cap Stock, is offered as an investment option
for a second generation of the variable universal life product, while the
Treasury 2000 is not available for this generation. The second component is
used for the investment of group annuity premium deposits and has 10
subaccounts, which invest in all but the Treasury 2000 fund and Mid-Cap
Stock, plus High Income and Developing Markets subaccounts. The third
component is used for the investment of premiums received on variable
annuity contracts and has 11 subaccounts, which invest in all but the
Treasury 2000 fund, plus High Income and Developing Markets subaccounts.
(8) Annuity Reserves and Deposit Liabilities
The withdrawal characteristics of the Company's annuity contracts and
deposit liabilities as of December 31 are as follows (000s omitted):
<TABLE>
<CAPTION>
========================================================= ================== ===================
1999 1998
--------------------------------------------------------- ------------------ -------------------
<S> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment $ 923,751 $ 724,535
At book value less surrender charge of 5% or more 244,875 298,044
At market value 1,706,174 1,181,132
At book value, with minimal or no charge adjustment 699,544 714,170
Not subject to discretionary withdrawal 46,948 41,091
--------------------------------------------------------- ------------------ -------------------
3,621,292 2,958,972
Reinsurance ceded 378,290 395,706
--------------------------------------------------------- ------------------ -------------------
Total annuity reserves $3,243,002 $2,563,266
========================================================= ================== ===================
</TABLE>
(9) Reinsurance
In the ordinary course of doing business, the Company enters into
reinsurance agreements for the purpose of limiting its exposure to loss on
any one single insured or to diversify its risk and limit its overall
financial exposure. The Company remains contingently liable in the event
that a reinsurer is unable to meet the obligations assumed under the
reinsurance agreements.
<PAGE>
The effects of reinsurance on premium income and on claims benefit expenses
incurred are as follows (000s omitted):
<TABLE>
<CAPTION>
======================================== ================= ================= =================
1999 1998 1997
---------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Premium income:
Direct $506,538 $458,408 $423,146
Assumed from affiliates 56,846 48,355 39,644
Ceded to affiliates 20,875 18,369 30,118
Ceded to non-affiliates 4,700 3,899 3,062
---------------------------------------- ----------------- ----------------- -----------------
Premium income, net of reinsurance $537,809 $484,495 $429,610
---------------------------------------- ----------------- ----------------- -----------------
Benefit expenses:
Direct $233,737 $136,727 $100,413
Assumed from affiliates 17,591 13,875 11,266
Ceded to affiliates 10,857 12,278 11,141
Ceded to non-affiliates 677 1,389 1,360
---------------------------------------- ----------------- ----------------- -----------------
Benefit expenses, net of reinsurance $239,794 $136,935 $ 99,178
======================================== ================= ================= =================
</TABLE>
Policy reserves and claim liabilities are net of reinsurance balances of
(000s omitted) $453,448 and $464,940 at December 31, 1999 and 1998,
respectively.
(10) Liability for Claim Reserves
Activity in the liability for accident and health claim reserves, which is
included in the liabilities for policy reserves and policy and contract
claims in the accompanying statutory statements of admitted assets,
liabilities and surplus, is summarized as follows (000s omitted):
<TABLE>
<CAPTION>
================================================= ================== ==================
1999 1998
------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Balance as of January 1, net of reinsurance
recoverables of $820 and $679 $6,820 $5,589
Incurred related to:
Current year 9,238 5,960
Prior year (1,809) (464)
------------------------------------------------- ------------------ ------------------
Total incurred 7,429 5,496
------------------------------------------------- ------------------ ------------------
Paid related to:
Current year 3,543 2,766
Prior years 1,971 1,499
------------------------------------------------- ------------------ ------------------
Total paid 5,514 4,265
------------------------------------------------- ------------------ ------------------
Balance as of December 31, net of reinsurance
recoverables of $1,043 and $820 $8,735 $6,820
================================================= ================== ==================
</TABLE>
The liability for accident and health claim reserves for prior years
decreased by $1,809,000 in 1999 and $464,000 in 1998 due to experience
improvements as determined by the actuarial analyses of claim reserves.
