Form S-1 MEMBERS Life Insurance
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As filed with Securities and Exchange Commission on October 1, 2015
File No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
Registration Statement Under the Securities Act of 1933
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MEMBERS LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
IOWA 6311 39-1236386
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
2000 HERITAGE WAY
WAVERLY, IOWA 50677-9202
(319) 352-4090
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
ROSS HANSEN, ESQ.
MEMBERS LIFE INSURANCE COMPANY
2000 HERITAGE WAY
WAVERLY, IOWA 50677-9202
(319) 352-4090
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPY TO:
Stephen E. Roth, Esq.
Thomas E. Bisset, Esq.
Sutherland Asbill & Brennan LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001
(202) 383-0100
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ X ]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ X ] Smaller reporting company [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE PER AGGREGATE REGISTRATION
REGISTERED UNIT OFFERING PRICE FEE**
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Interests in Risk Control * * $2,884,806,356 $290,500
Accounts of Flexible
Premium Deferred
Variable Annuity
Contract
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*The maximum aggregate offering price is estimated solely for the purposes
of determining the registration fee. The amount to be registered and the
proposed maximum offering price per unit are not applicable since these
securities are not issued in predetermined amounts or units.
**Pursuant to Rule 457(p) under the Securities Act of 1933, the entire
registration fee of $290,500 associated with securities registered pursuant
to the Registrant's Registration Statement on Form S-1 (File No.
333-207150), which was filed on September 25, 2015 ("Registration Statement
No. 1") and withdrawn on September 30, 2015, is being used to offset the
registration fee associated with this registration statement. No
securities were sold under Registration Statement No. 1.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
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 SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED , 2015
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE OR OTHER JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
MEMBERS(R) HORIZON FLEXIBLE PREMIUM DEFERRED VARIABLE
AND INDEX LINKED ANNUITY
ISSUED BY:
MEMBERS LIFE INSURANCE COMPANY
2000 HERITAGE WAY
WAVERLY, IOWA 50677
TELEPHONE NUMBER: 800-798-5500
OFFERED THROUGH: CUNA BROKERAGE SERVICES, INC.
This Prospectus describes the MEMBERS(R) Horizon Flexible Premium Deferred
Variable and Index Linked Annuity, an individual or joint owned, flexible
premium variable and index-linked deferred annuity contract (the "Contract")
issued by MEMBERS Life Insurance Company (the "Company", "we", "us", or "our").
Capitalized terms used in this prospectus and not otherwise defined have the
meanings set forth in the "Glossary," starting on page [o].
The Contract, which you may purchase with an initial Purchase Payment that is at
least $5,000, is designed primarily for individuals, trusts, and certain
retirement plans that qualify for the special federal income tax treatment
associated with annuity contracts. The Contract provides for the accumulation of
retirement savings by allocating your monies among various Variable Subaccounts
and/or Risk Control Accounts, and also offers a number of payout options.
The variable annuity portion of the Contract is supported by the assets of the
MEMBERS Horizon Variable Separate Account, a Separate Account of the Company,
which is divided into Variable Subaccounts that each invest in an underlying
Fund. You may allocate your Purchase Payments among one or more Variable
Subaccounts, and your investment results in a Variable Subaccount will depend on
the investment performance of the related Fund. You bear the entire investment
risk of any amounts you allocate to the Variable Subaccounts. There is a
Variable Subaccount that invests in each of the following Funds. This Prospectus
is accompanied by a current prospectus for each such Fund. You should read a
Fund's prospectus carefully before investing.
AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS)
Invesco V.I. Small Cap Equity Fund (Series I)
AMERICAN FUNDS INSURANCE SERIES(R)
American Funds IS(R) Asset Allocation 1 (Series I)
American Funds IS(R) Bond (Series I)
American Funds IS(R) Growth (Series I)
American Funds IS(R) High Income (Series I)
American Funds IS(R) International (Series I)
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. I
COLUMBIA THREADNEEDLE
Columbia VP Emerging Markets Bond 1
DFA INVESTMENT DIMENSIONS GROUP INC.
DFA VA International Small
DFA VA International Value
DFA VA U.S. Large Value
DFA VA U.S. Targeted Value
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Quality Bond (Institutional)
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Franklin High Income VIP (Class 1)
Templeton Global Bond VIP (Class 1)
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Goldman Sachs VIT Core Fixed Income Trust (Institutional)
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Emerging Markets Equity Fund (Investor)
MFS(R) VARIABLE INSURANCE TRUST
MFS(R) VIT Total Return Bond (Initial)
MFS(R) VIT Utilities Series (Initial)
MORGAN STANLEY
Morgan Stanley UIF Global Infrastructure (Class 1)
Morgan Stanley UIF Growth (Class 1)
NORTHERN LIGHTS VARIABLE TRUST
TOPS(R) Aggressive Growth ETF (Class 1)
TOPS(R) Balanced ETF (Class 1)
TOPS(R) Conservative ETF (Class 1)
TOPS(R) Growth ETF (Class 1)
TOPS(R) Moderate Growth ETF (Class 1)
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer International Growth Fund/VA (Non-Service Shares)
PIMCO VARIABLE INSURANCE TRUST
PIMCO CommodityRealReturn(R) Strategy Portfolio
PIMCO VIT All Asset (Institutional Class)
PIMCO VIT Real Return (Institutional Class)
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Blue Chip Growth Portfolio
T. Rowe Price Equity Income Portfolio
VANGUARD VARIABLE INSURANCE FUND
Vanguard VIF Capital Growth
Vanguard VIF Diversified Value
Vanguard VIF Equity Index
Vanguard VIF High Yield Bond
Vanguard VIF International
Vanguard VIF Mid-Cap Index
Vanguard VIF Money Market
Vanguard VIF REIT Index
Vanguard VIF Small Company Growth
Vanguard VIF Total Bond Market Index
Vanguard VIF Total Stock Market Index
The index-linked portion of the Contract is supported by the assets of a
non-registered Separate Account of the Company which has been established to
support the Company's obligations with respect to the Risk Control Accounts. You
may allocate your Purchase Payments to one or more risk control accounts. For
each Risk Control Account, you must select one of the two options we make
available under the Contract, the Secure Account or the Growth Account. The Risk
Control Accounts do not involve an investment in any underlying Fund, and
instead are based in part on the investment experience of external Indices. For
each Risk Control Account, you must also select a reference Index from one of
two reference Indices we make available, the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500 Index") and the Morgan Stanley Capital
International Europe, Australasia and Far East Index (the "MSCI EAFE Index"). We
credit interest under each Risk Control Account based in part of the performance
of the reference Index, subject to the applicable Interest Rate Cap and Interest
Rate Floor.
The Secure Account option currently has an Index Rate Floor of 0%, for the
current year. The Index Rate Floor protects amounts allocated to either Secure
Account from declines in the external Indices. This means that negative
investment performance of the applicable Index would not reduce your Risk
Control Account Value. The Secure Account provides your Risk Control Account
Value the most protection from negative investment performance of the reference
Index. The Growth Account option has an Index Rate Floor of -10%. This means
that negative investment performance of the applicable reference Index could
result in a negative Index Rate of Return that would reduce your Risk Control
Account Value. However, any negative Index Rate of Return would not reduce your
Risk Control Account Value by more than 10% for any one-year period regardless
of whether the negative investment performance of the Index was less than - 10%.
In return for accepting some risk of loss to your Risk Control Account Value
allocated to the Growth Account, the Index Rate Cap for the Growth Account is
higher than the Index Rate Cap for the Secure Accounts, which allows for the
potential for greater increases to your Risk Control Account Value allocated to
the Growth Account. THERE IS A RISK OF LOSS OF YOUR PRINCIPAL BECAUSE YOU AGREE
TO ABSORB ALL LOSSES TO THE EXTENT THEY DO NOT EXCEED THE APPLICABLE INDEX RATE
FLOOR. In addition, if the performance of the reference Index equaled or
approached the Index Rate Floor, the deduction of Contract charges could result
in a reduction of Contract Value greater than if only the Index Rate Floor
applied.
Purchase Payments and transfer amounts allocated to a Variable Subaccount or
Risk Control Account are held in insulated Separate Accounts, the assets of
which are not chargeable with liabilities arising out of any other business that
we conduct. Our General Account assets are also available to meet the guarantees
under the Contract as well as our other general obligations. THE GUARANTEES IN
THIS CONTRACT ARE SUBJECT TO THE COMPANY'S FINANCIAL STRENGTH AND CLAIMS-PAYING
ABILITY.
We may offer additional Variable Subaccounts and Risk Control Accounts in the
future. Not all Variable Subaccounts and Risk Control Accounts may be available
in all markets where we offer the Contract.
The Contract offers two series: Series B and Series C. For Series B Contracts
only, if you surrender your Contract or take a partial withdrawal during the
Surrender Charge Period, we will apply a Surrender Charge to the amount being
surrendered or withdrawn that is in excess of the free annual withdrawal amount
unless you qualify for the Nursing Home or Hospital waiver or terminal illness
waiver, described in this Prospectus. Not all waiver benefits are available in
all states. The terms under which the Surrender Charge will be waived may vary
in some states and are described in Contracts issued in those states. Surrender
Charges do not apply to Series C Contracts. Series C Contracts are not available
in all states. In addition, for both Series B and Series C Contracts, if you
surrender your Contract or take a partial withdrawal during the Accumulation
Period, your Risk Control Account (if any) will be subject to a Market Value
Adjustment. See "Fees and Expenses" on page [o]. See "Market Value Adjustment"
on page [o] and "Access to Your Money" on page [o]. The Market Value Adjustment
may be either positive or negative, which means the Market Value Adjustment may
increase or decrease the amount you receive upon surrender or partial
withdrawal.
THERE ARE RISKS ASSOCIATED WITH THE CONTRACT. These risks include liquidity
risks, investment risks, market risks, Company risks, and interest rate risks.
Also, a Market Value Adjustment (in each case, as applicable), and for Series B
contracts Surrender Charges, may apply for a number of years, so that the
Contract should only be purchased for the long-term. Under some circumstances,
you may receive less than the sum of your Purchase Payments under the Contract.
In addition, partial withdrawals and surrenders will be subject to income tax
and may be subject to a 10% Internal Revenue Service ("IRS") penalty tax if
taken before age 59 1/2. Accordingly,
you should carefully consider your income and liquidity needs before purchasing
a Contract. Additional information about these risks appears under "Highlights"
on page [o], "Access to Your Money" on page [o], and "Federal Income Tax
Matters" on page [o].
We offer the Contract through CUNA Brokerage Services, Inc., which is the
principal underwriter. The principal business address of CUNA Brokerage
Services, Inc. is 2000 Heritage Way, Waverly, IA 50677. The principal
underwriter is not required to sell any specific number or dollar amount of
Contracts, but will use its best efforts to sell the Contracts. There are no
arrangements to place funds in an escrow, trust, or similar account. The
offering of the Contract is intended to be continuous.
Registration statements relating to this offering have been filed with the
Securities and Exchange Commission ("SEC"). The statement of additional
information ("SAI") dated [o], 2015, relating to the variable annuity portion of
the Contract, is part of a registration statement filed on Form N-4. The SAI is
available free of charge. You may request one by writing to our Administrative
Office at 2000 Heritage Way, Waverly, Iowa 50677, or by calling 1-800-798-5500.
This Prospectus and the SAI can also be obtained from the SEC's website at
www.sec.gov. The table of contents for the SAI appears at the back of this
Prospectus. The SAI is incorporated by reference into this Prospectus.
This Prospectus provides important information you should know before investing.
Please keep the prospectus for future reference.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE CONTRACTS ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK
GUARANTEED. THEY ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL.