<PAGE>
(11) Federal Income Taxes
The Company files a consolidated life/nonlife federal income tax return
with its subsidiaries. The Company's policy is to collect from or refund to
its subsidiaries the amount of taxes applicable to its operations had it
filed a separate return. Net federal income taxes payable or recoverable
reflect balances payable to or due from subsidiaries and the Internal
Revenue Service (IRS) as follows (000s omitted):
<TABLE>
<CAPTION>
========================= ====================== ======================
1999 1998
------------------------- ---------------------- ----------------------
<S> <C> <C>
Due from subsidiaries $ - $ -
Due (to)/from IRS (15,906) (5,025)
-------- --------
$(15,906) $(5,025)
========================= ====================== ======================
</TABLE>
The actual federal income tax expense differs from "expected" tax expense
computed by applying the statutory federal income tax rate of 35% to the
earnings before federal income taxes and net realized capital gains
(losses) for the following reasons (000s omitted):
<TABLE>
<CAPTION>
================================ ======================== ========================= ========================
1999 1998 1997
Amount Percent Amount Percent Amount Percent
-------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Tax expense
computed at federal
corporate tax rate $6,824 35.0% $5,460 35.0% $9,164 35.0%
Nontaxable
investment income (2,959) (15.2) (2,587) (16.6) (1,419) (5.4)
Mutual life insurance
company differential
earnings tax 3,276 16.8 3,450 22.1 4,200 16.0
Deferred acquisition costs 870 4.5 681 4.4 1,465 5.6
Book and tax reserve
change (527) (2.7) (1,569) (10.1) (670) (2.6)
Prior-year over/under
accrual (979) (5.0) (72) (0.5) (200) (.8)
General and
administrative expenses 1,208 6.2 (543) (3.5)
Other, net (170) (0.9) (619) (3.9) 857 3.3
Accrued policyholder
dividends 259 1.3 235 1.5 (1,189) (4.5)
-------------------------------- ------------ ----------- ------------ ------------ ----------- ------------
Total federal income
tax expense $7,802 40.0% $4,436 28.4% $12,208 46.6%
================================ ============ =========== ============ ============ =========== ============
</TABLE>
The Company's consolidated federal income tax return has been examined by
the IRS through the year ending December 31, 1996. No material adjustments
resulted from the examination.
<PAGE>
(12) Benefit Plans
Post Retirement Benefit
The Company has two noncontributory defined benefit pension plans that
cover substantially all employees and agents who meet eligibility
requirements. Until December 12, 1997, the pension plans were funded
through a Deposit Administration contract issued by the Company. On
December 12, 1997, the Company transferred the plan assets from the Deposit
Administration contract to State Street Bank and Trust Company as trustee.
The amount transferred was $43,871,000 for the defined benefit pension
plans. Plan assets are now invested primarily in the Ultra Series Funds, an
affiliated investment, which serves as the investment vehicle for the
Company's variable insurance, annuity and pension products. The total
pension expense for 1999, 1998 and 1997 was $1,812,000, $2,614,000, and
$2,674,000, respectively.
The Company also provides certain medical and life insurance benefits for
retirees and their beneficiaries and covered dependents. The Company's
medical benefit plan provides subsidized coverage after retirement for
eligible full-time employees and agents, their spouses, and dependents, up
to age 65. Starting at age 65, retirees pay the full cost of their
coverage. Additionally, the Company provides group term life insurance for
its retirees, the face amount of which is based on the individual's salary
at retirement. The cost of post-retirement benefits other than pensions is
recognized by the Company during the employee's active working careers. The
Company adopted this accounting policy as of January 1, 1992, and is
amortizing the related initial impact over twenty years.
Financial information related to the plans is shown below (000s omitted):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1999 1998 1999 1998
----------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Benefit obligation at December 31 $ (53,672) $ (47,912) $(8,738) $(8,616)
Fair value of plan assets at
December 31 62,312 54,074 - -
----------------- ----------------- ---------------- ---------------
Funded status 8,640 6,162 (8,738) (8,616)
Unrecognized prior service cost - - 20 32
Unrecognized net (gain) loss (15,541) (14,444) 749 1,704
Unrecognized net transition
(asset) liability (1,232) - 1,467 1,599
----------------- ----------------- ---------------- ---------------
(Accrued) prepaid benefit cost $ (8,133) $ (8,282) $(6,502) $(5,281)
================= ================= ================ ===============
Benefit cost $ 1,187 $ 744 $ 1,506 $ 1,577
================= ================= ================ ===============
Pension Benefits Other Benefits
1999 1998 1999 1998
------------------ ---------------- ---------------- ---------------
Discount rate 7.0% 7.0% 7.5% 7.5%
Expected return on plan assets 7.0% 7.0% 8.0% 8.0%
Rate of compensation increase 5.0% 5.0% 5.0% 5.0%
</TABLE>
<PAGE>
For measurement purposes, an 8.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.0%.
Defined Contribution Pension Plans
The Company has two defined contribution plans (401[k] and thrift) which
cover all regular full-time employees and agents who meet certain
eligibility requirements. Under the plans, the Company contributes an
amount equal to 50% of the employees' contributions, up to a maximum of 3%
of the employees' salaries. The Company contributions were approximately
$1,379,000, $1,212,000 and $998,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
Nonqualified Pension Plans
In addition to the defined benefit and defined contribution plans mentioned
above, the Company has a variety of deferred compensation and supplemental
benefit plans available to qualifying employees. Liabilities of these plans
totaled $2,079,000 and $1,929,000 as of December 31, 1999 and 1998,
respectively.
(13) Statutory Financial Data
Iowa has adopted Risk Based Capital (RBC) requirements for U. S. life
insurers. If prescribed levels of RBC are not maintained, certain actions
may be required on the part of the Company or its regulators. At December
31, 1999, the Total Adjusted Capital and Authorized Control Level - Risk
Based Capital for the Company were $291,858,000 and $49,642,000,
respectively. At this level of total adjusted capital, no action is
required.