The date of this Prospectus is , 2015
TABLE OF CONTENTS
GLOSSARY ........................................................................................... 1
HIGHLIGHTS ......................................................................................... 5
Contract Series ................................................................................ 5
How Your Contract Works ........................................................................ 5
Contract Charges ............................................................................... 9
Risk Factors ................................................................................... 10
EXPENSE TABLES ..................................................................................... 11
Other Information .............................................................................. 14
GETTING STARTED - THE ACCUMULATION PERIOD .......................................................... 15
Purchasing a Contract .......................................................................... 15
Tax-Free "Section 1035" Exchanges .............................................................. 16
Owner .......................................................................................... 16
Divorce ........................................................................................ 16
Annuitant ...................................................................................... 17
Beneficiary .................................................................................... 17
Right to Examine ............................................................................... 17
Thirty Day Period to Discontinue Initial Risk Control Accounts ................................. 17
ALLOCATING YOUR PURCHASE PAYMENT ................................................................... 18
Purchase Payment ............................................................................... 18
Purchase Payment Allocation .................................................................... 18
AUTOMATIC REBALANCE PROGRAM ........................................................................ 21
CONTRACT VALUE ..................................................................................... 22
TRANSFERS .......................................................................................... 22
VARIABLE SUBACCOUNT OPTION ......................................................................... 23
Funds .......................................................................................... 24
Availability of the Funds ...................................................................... 31
Addition, Deletion, or Substitution of Investments ............................................. 32
Frequent Transfers Procedures .................................................................. 32
Fund Frequent Trading Policies.................................................................. 33
Voting Rights................................................................................... 34
Variable Subaccount Value ...................................................................... 34
RISK CONTROL ACCOUNT OPTION ........................................................................ 35
Risk Control Account Value ..................................................................... 35
Risk Control Account Maturity Date ............................................................. 41
Holding Account Value .......................................................................... 42
The Holding Account Value at any time is equal to: ............................................. 42
MARKET VALUE ADJUSTMENT ............................................................................ 43
Purpose of the Market Value Adjustment ......................................................... 43
Application and Waiver ......................................................................... 44
Market Value Adjustment Formula ................................................................ 45
Bank of America/Merrill Lynch Index ............................................................ 46
SURRENDER VALUE .................................................................................... 46
ACCESS TO YOUR MONEY ............................................................................... 47
i
Partial Withdrawals ............................................................................ 47
Surrenders ..................................................................................... 49
Partial Withdrawal and Surrender Restrictions .................................................. 49
Right to Defer Payments......................................................................... 49
DEATH BENEFIT ...................................................................................... 50
Death of the Owner ............................................................................. 50
Death of Annuitant While the Owner is Living ................................................... 50
Death Benefit Payment Options .................................................................. 50
Death of Owner or Annuitant After the Payout Date............................................... 51
Interest on Death Benefit Proceeds ............................................................. 51
Abandoned Property Requirements ................................................................ 51
INCOME PAYMENTS - THE PAYOUT PERIOD................................................................. 51
Payout Date .................................................................................... 51
Payout Period .................................................................................. 52
Terms of Income Payments ....................................................................... 52
INCOME PAYOUT OPTIONS .............................................................................. 52
Options ........................................................................................ 53
FEDERAL INCOME TAX MATTERS ......................................................................... 54
Tax Status of the Contracts .................................................................... 54
Taxation of Non-Qualified Contracts ............................................................ 54
Taxation of Qualified Contracts ................................................................ 55
Federal Estate Taxes, Gift and Generation-Skipping Transfer Taxes............................... 57
Medicare Tax ................................................................................... 57
Same-Sex Spouses ............................................................................... 57
Annuity Purchases By Nonresident Aliens and Foreign Corporations ............................... 57
Possible Tax Law Changes ....................................................................... 57
Important Information about the Indices ........................................................ 58
OTHER INFORMATION .................................................................................. 59
Cyber Security ................................................................................. 60
Authority to Change ............................................................................ 60
Incontestability ............................................................................... 60
Misstatement of Age or Gender .................................................................. 61
Conformity with Applicable Laws ................................................................ 61
Reports to Owners .............................................................................. 61
Change of Address .............................................................................. 61
Inquiries ...................................................................................... 61
CORPORATE HISTORY OF THE COMPANY ................................................................... 61
Financial Information .......................................................................... 62
Investments .................................................................................... 62
Reinsurance .................................................................................... 63
Policy Liabilities and Accruals ................................................................ 63
POTENTIAL RISK FACTORS THAT MAY AFFECT OUR BUSINESS AND OUR FUTURE RESULTS ......................... 63
SELECTED FINANCIAL DATA ............................................................................ 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............. 69
Cautionary Statement Regarding Forward-Looking Information ..................................... 69
Overview ....................................................................................... 69
ii
Critical Accounting Policies .................................................................. 70
Executive Summary ............... ............................................................. 76
Results of Operations for the Years ended December 31, 2014, 2013 and 2012 .................... 76
Financial Condition ........................................................................... 77
Liquidity and Capital Resources ............................................................... 78
Statutory Financial Data and Dividend Restrictions ............................................ 79
Contractual Obligations ....................................................................... 80
Quantitative and Qualitative Disclosures about Market Risk .................................... 80
MANAGEMENT ........................................................................................ 82
Directors and Executive Officers .............................................................. 82
Transactions with Related Persons, Promoters and Certain Control Persons ...................... 83
Committees of the Board of Directors .......................................................... 85
Compensation Committee Interlocks and Insider Participation ................................... 85
Director Compensation ......................................................................... 87
Legal Proceedings ............................................................................. 87
FINANCIAL STATEMENTS .............................................................................. 89
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS ............................................. 90
TABLE OF CONTENTS ................................................................................. 90
APPENDIX A: EXAMPLES OF PARTIAL WITHDRAWALS AND FULL SURRENDER WITH
APPLICATION OF SURRENDER CHARGE AND MARKET VALUE ADJUSTMENT ................................... A-1
THE CONTRACT MAY NOT BE AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL ANY CONTRACT AND IT IS NOT SOLICITING AN OFFER TO
BUY ANY CONTRACT IN ANY STATE IN WHICH THE OFFER OR SALE IS NOT PERMITTED. WE DO
NOT AUTHORIZE ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS REGARDING THE
OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN THE INFORMATION AND
REPRESENTATIONS CONTAINED IN THIS PROSPECTUS.
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GLOSSARY
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We have tried to make this Prospectus as understandable as possible. However,
in explaining how the Contract works, we have had to use certain terms that have
special meanings. We define these terms below.
1940 ACT - The Investment Company Act of 1940, as amended.
ACCUMULATION CREDIT - A unit of measure used to calculate Risk Control Account
Value.
ACCUMULATION CREDIT FACTOR - A dollar value for each Accumulation Credit in a
Risk Control Account.
ACCUMULATION PERIOD - The phase of the Contract that begins on the Contract
Issue Date and ends on the Payout Date, or the date the Contract is terminated
if earlier.
ACCUMULATION UNIT - A unit of measure used to calculate Variable Subaccount
Value.
ACCUMULATION UNIT VALUE - A dollar value for each Accumulation Unit in a
Variable Subaccount on a given Business Day.
ADJUSTED INDEX VALUE - The Unadjusted Index Value adjusted for the Index Rate
Cap or Index Rate Floor for the current Risk Control Account Year.
ADMINISTRATIVE OFFICE - MEMBERS Life Insurance Company, 2000 Heritage Way,
Waverly, Iowa 50677. Phone: 1-800-798-5500.
AGE - Age as of last birthday.
ALLOCATION LEVEL - Specific levels identified in your Contract for the sole
purpose of administering allocation instructions according to the requirements
of the Contract.
ANNUITANT (JOINT ANNUITANT) - The natural person(s) whose life (or lives)
determines the amount of annuity payments under the Contract.
AUTHORIZED REQUEST - A signed and dated request that is in Good Order. A request
to change your allocation instructions must be signed by all Owners. A request
to change a party to the Contract, change the Payout Date or request a partial
withdrawal or full surrender of the Contract must be signed by all Owners and
any irrevocable Beneficiary or an assignee. An Authorized Request may also
include a phone, fax or electronic request for specific transactions that you
make under the terms of an executed phone, fax or electronic authorization with
an original signature(s), on file at our Administrative Office.
AUTOMATIC REBALANCE PROGRAM - A program to automatically transfer values among
the Risk Control Accounts and/or Variable Subaccounts to achieve the balance of
Contract Value equal to the Allocation Levels you requested.
BAILOUT PROVISION - If the Index Rate Cap for your Risk Control Account is set
below the bailout rate prominently displayed on your Contract Data Page attached
to the front of the cover page of the Contract, the Bailout Provision allows you
to transfer the Risk Control Account Value from that Risk Control Account during
the 30-day period following the Risk Control Account Anniversary. A Market Value
Adjustment will not apply to such transfer.
BENEFICIARY - The person(s) (or entity) you named to receive proceeds payable
due to the death of the Owner. Before the Payout Date, if no Beneficiary
survives the Owner, we will pay the Death Benefit proceeds to the Owner's
estate.
BUSINESS DAY - Any day that the New York Stock Exchange is open for trading. All
requests for transactions that are received at our Administrative Office in Good
Order on any Business Day prior to market close, generally 4:00 P.M. Eastern
Time, will be processed as of the end of that Business Day.
COMPANY - MEMBERS Life Insurance Company; also referred to as "we", "our" and
"us".
CONTRACT - The MEMBERS Horizon Flexible Premium Deferred Variable Annuity, an
individual or joint owned, flexible premium deferred variable and index-linked
annuity contract issued by MEMBERS Life Insurance Company.
CONTRACT ANNIVERSARY - The same day and month as the Contract Issue Date for
each year the Contract remains in force. If a Contract Anniversary does not fall
on a Business Day, any transactions required as of that date will be
1
processed on the next Business Day but will be effective as of that Contract
Anniversary.
CONTRACT FEE - A fee assessed against Contract Value allocated to the Variable
Subaccounts and the Risk Control Accounts. The portion of the fee assessed to
the Variable Subaccounts equals a percentage of the average daily ending value
of the assets of the Variable Subaccounts to which the Variable Subaccount Value
is allocated. The portion of the fee assessed to the Risk Control Accounts
equals a percentage of the Accumulation Credit Factor for the Risk Control
Account at the start of a Risk Control Account Year. The Contract Fee is shown
on your Contract Data Page. This fee compensates us for the expenses and expense
risk assumed by us.
CONTRACT ISSUE DATE - The date from which Contract Years and Contract
Anniversaries are determined. The Contract Issue Date is shown on your Contract
Data Page.
CONTRACT VALUE - The total value of your annuity during the Accumulation Period.
All values are calculated as of the end of a Business Day.
CONTRACT YEAR - Any twelve-month period beginning on the Contract Issue Date or
Contract Anniversary and ending on the next Contract Anniversary.
DATA PAGE - Pages attached to your Contract that describe certain terms
applicable to your specific Contract.
DEATH BENEFIT - The Contract Value as of the date Death Benefits are payable. We
do not apply the Surrender Charge or Market Value Adjustment in determining the
Death Benefit payable.
EARNINGS - Your Contract Value minus Purchase Payments not previously withdrawn.
EFFECTIVE ANNUAL INTEREST RATE - The interest rate that applied to Purchase
Payments allocated to the Holding Account during the Multiple Source Waiting
Period or a Holding Period. Values in the Holding Account may be credited a
different Effective Annual Interest Rate if deposited on different dates.
FREQUENT TRANSFERS PROCEDURES - Policies and procedures that we have adopted in
order to try to protect Owners and the Funds from potentially harmful trading
activity.
FUND - Each investment portfolio or any other open-end management investment
company or unit investment trust in which a Variable Subaccount invests.
GENERAL ACCOUNT - All of the Company's assets other than the assets in the
Separate Accounts.
GOOD ORDER - A request or transaction generally is considered in "Good Order" if
we receive it in our Administrative Office within the time limits, if any,
prescribed in this Prospectus for a particular transaction or instruction, it
includes all information necessary for us to execute the requested instruction
or transaction, and is signed by the individual or individuals authorized to
provide the instruction or engage in the transaction. A request or transaction
may be rejected or delayed if not in Good Order. Good Order generally means the
actual receipt by us of the instructions relating to the requested transaction
in writing (or, when permitted, by telephone or Internet as described above)
along with all forms, information and supporting legal documentation we require
to effect the instruction or transaction. This information and documentation
generally includes, to the extent applicable: the completed application or
instruction form; your contract number; the transaction amount (in dollars or
percentage terms); the names and allocations to and/or from the Funds affected
by the requested transaction; the signatures of all Owners (exactly as indicated
on the Contract), if necessary; Social Security Number or Tax I.D.; and any
other information or supporting documentation that we may require, including any
consents. With respect to Purchase Payments, Good Order also generally includes
receipt by us of sufficient funds to effect the purchase. We may, in our sole
discretion, determine whether any particular transaction request is in Good
Order, and we reserve the right to change or waive any Good Order requirement at
any time. If you have any questions, you should contact us or your financial
professional before submitting the form or request.
HOLDING ACCOUNT - An account that holds each Purchase Payment pending investment
in a Risk Control Account. The Holding Account cannot be elected as an
Investment Option. The Holding Account is part of our General Account.
HOLDING ACCOUNT VALUE - The value of the Contract in the Holding Account.
HOLDING PERIOD - The period of time starting on the date a Purchase Payment is
allocated to the
2
Holding Account until the date the Holding Account Value is transferred to the
Risk Control Account(s). The Holding Period cannot be longer than 6 months.
HOSPITAL - A facility that is licensed and operated as a hospital according to
the law of the jurisdiction in which it is located.
INCOME PAYOUT OPTION - The choices available under the Contract for payout of
your Contract Value.
INDEX, INDICES - The reference Index used to determine the rate of return as
part of the Accumulation Credit Factor calculation for the Risk Control Account.
INDEX RATE CAP - The maximum annual Index rate of return used as part of the
Accumulation Credit Factor calculation for a Risk Control Account, prior to the
deduction of the Contract Fee. We may change this rate at the beginning of a
Risk Control Account Year.
INDEX RATE FLOOR - The minimum annual Index rate of return used as part of the
Accumulation Credit Factor calculation for a Risk Control Account, prior to the
deduction of the Contract Fee. This rate will not change during the life of your
Contract.
INITIAL INDEX VALUE - The value for the reference Index as of the start of a
Risk Control Account Year.
INTERNAL REVENUE CODE - The Internal Revenue Code of 1986, as amended.
INVESTMENT OPTIONS - The choices available under this Contract for allocation of
your Purchase Payment(s) and Contract Value. Choices include the Risk Control
Accounts ("Risk Control Account Option") and the Variable Subaccounts ("Variable
Subaccount Option").
IRREVOCABLE BENEFICIARY - A Beneficiary who has certain rights which cannot be
changed unless he or she consents to the change.
ISSUE DATE - The date on which we issue the Contract.
MARKET VALUE ADJUSTMENT - The amount of an adjustment (increase or decrease)
that may be applied to a full surrender or partial withdrawal from a Risk
Control Account.
MARKET VALUE ADJUSTMENT INDEX RATE - Rate(s) used to calculate the Market Value
Adjustment.
MARKET VALUE ADJUSTMENT INDEX (INDICES) - The Index (Indices) used to determine
the interest rates used to calculate the Market Value Adjustment.
MINIMUM GUARANTEED INTEREST RATE - The minimum interest rate that applies to the
Holding Account during a Holding Period.
MULTIPLE SOURCE WAITING PERIOD - The maximum period of time we will wait for
multiple sources of payment to be received by us prior to allocation to a Risk
Control Account. It applies only to the sources of payment indicated on your
application. The Multiple Source Waiting Period cannot be longer than six
months.
NON-QUALIFIED CONTRACT - An annuity contract that is independent of any formal
retirement or pension plan.
NURSING HOME - A facility that is licensed and operates as a nursing facility
according to the law of the jurisdiction in which it is located.
OWNER - The person(s) (or entity) who owns the Contract and whose death
determines the Death Benefit. If there are multiple Owners, each Owner will be a
joint Owner of the Contract and all references to Owner will mean joint Owners.
The Owner has all rights, title and interest in the Contract during the
Accumulation Period. The Owner may exercise all rights and options stated in the
Contract, subject to the rights of any Irrevocable Beneficiary or assignee. The
Owner is also referred to as "you" or "your."
PAYEE - The person(s) (or entity) who receives income payments during the Payout
Period while the Annuitant is living. The Payee is the Owner, unless otherwise
designated. A minor cannot be the Payee.
PAYOUT DATE - The date the first income payment is paid from the Contract to the
Payee.
PAYOUT PERIOD - The phase the Contract is in once income payments begin.
PRO RATA - A method of allocating, withdrawing or transferring values across all
Variable Subaccounts and/or Risk Control Accounts that is proportional to the
value in each.
PROOF OF DEATH - Proof of Death may consist of a certified copy of the death
record, a certified copy of a court decree reciting a finding of death or other
similar proof.
PURCHASE PAYMENT - Payment(s) made by or on behalf of the Owner for the
Contract.
3
QUALIFIED CONTRACT - An annuity that is part of an individual retirement plan,
pension plan or employer-sponsored retirement program.
RISK CONTROL ACCOUNT - A subdivision of the Risk Control Account Option wherein
two accounts types are available: the Secure Account and the Growth Account.
Each Risk Control Account has an Index Rate Cap and Index Rate Floor.
RISK CONTROL ACCOUNT ANNIVERSARY - The same day and month as a Risk Control
Account Start Date for each year of a Risk Control Account Period. If a Risk
Control Account Anniversary does not fall on a Business Day, any transactions
required as of that date will be processed on the next Business Day, but will be
effective as of that Risk Control Account Anniversary.
RISK CONTROL ACCOUNT MATURITY DATE - The last day of a Risk Control Account
Period. If a Risk Control Account Maturity Date does not fall on a Business Day,
any transactions required as of that date will be processed on the next Business
Day, but will be effective as of that Risk Control Account Maturity Date.
RISK CONTROL ACCOUNT PERIOD - The period that begins on a Risk Control Account
Start Date and ends on a Risk Control Account Maturity Date. Each Risk Control
Account Period is five years.
RISK CONTROL ACCOUNT START DATE - The first day of a Risk Control Account
Period. It must be a date that we offer as a Risk Control Account Start Date (as
shown on your Contract Data Page). If a Risk Control Account Start Date does not
fall on a Business Day, any transactions required as of that date will be
processed on the next Business Day, but will be effective as of that Risk
Control Account Start Date.
RISK CONTROL ACCOUNT VALUE - The value of the Contract in a Risk Control
Account.
RISK CONTROL ACCOUNT YEAR - Any 12-month period beginning on a Risk Control
Account Start Date or Risk Control Account Anniversary and ending on the next
Risk Control Account Anniversary.
RISK CONTROL SEPARATE ACCOUNT - The Separate Account for the Risk Control
Accounts.
SAI - The statement of additional information relating to the variable annuity
aspect of the Contract.
SEC - The U.S. Securities and Exchange Commission.
SEPARATE ACCOUNT - A legally insulated investment account that is maintained
separately from our General Account. The Separate Account established for the
variable portion of the Contract is registered under the Investment Company Act
of 1940 (the "1940 Act"), while the Separate Account established for the
index-linked aspect of the Contract is not registered under the 1940 Act.
SPOUSE - The person to whom you are legally married. The term Spouse does not
include civil union partners or domestic partners.
SURRENDER CHARGE - The charge associated with surrendering either some or all of
the Contract Value from a Series B Contract. Surrender Charges do not apply to
Series C Contracts.
SURRENDER CHARGE PERIOD - The number of Contract Years beginning on the Contract
Issue Date during which we may assess a Surrender Charge if you surrender the
Contract or take a partial withdrawal. See "Fees and Expenses" for more details.
SURRENDER VALUE - The amount you are entitled to receive if you elect to
surrender the Contract during the Accumulation Period.
TERMINALLY ILL, TERMINAL ILLNESS - A life expectancy of 12 months or less due to
any illness or accident.
UNADJUSTED INDEX VALUE - The closing value for an Index as of a Business Day.
U.S. GAAP - The generally accepted accounting principles used in the United
States.
VALUATION PERIOD - The period beginning at the close of one Business Day and
continuing to the close of the next succeeding Business Day.
VARIABLE SEPARATE ACCOUNT - The Separate Account for the Variable Subaccounts.
VARIABLE SUBACCOUNT - A subdivision of the Variable Separate Account, the assets
of which are invested in a corresponding Fund.
VARIABLE SUBACCOUNT VALUE - The value of the Contract in a Variable Subaccount.
4
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HIGHLIGHTS
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The following is a summary of the key features of the Contract. This summary
does not include all of the information you should consider before purchasing a
Contract. You should carefully read the entire Prospectus, which contains more
detailed information concerning the Contract and the Company before making an
investment decision.
CONTRACT SERIES
The Contract offers two series: Series B and Series C. The primary difference
between the two series is that Series B Contracts are subject to a Surrender
Charge and Series C Contracts are not. In addition, Series B Contracts have a
Nursing Home and Hospital/Terminal Illness benefit, which provides for a waiver
of the Surrender Charge if its conditions are met. The amount of the Contract
Fee for Series B and Series C Contracts also differs.
You should work with your financial professional to decide which series of the
Contract may be appropriate for you based on a thorough analysis of your
particular insurance needs, financial objectives, investment goals, time
horizons and risk tolerance.
HOW YOUR CONTRACT WORKS
OVERVIEW. Your Contract is an individual or joint owned, flexible premium
variable and index-linked deferred annuity contract. There are two periods to
your Contract: an Accumulation Period and a Payout Period. Your Contract can
help you save for retirement because it can allow your Contract Value to earn
interest on a tax-deferred basis and you can later elect to receive retirement
income for life or a period of years. You generally will not pay taxes on your
earnings until you withdraw them.
During the Accumulation Period of your Contract, you allocate your Contract
Value to the Variable Subaccounts and/or the Risk Control Accounts. Each of
these options is described below.
o Each Variable Subaccount invests its assets solely in the shares or
units of designated Funds. Depending on the performance of the Funds
underlying the Variable Subaccounts selected by you, you could lose
money.
o The portion of Contract Value allocated to a Risk Control Account is
credited with interest based in part on the investment performance of
external Indices (currently, the S&P 500 Index and the MSCI EAFE Index),
subject to an Index Rate Cap and Index Rate Floor that is unique to each
Risk Control Account. The S&P 500 Index is a stock market index based on
the market capitalizations of 500 leading companies publicly traded in
the U.S. stock market, as determined by Standard & Poor's. The MSCI EAFE
Index is a stock market index which is designed to measure the equity
market performance of developed markets outside of U.S. and Canada. The
Indices can go up or down based on the stock prices of the companies
that comprise the applicable Index. Neither Index includes dividends
paid on the stocks comprising the Index and therefore does not reflect
the full investment performance of the underlying stocks. We set the
Index Rate Caps prior to the Contract Issue Date and prior to each Risk
Control Account Anniversary for the subsequent Risk Control Account
Year. We will notify you of any change in the Index Rate Cap prior to
the Risk Control Account Anniversary. The Index Rate Floor associated
with each Risk Control Account will not change during the life of your
Contract.
The Accumulation Period begins on the Contract Issue Date and continues until
the Payout Date.
During the Payout Period of your Contract, you can elect to receive income
payments by applying Contract Value to the income options offered in your
Contract. The Payout Period begins on the Payout Date and continues while income
payments are paid.
5
Please call your financial professional or the Company at 1-800-798-5500 if you
have questions about how your Contract works.
PURCHASE PAYMENTS. You may purchase the Contract with an initial Purchase
Payment of at least $5,000. Additional Purchase Payments can be made, but are
not required. Each additional Purchase Payment may not be less than $50 and must
be received at our Administrative Office prior to the oldest Owner's 85(th)
birthday or the oldest Annuitant's 85(th) birthday if the Owner is a non-natural
person. Purchase Payments that, in total, exceed $1 million require our prior
approval. Multiple Contracts owned by the same individual where the sum of the
Purchase Payments exceeds $1 million also require our prior approval.
We reserve the right, in our sole discretion, to refuse additional Purchase
Payments and to limit the amount and frequency of additional Purchase Payments
under the Contract or that may be allocated to the Risk Control Accounts at any
time.
ALLOCATION OPTIONS. There are four Allocation Levels for your Contract, among
which you may allocate your Purchase Payment(s) and Contract Value: Level C
(Contract Allocation Level), Level V (Variable Subaccount Allocation Level),
Level I (Index Allocation Level), and Level R (Risk Control Allocation Level),
each is described below.
o At Level C, the allocation is split between the Variable Subaccounts and
the Risk Control Accounts;
o At Level V, the allocation is split among the Variable Subaccounts;
o Level I only applies to Risk Control Accounts, and the allocation is
split between Risk Control Accounts based on the reference Index; and
o Level R only applies to Risk Control Accounts, and the allocation is
split among Risk Control Accounts with the same reference Index.
You must specify the percentage of your Purchase Payment to be allocated to each
applicable Allocation Level on the Contract Issue Date. The amount you direct to
a particular Allocation Level must be in whole percentages from 0% to 100% of
the Purchase Payment and your total allocation must equal 100% at each
Allocation Level. If you elect Allocation Level C, the total funds allocated to
Variable Subaccounts must total 100% and the total funds allocated to Risk
Control Accounts must total 100%. If you do not indicate your allocations on the
application, our Administrative Office will attempt to contact your adviser
and/or you for clarification.