(14) Commitments and Contingencies
The Company participates in a securities lending program. The Company's
policy requires that a minimum of 102% of the fair value of the loaned
securities must be fully collateralized with cash, U.S. Government
securities or irrevocable bank letters of credit. The security custodian
monitors the collateral position on a daily basis. At December 31, 1999 and
1998, the amortized cost of securities loaned by the Company totaled
$54,420,000 and $9,935,000 respectively.
The Company is liable for guaranty fund assessments related to certain
unaffiliated insurance companies that have become insolvent during 1999 and
prior. The Company includes a provision for all known assessments that will
be levied as well as an estimate of amounts (net of estimated future
premium tax recoveries) that it believes will be assessed in the future for
which the life insurance industry has estimated the cost to cover losses to
policyholders. The Company is also contingently liable for any future
guaranty fund assessments related to insolvencies of unaffiliated insurance
companies for which the life insurance industry has been unable to estimate
the cost to cover losses to policyholders.
The Company is a defendant in various legal actions arising out of the
conduct of its business. In the opinion of management, the ultimate
liability, if any, resulting from all such pending actions will not
materially affect the financial position or results of operations of the
Company.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Schedule of Selected Financial Data
Year Ended December 31, 1999
(in thousands)
The following is a summary of certain financial data included in other exhibits
and schedules subjected to audit procedures by independent auditors and utilized
by actuaries in the determination of reserves.
<TABLE>
<CAPTION>
Investment income earned
<S> <C>
Government bonds 4,578
Other bonds (unaffiliated) 108,210
Bonds of affiliates --
Preferred stocks (unaffiliated) 4
Preferred stocks of affiliates --
Common stocks (unaffiliated) 1,427
Common stocks of affiliates --
Mortgage loans on real estate 27,133
Real estate 9,486
Premium notes, policy loans and liens 6,609
Collateral loans --
Cash on hand and on deposit 96
Short-term investments 4,604
Other invested assets 2,060
Derivative financial instruments (3,190)
Aggregate write-in for investment income 232
----
Gross investment income $161,249
========
Real estate owned - book value less encumbrances $ 58,746
=========
Mortgage loans - book value:
Farm mortgages $ --
Residential mortgages --
Commercial mortgages 325,603
--------
Total mortgage loans $ 325,603
=========
Mortgage loans by standing - book value:
Good standing $ 311,656
Good standing with restructured terms 8,057
Interest overdue more than three months,
not in foreclosure 5,890
Foreclosure in process --
Other long-term assets - statement value $ 14,962
Collateral loans --
Bonds and stocks of parents, subsidiaries and
affiliates - book value
Bonds --
Preferred stocks --
Common stocks 266
<PAGE>
Bonds and short-term investments by class and maturity:
Bonds by maturity - statement value
Due within one year or less 219,908
Over 1 year through 5 years 793,294
Over 5 years through 10 years 479,631
Over 10 years through 20 years 79,800
Over 20 years 19,162
-------
Total by maturity $1,591,795
==========
Bonds by class - statement value
Class 1 1,150,780
Class 2 333,423
Class 3 72,830
Class 4 25,792
Class 5 7,924
Class 6 1,046
------
Total by class $1,591,795
==========
Total bonds publicly traded $1,217,533
Total bonds privately placed 374,262
Preferred stocks - statement value 41
Common stocks - market value 82,086
Short-term investments - book value 82,470
Financial options owned - statement value 1,184
Financial options written and in force - statement value --
Financial futures contracts open - current price --
Cash on deposit 5,049
Life insurance in force:
Industrial $ --
Ordinary 11,701,626
Credit life --
Group life 2,809,157
Amount of accidental death insurance in force under
ordinary policies 446,238
Life insurance policies with disability provisions in force:
Industrial --
Ordinary 5,221,971
Credit life --
Group life 40
Supplementary contracts in force:
Ordinary - not involving life contingencies
Amount on deposit 52,856
Income payable 7,877
Ordinary - involving life contingencies
Income payable 4,144
<PAGE>
Group - not involving life contingencies
Amount of deposit --
Income payable --
Group - involving life contingencies
Income payable --
Annuities:
Ordinary
Immediate - amount of income payable 2,095
Deferred - fully paid - account balance 532,497
Deferred - not fully paid - account balance 1,905,531
Group
Immediate - amount of income payable --
Fully paid account payable --
Not fully paid - account balance --
Accident and health insurance - premiums in force:
Ordinary $ 2,767
Group 22,518
Credit --
Deposit funds and dividend accumulations:
Deposit funds - account balance 1,149
Dividend accumulations - account balance 158,377
Claim payments 1999:
Group accident and health - year ended December 31
1999 3,186
1998 1,385
1997 55
1996 30
1995 11
Prior 74
Other accident and health
1999 357
1998 164
1997 54
1996 54
1995 53
Prior 92
Other coverages that use developmental methods
To calculate claims reserves
1999 --
1998 --
1997 --
1996 --
1995 --
Prior --
See accompanying independent auditors' report.
</TABLE>