Rather than choosing the amounts directed to particular Allocation Levels, you
may choose model portfolios that employ different investment styles within
various risk tolerance categories (e.g., conservative, moderate, and growth
model portfolios). Different model portfolios can be chosen for the Variable
Subaccounts and Risk Control Accounts. Only one model portfolio can be selected.
Additionally, a customized allocation within the Variable Subaccounts and Risk
Control Accounts can be selected. More detailed information regarding the model
portfolios and customized allocations is found in "Allocating Your Purchase
Payment - Model or Express Portfolios." We will not issue the Contract without
complete allocation instructions.
Your Purchase Payments will be allocated according to your allocation
instructions on file with us for the applicable Allocation Levels. However, if
your allocation instructions on file with us include a Risk Control Account, the
Risk Control Account portion of your initial Purchase Payment will be allocated
to the Holding Account before it is transferred to the Risk Control Account. The
allocation of additional Purchase Payments to a Risk Control Account is subject
to additional requirements described in the _____ section of this Prospectus.
Purchase Payments allocated to a Risk Control Account become part of the Risk
Control Account Value and may be credited with interest based in part on any
positive performance of the
6
reference Index, subject to the applicable Interest Rate Cap and Interest Rate
Floor. More detailed information regarding the Risk Control Account option is
found in "Risk Control Account Option."
Purchase Payments allocated to a Variable Subaccount become part of the total
Variable Subaccount Value which fluctuates according to the investment
performance of the selected Variable Subaccounts. More detailed information
regarding the Variable Subaccount Option is found in "Variable Subaccount
Option."
In the event you select a Risk Control Account Option, please note that any time
the Index Rate Cap for your Risk Control Account is less than the rate specified
in the bailout rate (as shown on your Contract Data Page), we may, at our
discretion, restrict transfers into that Risk Control Account. See "Access to
Your Money - Bailout Provision" for more details.
In addition, as it relates to the Risk Control Account Option, the Index Rate
Floor is the minimum Index rate of return used as part of the Accumulation
Credit Factor calculation for determining the value of a Risk Control Account,
prior to the deduction of the Contract Fee. This rate will not change during the
life of your Contract. Currently, the Secure Account has an Index Rate Floor of
0% and the Growth Account has an Index Rate Floor of -10%. For the Secure
Account, this means that any negative investment performance of the Index would
not reduce your Contract Value at the end of a Risk Control Account Year; and
for the Growth Account, this means that any negative investment performance of
the Index would not reduce your Contract Value at the end of a Risk Control
Account Year by more than 10% regardless of whether the negative investment
performance of the Index over the period was less than -10%.
Moreover, the Index Rate Cap is the maximum Index rate of return used as part of
the Accumulation Credit Factor calculation for determining the value of a Risk
Control Account, prior to the deduction of the Contract Fee. You will have
thirty days after the Risk Control Account start dated to return your Contract
or change your allocation instructions (if applicable), if a new Index Rate Cap
is established while we are waiting for funds that are being transferred from
another company. If subsequent premiums are allocated to a Risk Control Account
or upon the maturity of a Risk Control Account the Index Rate Cap will be made
available two weeks in advance of a Risk Control Account Start Date.
On the first Risk Control Account Anniversary and any subsequent Risk Control
Account Anniversary, we will declare an Index Rate Cap which we guarantee for
the next Risk Control Account Year. We will notify you of any such change to the
Index Rate Cap prior to the Risk Control Account Anniversary. The Index Rate
Caps will range between 1% and 75%. In return for accepting some risk of loss to
your Contract Value allocated to the Growth Accounts, the Index Rate Caps
declared for the Growth Accounts will be higher than the Index Rate Cap declared
for the Secure Account for the same period which allows the potential for a
higher positive increase in Contract Value for the Growth Account.
The same Index will be used for each Risk Control Account for the duration of
the Risk Control Account Period. However, if the publication of an Index is
discontinued, or calculation of the Index is materially changed, we will
substitute a suitable Index that will be used for the remainder of the Risk
Control Account Period and will notify you of the change in advance. If we
substitute an Index, the performance of the new Index may differ from the
original Index, which may, in turn, affect your Contract Value.
WE MAY OFFER ADDITIONAL RISK CONTROL ACCOUNTS WITH THE SAME OR ADDITIONAL
INDICES AT OUR DISCRETION. WE MAY ALSO DISCONTINUE A RISK CONTROL ACCOUNT,
EFFECTIVE AS OF A RISK CONTROL ACCOUNT MATURITY DATE. IN ANY CASE, WE WILL
NOTIFY YOU OF THE ADDITION OR DISCONTINUATION OF A RISK CONTROL ACCOUNT. SUCH A
CHANGE WILL BE SUBJECT TO ANY APPLICABLE REGULATORY APPROVAL THAT MAY BE
REQUIRED.
REBALANCING / REALLOCATION. The Automatic Rebalance Program automatically
transfers values between Risk Control Accounts and/or Variable Subaccounts to
return your Contract Values to the Allocation Levels on file with us. Transfers
that occur pursuant to the Automatic Rebalance Program will not count towards
the number of transfers allowed in a Contract Year without incurring a transfer
fee. The transfer
7
fee is $25 per transfer after the first 12 transfers in a Contract Year.
Rebalancing at Level C (between Variable Subaccounts and Risk Control Accounts)
will occur as of each Risk Control Account Maturity Date according to the
allocation instructions on file with us, unless there is no Risk Control Account
Value, you elect to discontinue rebalancing by Authorized Request, or you have
requested to transfer value which results in rebalancing being discontinued at
Levels C and V (among Variable Subaccounts) as of each Risk Control Account
Maturity Date.
Rebalancing at Level V will occur as of each Contract Anniversary according to
the allocation instructions on file with us, unless there is no Variable
Subaccount Value. Rebalancing at Level V will also occur as of each Risk Control
Account Maturity Date according to the allocation instructions on file with us,
unless there is no Variable Subaccount Value or you have requested to transfer
value which results in rebalancing being discontinued at Levels C and V as of
each Risk Control Account Maturity Date. If rebalancing is discontinued, you may
elect to reinstate rebalancing at Level C by Authorized Request, which will also
reinstate rebalancing at Level V. Your Authorized Request to reinstate
rebalancing must be received at least one Business Day prior to the Risk Control
Account Maturity Date to take effect as of that date. If we are not notified at
least one Business Day prior to the Risk Control Account Maturity Date,
rebalancing at Level C will not occur until the next Risk Control Account
Maturity Date.
Rebalancing at Level I (between Risk Controls Accounts with different reference
Indices) will occur as of each Risk Control Account Maturity Date according to
the allocation instructions on file with us. Rebalancing at Level I will not
occur if your Risk Control Account Value is not split between Indices or there
is no Risk Control Account Value.
Rebalancing at Level R (between Risk Controls Accounts with the same reference
Index) will occur as of each Risk Control Account Anniversary according to the
allocation instructions on file with us. Rebalancing at Level R will not occur
if there is no Risk Control Account Value.
You may change your allocation instructions by Authorized Request. A change to
your Variable Subaccount allocation instructions (Level V) will take effect as
of the Business Day that we receive the request in Good Order, unless otherwise
specified by the Owner.
You may change your allocation instructions for Level R prior to rebalancing on
a Risk Control Account Anniversary by Authorized Request. Your request to change
your allocation instructions must be received at our Administrative Office at
least one Business Day prior to a Risk Control Account Anniversary for the
instructions to take effect prior to rebalancing. If we do not receive your
request at least one Business Day prior to a Risk Control Account Anniversary,
your change in allocation instructions will not be effective until after that
Risk Control Account Anniversary.
If the Index Rate Cap for a Risk Control Account is set below the bailout rate
for that Risk Control Account, you may transfer the Risk Control Account Value
from that Risk Control Account during the 30-day period following the Risk
Control Account Anniversary by Authorized Request. A Market Value Adjustment
will not apply to such transfer. Your Authorized Request to transfer Risk
Account Control Account Value must be received in Good Order during this 30-day
period. If the request is not received during this 30-day period or the request
is not in Good Order, no transfer will occur. At any time while the Index Rate
Cap for your Risk Control Account is less than the bailout rate specified in the
Bailout Provision (as shown on your Contract Data Page), we may, at our
discretion, restrict transfers into that Risk Control Account and may not
reallocate your Risk Control Account Value between Risk Control Accounts under
the Automatic Rebalance Program. See "Access to Your Money - Bailout Provision"
for more details.
WITHDRAWAL OPTIONS. The Contract offers the following liquidity features during
the Accumulation Period:
o Annual Free Withdrawal Amount - For Series B Contracts only, each
Contract Year, you may withdraw up to 10% of the total Purchase Payments
that are within the Surrender Charge Period at the time of the
withdrawal for that Contract Year without incurring a Surrender Charge
(the
8
"Annual Free Withdrawal Amount"). Any unused Annual Free Withdrawal
Amount will not carry over to any subsequent Contract Year. Purchase
Payments subject to the Surrender Charge are deemed to be withdrawn
prior to any Purchase Payments not subject to the Surrender Charge.
Earnings under the Contract are deemed withdrawn after the withdrawal of
all Purchase Payments. However, as described below, withdrawals from the
Risk Control Accounts are subject to a Market Value Adjustment.
Surrender Charges do not apply to C Series Contracts.
o Partial Withdrawal Option - You may make partial withdrawals during the
Accumulation Period by Authorized Request, but a withdrawal of Risk
Control Account Value is not permitted while there is Variable
Subaccount Value. For partial withdrawals of Variable Subaccount Value,
you may provide specific instructions but, if you do not, withdrawals
will be processed on a Pro Rata basis from the value in all Variable
Subaccounts. If there is insufficient Variable Subaccount Value, or no
Variable Subaccount Value, Holding Account Value will be withdrawn. If
there is insufficient Holding Account Value or no Holding Account Value,
Risk Control Account Value will be withdrawn on a Pro Rata basis. Any
applicable Surrender Charge and/or Market Value Adjustment will affect
the amount available for a partial withdrawal. Surrender Charges do not
apply to Series C Contracts.
o Full Surrender Option - You may surrender your Contract during the
Accumulation Period by Authorized Request. Upon full surrender, a
Surrender Charge and/or a Market Value Adjustment may apply. Surrender
Charges do not apply to Series C Contracts.
MARKET VALUE ADJUSTMENT. The Market Value Adjustment applies only to withdrawals
from a Risk Control Account and is calculated separately for each Risk Control
Account. Required minimum distributions under the Internal Revenue Code that are
withdrawn under an automatic withdrawal program and withdrawals of Risk Control
Account Value on a Risk Control Account Maturity Date are not subject to a
Market Value Adjustment. The Market Value Adjustment can increase or decrease
your amount withdrawn or the Surrender Value, depending on how economic
indicators have changed since your Contract was issued. See "Market Value
Adjustment" for more details. You may lose a portion of your principal due to
the Market Value Adjustment.
BAILOUT PROVISION. We will set a bailout rate for each Risk Control Account
which may range from 1% to 10% for Risk Control Accounts under the Secure
Account and from 1.5% to 25% for Risk Control Accounts under the Growth Account.
The bailout rate will be prominently displayed on your Contract Data Page
attached to the front of the cover page of the Contract and will not change
during the life of your Contract. If the Index Rate Cap for your Risk Control
Account is set below the bailout rate for that Risk Control Account, you may
transfer the Risk Control Account Value from that Risk Control Account during
the 30-day period following the Risk Control Account Anniversary without the
application of any Market Value Adjustment by Authorized Request. At any time
the Index Rate Cap for your Risk Control Account is less than the bailout rate
specified on your Contract Data Page, we may, at our discretion, restrict
transfers into that Risk Control Account. See "Access to Your Money - Bailout
Provision" for more details.
INCOME OPTIONS. You have several income options to choose from during the Payout
Period. Income payments will start on the Payout Date, and continue based on the
option you elect.
DEATH BENEFIT. The Contract provides a Death Benefit during the Accumulation
Period. The Death Benefit is equal to the Contract Value as of the date Death
Benefits are payable. We do not apply the Surrender Charge or Market Value
Adjustment in determining the Death Benefit payable.
CONTRACT CHARGES
An investment in the Contract involves certain fees and expenses, including
Contract Fees, Surrender Charges and underlying Fund fees and expenses. Some of
these fees vary depending on whether you invest in the Series B Contract or the
Series C Contract. For a full description of all such fees and expenses, please
see the section of this Prospectus entitled "Fees and Expenses."
9
RISK FACTORS
Your Contract has various risks associated with it. We list these risk factors
below, as well as other important information you should know before purchasing
a Contract.
VARIABLE SUBACCOUNT RISK. Your investment results in any one of the Variable
Subaccounts will depend on the investment performance of the underlying Funds.
Because the Variable Subaccounts are not part of the Risk Control Accounts, they
are not protected from losses. Therefore, you could lose all of your principal
when investing in the Variable Subaccounts.
INDEX RATE OF RETURN RISK. If you are invested in a Risk Control Account and the
relevant Index declines, it may or may not reduce your Risk Control Account
Value. This depends on the Risk Control Account to which you allocated your Risk
Control Account Value. Nevertheless, you always assume the investment risk that
no index interest will be credited and therefore the Index Rate of Return will
not increase your Accumulation Credit Factor (and, ultimately, your Risk Control
Account Value). You also bear the risk that sustained declines in the relevant
Index may cause the Index Rate of Return to not increase your Accumulation
Credit Factor (and, ultimately, your Risk Control Account Value) for a prolonged
period. If your Risk Control Account Value is allocated to the Growth Account,
you also assume the risk of a negative Index Rate of Return (crediting negative
index interest), which means your Accumulation Credit Factor and, ultimately,
the Risk Control Account Value allocated to the Growth Account, may decline. In
addition, you assume the risk that the Index Rate Cap can be reduced to as
little as 1%. Please note that in an increasing interest rate environment, the
Market Value Adjustment could reduce the amount received to less than the
protection provided by the Index Rate Floor.
LIQUIDITY RISK. We designed your Contract to be a long-term investment that you
may use to help save for retirement. Your Contract is not designed to be a
short-term investment. While you are permitted to take partial withdrawals from
the Contract, or fully surrender the Contract, during the Accumulation Period by
Authorized Request, such withdrawals may be subject to a Surrender Charge and/or
Market Value Adjustment (if applicable). We may defer payments made under this
Contract with respect to a Risk Control Account and/or the Holding Account for
up to six months if the insurance regulatory authority of the state in which we
issued the Contract approves such deferral. In addition, we may postpone
payments made under this Contract with respect to a Variable Subaccount as
permitted by the SEC.
MARKET RISK. The historical performance of an Index relating to a Risk Control
Account or a Fund underlying a Variable Subaccount should not be taken as an
indication of the future performance of the Index or the Fund. The performance
of an Index or a Fund will be influenced by complex and interrelated economic,
financial, regulatory, geographic, judicial, political and other factors that
can affect the capital markets generally, and by various circumstances that can
influence the performance of securities in a particular market segment.
RISK CONTROL ACCOUNT TRANSFER RESTRICTION. At any time the Index Rate Cap for
your Risk Control Account is less than the bailout rate specified on your
Contract Data Page, we may, at our discretion, restrict transfers into that
Risk Control Account. See "Access to Your Money - Bailout Provision" for more
details.
CREDITOR AND SOLVENCY RISK. Our General Account assets support the guarantees
under the Contract and are subject to the claims of our creditors. AS SUCH, THE
GUARANTEES UNDER THE CONTRACT ARE SUBJECT TO OUR FINANCIAL STRENGTH AND
CLAIMS-PAYING ABILITY, AND THEREFORE, TO THE RISK THAT WE MAY DEFAULT ON THOSE
GUARANTEES. You need to consider our financial strength and claims-paying
ability in meeting the guarantees under the Contract. You may obtain information
on our financial condition by reviewing our financial statements included in
this Prospectus. Additionally, information concerning our business and
operations is set forth in the section of this Prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
10
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EXPENSE TABLES
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Fee Tables
The following tables describe the fees and expenses that you will pay when
buying, owning, and surrendering the Contract.
The first table describes the fees and charges that you will pay at the time
that you surrender the Contract, make certain withdrawals, request special
services or make certain transfers. Charges designed to approximate certain
taxes that may be imposed on us, such as premium taxes in your state, may also
apply.(1)
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CHARGES WE DEDUCT FROM YOUR CONTRACT VALUE AT THE TIME SERIES B SERIES C
YOU REQUEST CERTAIN TRANSACTIONS CONTRACT CONTRACT
--------------------------------------------------------------------------------
Maximum Surrender Charge as a Percentage of Purchase
Payment Surrendered or Withdrawn 9%(2) None
--------------------------------------------------------------------------------
Transfer Fee(3) $25 $25
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Research Fee $50 $50
--------------------------------------------------------------------------------
Wire Transfer Fee $[o] $[o]
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Express Mail Charge $[o] $[o]
--------------------------------------------------------------------------------
Duplicate Contract Charge (For Each duplicate Contract) $30 $30
--------------------------------------------------------------------------------
The next table describes the fees and expenses that you will pay periodically
during the time that you own the Contract, not including underlying Fund fees
and expenses to the extent you allocate Purchase Payments and/or Contract Value
to the Variable Subaccounts and Risk Control Accounts.
--------------------------------------------------------------------------------
PERIODIC CHARGES OTHER THAN FUND EXPENSES SERIES B SERIES C
--------------------------------------------------------------------------------
Contract Fee(4) 1.65% 1.75%
--------------------------------------------------------------------------------
You also bear your proportionate share of all fees and expenses paid by a Fund
that corresponds to any Variable Subaccount in which you invest. Accordingly,
this next table shows the lowest and highest total operating expenses charged by
any of the Funds for the fiscal year ended December 31, 2014. Actual fees and
expenses are likely to fluctuate from year to year. More detail concerning each
Fund's fees and expenses is contained in the prospectus for each Fund.
--------------------------------------------------------------------------------
Fund Operating Expenses Expressed as an Annual
Percentage of Daily Net Assets MINIMUM MAXIMUM
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses (total of all
expenses that are deducted from Fund assets, including
management fees, 12b-1 fees, service fees, and other
expenses)(5) 0.16% 1.14%
--------------------------------------------------------------------------------
____________________
(1)State premium taxes currently range from 0% to 3.5% of Purchase Payments.
(2)For B Series Contracts, if you surrender the Contract or make a partial
withdrawal during the Accumulation Period, we may assess a Surrender Charge on
Purchase Payments withdrawn during the Surrender Charge Period. For information
on how we calculate the surrender charge, see "Charges and Deductions -
Surrender Charge." We do not assess a surrender charge on the Annual Free
Withdrawal Amount, withdrawals under the Nursing Home or Hospital/Terminal
Illness waiver, required minimum distributions under the Internal Revenue Code
that are withdrawn under an automatic withdrawal program and Risk Control
Account Value withdrawn on a Risk Control Account Maturity Date. For information
on the Annual Free Withdrawal Amount and other waivers of the Surrender Charge,
see "Charges and Deductions - Surrender Charge - ____________." Surrender
Charges do not apply to Series C Contracts.
(3)We waive the transfer fee for the first twelve transfers in a Contract Year
on transfers between the Risk Control Accounts and/or Variable Subaccounts. We
assess a charge of $25 for the thirteenth and each additional transfer in a
Contract Year.
(4)We assess the Contract Fee against Contract Value held in the Variable
Subaccounts and the Risk Control Accounts to compensate us for the expenses and
expense risks we assume under the Contract. The Contract Fee
11
assessed against Contract Value held in the Variable Subaccounts is equal on an
annual basis to the annual Contract Fee percentage multiplied by the average
daily ending value of the Contract Value held in the Variable Subaccounts. The
Contract Fee assessed against Contract Value held in the Risk Control Accounts
is equal on an annual basis to the annual Contract Fee percentage multiplied by
the Accumulation Credit Factor for each Risk Control Account at the start of the
Risk Control Account Year. We do not assess the Contract Fee against Contract
Value held in the Holding Account.
(5) The table showing the range of expenses for the Funds takes into account the
expenses of several "funds of funds." A "fund of funds" typically allocates its
assets, within predetermined percentage ranges, among certain other fund
portfolios, including exchange-traded funds (each such fund an "Acquired Fund").
Each "fund of funds" has its own set of operating expenses, as does each of the
portfolios in which it invests. In determining the range of Fund expenses, we
took into account the information received on the combined actual expenses for
each "fund of funds" and the portfolios in which it invests. (The combined
expense information includes the pro rata portion of the fees and expenses
incurred indirectly by a "fund of funds" as a result of its investment in shares
of one or more Acquired Funds.) See the prospectus for any Fund which is a
"fund of funds" for a presentation of the applicable Acquired Fund fees and
expenses.
The Examples are intended to help you compare the cost of investing in the
Contract with the cost of investing in other variable annuity contracts. These
costs include contract owner transaction expenses, separate account annual
expenses, and underlying fund fees and expenses. These Examples do not reflect
charges for any special services you may request. For a complete description of
Fund charges and expenses, see the applicable Fund prospectuses.
The Examples show the expenses that a hypothetical Contract owner would pay in
situations illustrated under a Series B Contract and a Series C Contract. These
Examples should not be considered a representation of past or future expenses
for any Variable Subaccount Option. Actual expenses may be more or less than
those shown. Similarly, the annual rate of return assumed in the Examples is not
an estimate or guarantee of future investment performance.
The Examples assume that you invest $10,000 in the Contract for the time periods
indicated, and that your investment has a 5% return each year. The Examples
assume that all Contract Value is allocated to the MEMBERS Horizon Variable
Separate Account. The Examples also assume (i) the maximum total annual
operating expenses of the Funds; and (ii) there is no waiver of any Surrender
Charge. Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
IF YOU SURRENDER THE CONTRACT AT THE END OF THE APPLICABLE TIME PERIOD:
--------------------------------------------------
Series Type 1 year 3 years
--------------------------------------------------
SERIES B $1,092 $1,585
--------------------------------------------------
SERIES C $292 $895
--------------------------------------------------
If you do not surrender the Contract at the end of the applicable time period:
--------------------------------------------------
Series Type 1 year 3 years
--------------------------------------------------
SERIES B $282 $865
--------------------------------------------------
SERIES C $292 $895
--------------------------------------------------
The Examples reflect a Contract Fee of 1.65% and 1.75% for Series B and Series C
Contracts, respectively. These examples do not include transfer fees or premium
taxes. Transfer fees and premium taxes are not currently charged to
Contractholders. Premium taxes could range up to 3.5%, depending on the
jurisdiction. In addition, certain Funds may impose a redemption fee of no more
than 2% of the amount of Fund shares redeemed. We may be required to implement a
Fund's redemption fee. The redemption fee will be assessed against your Variable
Subaccount Value. For more information, please see each Fund's prospectus.
12
The Examples are illustrations and do not represent past or future expenses.
Your actual expenses may be higher or lower than those shown. Similarly, your
rate of return may be more or less than the 5% assumed in the Examples.
FEES
--------------------------------------------------------------------------------
Surrender Charge (Contingent Deferred Sales Charge). For Series B Contracts, we
deduct a Surrender Charge from each Purchase Payment withdrawn during the
Surrender Charge Period that exceeds the Annual Free Withdrawal Amount. The
deduction of the Surrender Charge will reduce the amount you receive from a
partial withdraw or surrender of the Contract during the Accumulation Period.
Each Purchase Payment has an individual Surrender Charge schedule which begins
when the Purchase Payment is credited to your Contract and continues for a
period of five years, as shown in the table below. The amount of the Surrender
Charge is determined separately for each Purchase Payment withdrawn and is
expressed as a percentage of the Purchase Payment as follows:
------------------------------------------------------------------------
NUMBER OF YEARS SINCE PURCHASE PAYMENT SURRENDER CHARGE AS
CREDITED A PERCENT OF PURCHASE
PAYMENTS WITHDRAWN
%
------------------------------------------------------------------------
Less than 1 9%
------------------------------------------------------------------------
At least 1 but less than 2 9%
------------------------------------------------------------------------
At least 2 but less than 3 8%
------------------------------------------------------------------------
At least 3 but less than 4 7%
------------------------------------------------------------------------
At least 4 but less than 5 6%
------------------------------------------------------------------------
5 or more 0%
------------------------------------------------------------------------
For purposes of calculating the Surrender Charge, Purchase Payments are assumed
to be withdrawn on a first-in-first-out basis. This means that Purchase Payments
that were allocated to your Contract first are considered to be withdrawn first
and Purchase Payments are considered to be withdrawn before Earnings. Therefore,
withdrawals will be processed to occur in the following order: (1) Purchase
Payments that are no longer subject to a Surrender Charge as of the date of the
withdrawal; (2) your Annual Free Withdrawal Amount; (3) Purchase Payments that
are subject to a Surrender Charge on a first-in-first-out basis; and (4)
Earnings, if any, after all Purchase Payments have been withdrawn. We will
deduct the Surrender Charge from your withdrawal proceeds. We will deduct the
Surrender Charge before we apply any Market Value Adjustments to withdrawal
proceeds from the Risk Control Accounts. For an example of how we calculate the
Surrender Charge, see "Appendix A" to this Prospectus.
We will not assess the Surrender Charge on:
o Withdrawals under the Nursing Home or Hospital/Terminal Illness waiver;
o Required minimum distributions under the Internal Revenue Code that are
withdrawn under the automatic withdrawal program provided by the
Company;
o Withdrawal of Risk Control Account Value on a Risk Control Account
Maturity Date;
o Purchase Payments that are no longer subject to a Surrender Charge as of
the date of the partial withdrawal or full surrender;
o Your Annual Free Withdrawal Amount; and
o Earnings, if any, after all Purchase Payments have been withdrawn.
Surrender Charges offset promotion, distribution expenses, and investment risks
born by the Company. Surrender Charges do not apply to Series C Contracts.
13
For information on the Annual Free Withdrawal Amount and Surrender Charge
waivers, see "Access to Your Money."
Annual Contract Fee. We deduct a Contract Fee from your Contract Value in the
Variable Subaccounts and Risk Control Accounts to compensate us for the expenses
and expense risk we assume under the Contract. The Contract Fee assessed against
Contract Value held in the Variable Subaccounts is equal on an annual basis to
the annual Contract Fee percentage multiplied by the average daily ending value
of the Contract Value held in the Variable Subaccounts. The Contract Fee
assessed against Contract Value held in the Risk Control Accounts is equal on an
annual basis to the annual Contract Fee percentage multiplied by the
Accumulation Credit Factor for each Risk Control Account at the start of the
Risk Control Account Year. The annual Contract Fee percentage is 1.65% for
Series B Contracts, and 1.75% for Series C Contracts. We do not assess the
Contract Fee against Contract Value held in the Holding Account.
Transfer Fee. Currently no fee is charged for transfers. However, we reserve the
right to impose a transfer fee on transfers among the Risk Control Accounts and
Variable Subaccounts. The transfer fee is $25 per transfer after the first 12
transfers in a Contract Year. Each Written Request or telephone/fax
authorization is considered to be one transfer, regardless of the number of
Subaccounts 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
accounts.
Research Fee. We may charge you a fee of up to $50 when you request information
that is duplicative of information previously provided to you and requires on
our part research. The research fee is deducted on a pro rata basis from the
Variable Subaccounts and Risk Control Accounts
Wire Transfer Fee. We may charge you a fee of up to $___ when you request a wire
transfer of funds from your Contract. The fee reimburses us for the costs we
incur in sending funds by wire transfer. The wire transfer fee is deducted on a
pro rata basis from the Variable Subaccounts and Risk Control Accounts
Express Mail Charge. We reserve the right to charge you a fee of up to $____
when you request that a check or other documents be sent via express mail. The
express mail charge reimburses us for the costs we incur when sending materials
by express mail. The fee is deducted from each Subaccount and from the Fixed
Account based on a proportional basis. A pro-rated portion of the fee is
deducted upon application to an Income Payout Option. After the Payout Date, the
annual Contract fee is deducted from variable Income Payments.
Duplicate Contract Charge. You can obtain a summary of your Contract at no
charge. However, we will assess a $30 charge for each copy of your Contract that
you request. A request for a duplicate copy of the Contract must be made by a
Written Request in Good Order. The duplicate contract fee is deducted on a
pro rata basis from the Variable Subaccounts and Risk Control Accounts
Premium Expense Charge. We deduct a charge for any state or local premium taxes
applicable to a Contract. We may deduct premium taxes at the time we pay such
taxes. State premium taxes currently range from 0% to 3.50%.
We will deduct the charges for the fees by redeeming additional units or
Accumulation Credits on a pro rata basis from funds held in the Variable
Subaccounts and Risk Control Accounts.
OTHER INFORMATION
We assume investment risks and costs in providing the guarantees under the
Contract. These investment risks include the risks we assume in providing the
Index Rate Floors for the Risk Control Accounts, the surrender rights available
under the Contract, the Death Benefit and the income benefits. We must provide
the rates and benefits set forth in your Contract regardless of how our General
Account investments that support the guarantees we provide perform. To help
manage our investment risks, we engage in certain risk management techniques.
There are costs associated with those risk management techniques. You do not
directly pay the costs associated with our risk management techniques.
14
However, we take those costs into account when we set rates and guarantees under
your Contract.
--------------------------------------------------------------------------------
GETTING STARTED - THE ACCUMULATION PERIOD
--------------------------------------------------------------------------------
Contracts issued in your state may provide different features and benefits than
those described in this Prospectus. A material difference may include the length
of the right to examine period, the value returned to you if you exercise your
right to return the Contract for a refund, the amount of and ability to waive
the Surrender Charge, the Payout Date, or the availability of certain income
options. In addition, certain benefit options may not be available in all
states. We will include any such state variations in your Contract. Your
financial professional can provide you with more information about those state
variations.
PURCHASING A CONTRACT
We offer the Contract to individuals, certain retirement plans, and other
entities. To purchase a Contract, you and the Annuitant must be no older than
age 85.
We sell the Contract through financial professionals who also are agents of the
Company. To start the purchase process, you must submit an application to your
financial professional. The initial Purchase Payment must either be paid at the
Company's Administrative Office or delivered to your financial professional.
Your financial professional will then forward your completed application and
Purchase Payment (if applicable) to us. After we receive a completed
application, Purchase Payment, and all other information necessary to process a
purchase order, in Good Order, we will begin the process of issuing the
Contract. There may be delays in our processing of your application because of
delays in receipt of your application from the selling firm or because of delays
in determining whether your Contract is suitable to you. Any such delays will
affect when we issue your Contract. 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, if any, will be allocated to Subaccount(s) you choose within
two Valuation Days of receipt by us at our Mailing Address. If the application
is not properly completed, we may retain the purchase payment for up to five
Valuation Days while we attempt to complete the application. If information
which completes the application is received after the close of regular business
on the New York Stock Exchange (usually, 4:00 p.m. Eastern Time) on a Valuation
Day, the initial Net Purchase Payment will be allocated on the next Valuation
Day. If the application is not complete at the end of the 5-day period, we will
inform you of the reason for the delay and the initial purchase payment will be
returned immediately, unless you specifically consent to us retaining the
purchase payment until the application is complete. Once the application is
complete, the initial Net Purchase Payment, if any, will be allocated as
designated by the Owner within two Valuation Days.
IMPORTANT: YOU MAY USE THE CONTRACT WITH CERTAIN TAX QUALIFIED RETIREMENT PLANS.
THE CONTRACT INCLUDES ATTRIBUTES SUCH AS TAX DEFERRAL ON ACCUMULATED EARNINGS.
QUALIFIED RETIREMENT PLANS PROVIDE THEIR OWN TAX DEFERRAL BENEFIT; THE PURCHASE
OF THIS CONTRACT DOES NOT PROVIDE ADDITIONAL TAX DEFERRAL BENEFITS BEYOND THOSE
PROVIDED IN THE QUALIFIED RETIREMENT PLAN. ACCORDINGLY, IF YOU ARE PURCHASING
THIS CONTRACT THROUGH A QUALIFIED RETIREMENT PLAN, YOU SHOULD CONSIDER
PURCHASING THE CONTRACT FOR ITS OTHER FEATURES AND OTHER NON-TAX RELATED
BENEFITS. PLEASE CONSULT A TAX ADVISER FOR INFORMATION SPECIFIC TO YOUR
CIRCUMSTANCES TO DETERMINE WHETHER THE CONTRACT IS AN APPROPRIATE INVESTMENT FOR
YOU.
If mandated by applicable law, including Federal laws designed to counter
terrorism and prevent money laundering, we may be required to reject your
Purchase Payment. We may also be required to provide additional information
about you or your Contract to government regulators. In addition, we may be
required to block an Owner's Contract and thereby refuse to honor any request
for transfers, partial withdrawals, surrender, income payments, and Death
Benefit payments, until instructions are received from the appropriate
government regulator.
15
TAX-FREE "SECTION 1035" EXCHANGES
You can generally exchange one annuity contract for another in a "tax-free
exchange" under Section 1035 of the Internal Revenue Code. Before making an
exchange, you should compare both contracts carefully. Remember that if you
exchange another contract for the one described in this Prospectus, you might
have to pay a Surrender Charge or negative Market Value Adjustment on the
existing contract. If the exchange does not qualify for Section 1035 tax
treatment, you may have to pay federal income tax, including a possible penalty
tax, on your old contract. There will be a new Surrender Charge Period for this
Contract and other charges may be higher (or lower) and the benefits may be
different. There may be delays in our processing of the exchange. You should not
exchange another contract for this one unless you determine, after knowing all
the facts that the exchange is in your best interest. In general, the person
selling you this Contract will earn a commission from us.
OWNER
The Owner is the person(s) (or entity) who own(s) the Contract and, in the case
of a natural person(s), whose death determines the Death Benefit. A non-natural
person cannot jointly own a Contract. The Owner names the Annuitant or Joint
Annuitants. All rights under the Contract may be exercised by the Owner, subject
to the rights of any other Owner and any Irrevocable Beneficiary. Assignment of
the Contract by the Owner is not permitted, unless the state in which the
Contract is issued requires us to provide the Owner the right to assign the
Contract. In that case, the Owner must provide us with advance Written Notice of
the assignment and the assignment is subject to our approval, unless those
requirements are inconsistent with the law of the state in which the Contract is
issued.
The Owner may request to change the named owner at any time before the Payout
Date. If a joint Owner is changed (or is named), he or she must be the Owner's
Spouse. Any change in Owner must be made by Authorized Request and is subject to
our acceptance. Unless otherwise specified by the Owner, such change, if
accepted by us, will take effect as of the date the Authorized Request was
signed. We are not liable for any payment we make or action we take before we
receive the Authorized Request.
If an Owner who is a natural person dies during the Accumulation Period, the
Beneficiary is entitled to the Death Benefit. The Death Benefit becomes payable
at the death of the Owner (if there are joint Owners, the Death Benefit will
become payable after the first joint Owner dies). If there is a surviving Owner
and he or she is the Spouse of the deceased, the surviving Spouse (or surviving
Partner Owner if the state of issue is NJ or OR) will be treated as the sole
primary Beneficiary, and any other designated Beneficiary will be treated as a
contingent Beneficiary.
DIVORCE
In the event of divorce, the former Spouse must provide a copy of the divorce
decree (or a qualified domestic relations order if it is a qualified plan) to
us. The terms of the decree/order must identify the Contract and specify how the
Contract Value should be allocated among the former Spouses.
16
ANNUITANT
The Annuitant is the natural person(s) whose life (or lives) determines the
income payment amount payable under the Contract. If the Owner is a natural
person, the Owner may change the Annuitant at any time before the Payout Date by
Authorized Request. A request to change the Annuitant must be received by us at
least 30 days before the Payout Date. Unless otherwise specified by the Owner,
such change will take effect as of the date the Authorized Request was signed.
We are not liable for any payment we make or action we take before we receive
the Authorized Request. If you change the Annuitant, the Payout Date will not
change. If the Owner is not a natural person, the Annuitant cannot be changed.
The Annuitant does not have any rights under the Contract.
BENEFICIARY
The Beneficiary is the person(s) (or entity) named by you when you apply for the
Contract to receive the proceeds payable upon your death. If there are joint
Owners and an Owner dies before the Payout Date, the surviving Spouse Owner will
be treated as the sole primary Beneficiary and any other designated Beneficiary
will be treated as a contingent Beneficiary. Prior to the Payout Date, if no
Beneficiary survives the Owner, the proceeds will be paid to the Owner's estate.
If there is more than one Beneficiary, each Beneficiary will receive an equal
share, unless otherwise specified by the Owner.
At any time before the Payout Date, you may change the Beneficiary by an
Authorized Request sent to us, or you may name one or more Beneficiaries. A
change of Beneficiary will take effect on the date the Authorized Request was
signed. If there are Joint Owners, each Owner must sign the Authorized Request.
In addition, any Irrevocable Beneficiary or assignee must sign the Authorized
Request. Any change is subject to payment or other actions we took before we
received the request to change the Beneficiary at our Administrative Office.
Use care when naming Beneficiaries. If you have any questions concerning the
criteria you should use when choosing Beneficiaries, consult your financial
professional.
RIGHT TO EXAMINE
You may cancel your Contract and return it to your financial professional or to
us within a certain number of days after you receive the Contract and receive a
refund of either the Purchase Payments you paid or your Contract Value,
depending on the state in which your Contract was issued. However, if your
Contract is an IRA, we will refund your Purchase Payment(s). Generally, you must
return your Contract within 10 days of receipt, but some states may permit a
longer period for you to return your Contract. Refunds will not be subject to a
Surrender Charge or Market Value Adjustment and will be paid within seven days
following the date of cancellation.
THIRTY DAY PERIOD TO DISCONTINUE INITIAL RISK CONTROL ACCOUNTS
If you select the Risk Control Account Option, the Risk Control Account portion
of your initial Purchase Payment will be allocated to the Holding Account before
it is transferred to a Risk Control Account. When the Holding Account Value is
transferred to the Risk Control Account, we will notify you of the applicable
Index Rate Cap(s) for each Risk Control Account selected. The Index Rate Cap(s)
may be different than the Index Rate Cap(s) at the time of your application.
Therefore, you will have a 30-day period, beginning on the Risk Control Start
Date, to elect to discontinue your Risk Control Account(s) and transfer the
total Risk Control Account Value to the Variable Subaccounts by Authorized
Request. If you have multiple Risk Control Accounts, and you elect to exercise
your right to discontinue, all Risk Control Accounts must be discontinued under
this provision. This provision applies only to your initial Purchase Payment (or
payments received from the sources indicated on your application, if there is
more than one source of payment). Your election to discontinue your Risk Control
Accounts can only be exercised one time.
17
If you elect to exercise your right under this provision, the total Risk Control
Account Value will be transferred to the Variable Subaccounts (according to the
allocation instructions on file with us for Level V) on the Business Day that we
receive your request in Good Order. For your request to be in Good Order, we
will require you to provide Variable Subaccount allocations instructions (Level
V) if none are on file with us, and to allocate 100% of your Contract Value to
the Variable Subaccount Option (Level C) with 0% for Risk Control Account
Allocation Levels I and R. These allocation instructions (C, I and R) cannot be
changed for at least 30 days, beginning on the date of transfer. This means that
once discontinued, a new Risk Control Account cannot be established for at least
30 days. You can, however, change your Variable Subaccount allocation
instructions (Level V) effective as of any Business Day.
--------------------------------------------------------------------------------
ALLOCATING YOUR PURCHASE PAYMENT
--------------------------------------------------------------------------------
PURCHASE PAYMENT
If the application for a Contract is in Good Order, which includes our receipt
of the initial Purchase Payment, we will issue the Contract on the Contract
Issue Date. If the application is not in Good Order, we may retain the initial
Purchase Payment for up to five Business Days while we attempt to complete the
application. If the application is not complete at the end of the five Business
Day period, we will inform you of the reason for the delay and the initial
Purchase Payment will be returned immediately, unless you specifically consent
to us retaining the Purchase Payment until the application is complete. Once the
application is complete, we will allocate the initial Purchase Payment according
to your allocation instructions.
The minimum initial Purchase Payment for a Non-Qualified or Qualified Contract
is $5,000. Additional Purchase Payments can be made, but are not required. Each
Additional Purchase Payment may not be less than $50 and must be received at
our Administrative Office prior to the oldest Owner's 85(th) birthday, or the
oldest Annuitant's 85(th) birthday if the Owner is a non-natural person.
Additional Purchase Payments are not allowed on Traditional IRA Contracts after
the Owner has reached age 70 1/2. Purchase Payments that, in total, exceed $1
million require our prior approval. Multiple Contracts owned by the same
individual where the sum of the Purchase Payments exceeds $1 million also
require our prior approval.
We reserve the right, in our sole discretion, to refuse Additional Purchase
Payments and to limit the amount and frequency of Additional Purchase Payments
under the Contract or amounts that may be allocated to the Risk Control Accounts
at any time.
PURCHASE PAYMENT ALLOCATION
There are four Allocation Levels available under the Contract, among which you
may allocate your Purchase Payments and Contract Value: Level C (Contract
Allocation Level), Level V (Variable Subaccount Allocation Level), Level I
(Index Allocation Level), and Level R (Risk Control Allocation Level). You must
specify the percentage of your Purchase Payment to be allocated to each
Allocation Level on the Contract Issue Date. The amount you direct to a
particular Allocation Level must be in whole percentages from 0% to 100% of the
Purchase Payment and your total allocation must equal 100% at each Allocation
Level.
If the application for the Contract is in Good Order, we will allocate the
portion of the initial Purchase Payment you designate for the Variable
Subaccounts to the Subaccount(s) you have identified in your allocation
instructions within two Business Days. If the application is not in Good Order
and you are required to provide us with additional information that completes
the application and we receive that information prior to the close of a Business
Day, we will allocate the portion of the initial Purchase Payment you designate
for the Variable Subaccounts that Business Day according to your allocation
instructions. If we receive the information after the close of the Business Day,
we will allocate the portion of the initial Purchase Payment you designate for
the Variable Subaccounts the next Business Day. We will allocate the portion of
any additional Purchase Payment you designate for the Variable Subaccounts
according to your allocation instructions on the Business Day we receive the
Purchase Payment. We
18
process Purchase Payments allocated to the Variable Subaccounts on a Business
Day at the Accumulation Unit Values next determined for the Variable
Subaccounts.
The Risk Control Account portion of your initial Purchase Payment will be
allocated to the Holding Account on your Contract Issue Date before it is
transferred to the Risk Control Account. If there is one source of payment
indicated on your application, the Holding Account Value will be transferred to
the Risk Control Account(s) (according to the allocation instructions on file
with us for Levels I and R) as of your initial Risk Control Account Start Date.
Your initial Risk Control Account Start Date is the next available Risk Control
Account Start Date following the Contract Issue Date (note: Risk Control Account
Start Dates offered by the Company are the 10(th) and 25(th) of each month). If
there is more than one source of payment indicated on your application, the
Holding Account Value will be transferred to the Risk Control Accounts
(according to the allocation instructions on file with us for Levels I and R) as
of the next available Risk Control Account Start Date following our receipt of
all sources of payment. If all sources of payment are not received within the
Multiple Source Waiting Period, the Holding Account Value will be transferred to
the Risk Control Accounts (according to the allocation instructions on file with
us for Levels I and R) as of the next available Risk Control Account Start Date
following the last day of the Multiple Source Waiting Period. Any additional
payments we receive after the last day of the Multiple Source Waiting Period is
will be treated as an additional Purchase Payment rather than an additional
source of payment to establish a Risk Control Account. We will allocate any such
additional Purchase Payments to the Variable Subaccounts (according to the
allocation instructions on file with us for Level V) on the Business Day we
receive the Purchase Payments.
If there is no Risk Control Account in force, an additional Purchase Payment may
be made in order to establish a Risk Control Account. However, if you exercised
your right to discontinue your Risk Control Accounts, as described under
"Getting Started - The Accumulation Period - Thirty Day Period to Discontinue
Initial Risk Control Accounts," a new Risk Control Account cannot be established
for a period of 30 days. To establish a Risk Control Account, there must be at
least five years until the Payout Date, and you must change your allocation
instructions for Levels C, I and R to include Allocation Level percentages for
the Risk Control Account Option and Risk Control Accounts. If these requirements
have been met, we will allocate the portion of your Purchase Payment designated
for the Risk Control Accounts to the Holding Account, and we will transfer your
Holding Account Value to the Risk Control Accounts (according to your allocation
instructions on file with us for Levels I and R) as of the next available Risk
Control Account Start Date following our receipt of the Purchase Payment. If
there are less than five years from the date we receive a Purchase Payment until
the Payout Date, the Purchase Payment will be allocated to the Variable
Subaccounts (according to the allocation instructions on file with us for Level
V) on the Business Day we receive the Purchase Payment. If your allocation
instructions do not provide for the allocation of Purchase Payments to the Risk
Control Accounts, any Purchase Payment that we receive will be applied to the
Variable Subaccounts (according to the allocation instructions on file with us
for Level V) on the Business Day we receive the Purchase Payment.
Once a Risk Control Account is in force, you may allocate additional Purchase
Payments to the Risk Control Account during a specific period of time prior to
the Risk Control Account Maturity Date. Any Purchase Payments we receive at
least one Business Day, but no more than 30 days prior to a Risk Control Account
Maturity Date, will be allocated according to your allocation instructions on
file with us for all four Allocation Levels. The portion of the Purchase Payment
to be allocated to a Risk Control Account will first be allocated to the Holding
Account. The Holding Account Value will be transferred to the Risk Control
Accounts (according to the allocation instructions on file with us for Levels I
and R) as of the Risk Control Account Maturity Date. Any Purchase Payments we
receive on a Risk Control Account Maturity Date, or more than 30 days prior to
that date, will be allocated to the Variable Subaccounts (according to the
allocation instructions on file with us for Level V) on the Business Day we
receive the Purchase Payment.
Purchase Payments allocated to the Variable Subaccounts become part of the total
Variable Subaccount Value, which fluctuates according to the investment
performance of the selected Variable Subaccounts. Purchase Payments allocated
to the Risk Control Accounts become part of the Risk Control Account Value and
will reflect, in part, the investment performance of the reference Index(es),
subject to the applicable Interest Rate Caps and Interest Rate Floors.
19
Transactions that are scheduled to occur on a day that the unit value for a
Variable Subaccount or Risk Control Account is not available will be processed
on the next Business Day at the Accumulation Unit Value for the Subaccount or
Accumulation Credit Value for the Risk Control Account next determined.
Express Portfolios
We make available certain model asset allocation portfolios or "Express
Portfolios" to assist you in selecting investment options under the Contract. At
the time you purchase the Contract, you may elect to allocate all of your
Purchase Payments according to one of the Express Portfolios. Each Express
Portfolio allocates your Purchase Payments among the Variable Subaccounts and
Risk Control Accounts based on a specified allocation percentage for each
investment option available under the Portfolio. Each Express Portfolio employs
different investment styles and allocates Purchase Payments among investment
options to match a specified level of risk tolerance (e.g., conservative,
moderate and aggressive). You and your investment adviser can use an Express
Portfolio as a tool to help select a menu of investment options under the
Contract that matches your level of risk tolerance. There is no separate charge
for selecting an Express Portfolio. There is no automatic rebalancing of your
Contract Value among the investment options under an Express Portfolio.
The Express Portfolios are only available on or before the Contract Issue Date.
You may select only one Express Portfolio and you must allocate 100% of your
initial Purchase Payment to that Express Portfolio. Each Express Portfolio
contains several different investment options that in combination may create
different degrees of exposure to market risks and corresponding opportunities
for more potential growth while other combinations of investment options may
offer different degrees of protection from market risks but lower growth
potential. If you elect to invest according to one of the Express Portfolios, we
will invest your initial Purchase Payment according to the specified allocation
percentages of Express Portfolio.
If you make additional Purchase Payments, the Purchase Payments will be invested
according to the allocation percentages of your Express Portfolio. If you submit
new allocation instructions after the Contract Issue Date, these instructions
will replace your existing instructions and will terminate your participation in
the Express Portfolio. Changes to instructions for the Variable Subaccounts will
take effect on the date we receive the request. Changes to instructions for the
Risk Control Accounts will take effect following our receipt of the request in
Good Order either on the next Risk Control Account Anniversary or Risk Control
Maturity Date, depending on the change requested. In either case, you will not
be able to select a new Express Portfolio. However, you can always submit new
allocation instructions that replicate the allocation percentages under an
existing Express Portfolio.
If you are interested in the Express Portfolios, you should select the Express
Portfolio that is appropriate for you in light of your investment time horizon,
investment goals and expectations, market risk tolerance and other relevant
factors. In providing these Express Portfolios, we are not providing investment
advice. You are responsible for determining which Express Portfolio is best for
you. The Express Portfolios are an allocation tool, and investing by means of an
Express Portfolio does not ensure a profit or protect against a loss. The
compositions of the Express Portfolios may vary over time. The composition of
the express portfolio you select will not change unless a Variable Subaccount or
Risk Control Account option is discontinued or you terminate your express
portfolio by amending your allocation instructions. If one a Variable Subaccount
or Risk Control Account of the risk tolerance categories is terminated or
discontinued, the value in the Variable Subaccount or Risk Control Account will
be moved to the Money Market Subaccount. We reserve the right to discontinue
offering new or current Express Portfolios.
There currently are ___ Express Portfolios to choose from:
[insert model portfolio descriptions - to be updated in amendment filing]
20
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AUTOMATIC REBALANCE PROGRAM
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During the Accumulation Period, we will automatically rebalance your Contract
Value among the Risk Control Accounts and/or Variable Subaccounts based on your
most recent allocation instructions that we have on file. This means, for
example, that if your allocation instructions require that 50% of your Contract
Value be allocated to a Variable Subaccount and 50% of your Contract Value be
allocated to a Risk Control Account, we will transfer your Contract Values
between those Accounts so that 50% of your Contract Value is allocated to both
the Variable Subaccount and Risk Control Account following the transfer.
Transfers that occur as a result of rebalancing will not count towards the 12
transfers we allow each Contract Year without assessing a transfer fee.
Rebalancing at Level C (between Variable Subaccounts and Risk Control Accounts)
will occur as of each Risk Control Account Maturity Date (which is five years
after the Risk Control Account Start Date) according to the allocation
instructions on file with us, unless there is no Risk Control Account Value, you
elect to discontinue rebalancing by Authorized Request, or you have requested to
transfer value which results in rebalancing being discontinued at Levels C and V
(among Variable Subaccounts) as of each Risk Control Account Maturity Date.
Rebalancing at Level V will occur as of each Contract Anniversary according to
the allocation instructions on file with us, unless there is no Variable
Subaccount Value. Rebalancing at Level V will also occur as of each Risk Control
Account Maturity Date according to the allocation instructions on file with us,
unless there is no Variable Subaccount Value or you have requested to transfer
value which results in rebalancing being discontinued at Levels C and V as of
each Risk Control Account Maturity Date. If rebalancing is discontinued, you may
elect to reinstate rebalancing at Level C by Authorized Request, which will also
reinstate rebalancing at Level V. Your Authorized Request to reinstate
rebalancing must be received at least one Business Day prior to the Risk Control
Account Maturity Date to take effect as of that date. If we are not notified at
least one Business Day prior to the Risk Control Account Maturity Date,
rebalancing at Level C will not occur until the next Risk Control Account
Maturity Date.
You may change your allocation instructions for Level V prior to rebalancing on
a Contract Anniversary by Authorized Request. You may also change your
allocation instructions prior to a Risk Control Account Maturity Date.
Rebalancing at Levels I (between Risk Controls Accounts with different reference
Indices) and R (between Risk Controls Accounts with the same reference Index)
will occur as of each Risk Control Account Maturity Date (which is five years
after the Risk Control Account Start Date) and the Risk Control Account
Anniversary, respectively, according to the allocation instructions on file with
us. Rebalancing at Level I will not occur if your Risk Control Account Value is
not split between Indices or there is no Risk Control Account Value, and
rebalancing at Level R will not occur if there is no Risk Control Account Value.
You may change your allocation instructions by Authorized Request. A change to
your Variable Subaccount allocation instructions (Level V) will take effect as
of the Business Day that we receive the request in Good Order, unless otherwise
specified by you. If there is no Risk Control Account in force, a change to your
allocation instructions for the applicable Allocation Levels will be required to
establish a Risk Control Account. However, if there is no Risk Control Account
in force because you exercised your right to discontinue your Risk Control
Accounts, as described under "Getting Started - The Accumulation Period - Thirty
Day Period to Discontinue Initial Risk Control Accounts," you will not be
allowed to change your allocation instructions to establish a Risk Control
Account for at least 30 days. If there is a Risk Control Account in force, a
change to your allocation instructions for the applicable Allocation Levels may
be requested on or prior to a Risk Control Account Anniversary or Risk Control
Account Maturity Date.
You may change your allocation instructions for Level R prior to rebalancing on
a Risk Control Account Anniversary by Authorized Request. Your request to change
your allocation instructions must be received at our Administrative Office at
least one Business Day prior to a Risk Control Account Anniversary for the
instructions to take effect prior to rebalancing. If we do not receive your
request at least one Business
21
Day prior to a Risk Control Account Anniversary, your change in allocation
instructions will not be effective until after that Risk Control Account
Anniversary and after rebalancing has taken place.
Please note that at any time the Index Rate Cap for your Risk Control Account is
less than the rate specified in the Bailout Provision (as shown on your Contract
Data Page), we may, at our discretion, restrict transfers into that Risk Control
Account and may not reallocate your Contract Value between Risk Control Accounts
under the Automatic Rebalance Program. See "Access to Your Money - Bailout
Provision" for more details.
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CONTRACT VALUE
--------------------------------------------------------------------------------
On the Contract Issue Date, your Contract Value equals the initial Purchase
Payment. After the Contract Issue Date, during the Accumulation Period, your
Contract Value will equal the total Risk Control Account Value, plus the total
Variable Subaccount Value, plus the Holding Account Value.
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TRANSFERS
--------------------------------------------------------------------------------
Transfers between Risk Control Accounts and/or Variable Subaccounts will occur
automatically under the Automatic Rebalance Program. In addition, by Authorized
Request, you may also transfer value:
o Between Variable Subaccounts on any Business Day;
o Between Risk Control Accounts with the same reference Index as of a Risk
Control Account Anniversary;
o Between Risk Control Accounts or between Risk Control Accounts and
Variable Subaccounts as of a Risk Control Account Maturity Date; and
o From a Variable Subaccount to a Risk Control Account if there is no Risk
Control Account in force.
You may also make a transfer under the Bailout Provision, as described in
"Access to Your Money - Bailout Provision."
Transfer requests must be in Good Order. Additionally, the Authorized Request
for transfer must be received in our Administrative Office prior to the Payout
Date. We reserve the right to impose a transfer fee, which, if imposed, will be
deducted from the Variable Subaccount or Risk Control Account from which the
transfer is made. If a transfer is made from more than one Variable Subaccount
or Risk Control Account at the same time, the transfer fee will be deducted Pro
Rata from the value in the Variable Subaccounts and/or Risk Control Accounts. We
reserve the right to modify, suspend or terminate the transfer privilege for any
Contract or series of Contracts at any time for any reason.
If there is no Risk Control Account in force, you may request to transfer value
from a Variable Subaccount in order to establish a Risk Control Account by
Authorized Request. However, if you exercised your right to discontinue your
Risk Control Accounts, as described under "Getting Started - The Accumulation
Period - Thirty Day Period to Discontinue Initial Risk Control Accounts," a new
Risk Control Account cannot be established for a period of 30 days.
To establish one or more Risk Control Accounts, there must be at least five
years form the Risk Control Account Start Date until the Payout Date. You must
also provide allocation instructions for Levels I and R by Authorized Request at
least one Business Day prior to a Risk Control Account Start Date to be
effective as of that Risk Control Account Start Date. Allocation instructions
received on a Risk Control Account Start Date will be effective as of the next
available Risk Control Account Start Date. If these requirements are met, the
transfer will occur on a Pro Rata basis from the Variable Subaccounts as of the
next available Risk Control Account Start Date. The Variable Subaccount Value
transferred to a Risk
22
Control Account will be allocated according to the allocation percentages on
file with us for Levels I and R.
If there are less than five years until the Payout Date, transfers to a Risk
Control Account will not be allowed. In addition, if your allocation
instructions are not in Good Order, no transfer will occur until you provide
allocation instructions that are in Good Order.
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VARIABLE SUBACCOUNT OPTION
--------------------------------------------------------------------------------
The Variable Separate Account is a segregated investment account to which we
allocate certain assets and liabilities attributable to those variable annuity
contracts that offer Variable Subaccounts. The Variable Separate Account is
registered with the SEC as a unit investment trust under the 1940 Act and was
formed on [o]. We own the assets of the Variable Separate Account and value the
assets of the Variable Separate Account each Business Day.
The portion of the assets of the Variable Separate Account equal to the reserves
and other liabilities of the Contracts supported by the Variable Separate
Account will not be charged with liabilities arising from any other business
that we may conduct. We have the right to transfer to our General Account any
assets of the Variable Separate Account that are in excess of such reserves and
other Contract liabilities. The income, gains and losses, realized or
unrealized, from the assets allocated to the Variable Separate Account will be
credited to or charged against the Variable Separate Account, without regard to
our other income, gains or losses.
The Variable Separate Account is divided into Variable Subaccounts. Each
Variable Subaccount invests its assets solely in the shares or units of
designated Funds of underlying investment companies. Purchase Payments
allocated and transfers to a Variable Subaccount are invested in the Fund
supporting that Variable Subaccount.
Subject to obtaining approval or consent required by applicable law, we reserve
the right to:
o Combine the Variable Separate Account with any other variable separate
accounts that are also registered as unit investment trusts under the
1940 Act;
o Eliminate or combine any Variable Subaccounts and transfer the assets of
any Variable Subaccount to any other Variable Subaccount;
o Add new Variable Subaccounts and make such Variable Subaccounts
available to any series of contracts as we deem appropriate;
o Close certain Variable Subaccounts to the allocation of Purchase
Payments or transfer of Contract Value;
o Add new Funds or remove existing Funds; 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;
o Deregister the Variable Separate Account under the 1940 Act if such
registration is no longer required;
o Operate the Variable Separate Account as a management investment company
under the 1940 Act (including managing the Variable Separate Account
under the direction of a committee) or in any other form permitted by
law;
23
o Restrict or eliminate any voting rights of Owners or other persons
having such rights as to the Variable Separate Account; and
o Make any other changes to the Variable Separate Account or its
operations as may be required by the 1940 Act or other applicable law or
regulations.
In the event of any substitution or other change, we may make changes to the
Contract as may be necessary or appropriate to reflect such substitution or
other change.
FUNDS
The investment objectives and policies of each Fund in which the Variable
Subaccounts invest are summarized below. We select the Funds based on several
criteria, including asset class coverage, the strength of the investment
adviser's or subadviser's reputation and tenure, brand recognition, performance,
fees, and the capability and qualification of each investment firm. Another
factor we consider during the selection process is whether the Fund, its
investment adviser, its subadviser(s), or an affiliate will compensate us or our
affiliates, as described below under "Servicing Fees and Other Fund-Related
Payments" and "Distribution of the Contract." We review the Funds periodically
and may remove or limit a Fund's availability to new purchase payments and/or
transfers of Variable Subaccount Value if we determine that the Fund no longer
meets one or more of the selection criteria, and/or if the Fund has not
attracted significant allocations from Owners.
Owners, through their indirect investment in the Funds, bear the costs of: (i)
investment advisory or management fees that the Funds pay their respective
investment advisers, and in some cases, subadvisers (see the Funds' prospectuses
for more information); (ii), administrative fees; (iii) 12b-1 service fees; and
(iv) other expenses. As discussed above, an investment adviser or subadviser to
a Fund, or its affiliates, may make payments to us and/or certain of our
affiliates. These payments may be derived, in whole or in part, from the
advisory (and in some cases, subadvisory) or other fees deducted from Fund
assets.
From time to time, the Funds may reorganize or merge with other mutual funds. If
that occurs, we will process any instructions to allocate to the Variable
Subaccount investing in the merged Fund post-merger instead to the Variable
Subaccount investing in the surviving Fund.
AMERICAN FUNDS INSURANCE SERIES(R)
American Funds IS(R) Asset Allocation 1 (Series I). The Fund seeks high total
return (including income and capital gains) consistent with preservation of
capital over the long term. The Fund varies its mix of equity securities, debt
securities and money market instruments. Under normal market conditions, its
investment adviser expects (but is not required) to maintain an investment mix
falling within the following ranges: 40%-80% in equity securities, 20%-50% in
debt securities and 0%-40% in money market instruments. Although the Fund
focuses on investments in medium to larger capitalization companies, the Fund's
investments are not limited to a particular capitalization size.
American Funds IS(R) Bond (Series I). The Fund seeks to provide as high a level
of current income as is consistent with the preservation of capital. The Fund
seeks to maximize the level of current income and preserve capital by investing
primarily in bonds. Normally, it invests at least 80% of its assets in bonds and
other debt securities. The Fund invests at least 65% of its assets in
investment-grade debt securities. It may invest up to 35% of its assets in debt
securities rated Ba1 or below. The Fund invests in debt securities of issuers
domiciled outside the United States.
American Funds IS(R) Growth (Series I). The Fund seeks growth of capital. The
Fund invests primarily in common stocks and seeks to invest in companies that
appear to offer superior opportunities for growth of capital. It may invest up
to 25% of its assets in common stocks and other securities of issuers domiciled
outside the United States. Although the Fund focuses on investments in medium to
larger capitalization companies, the Fund's investments are not limited to a
particular capitalization size.
24
American Funds IS(R) High Income (Series I). The Fund seeks to provide investors
with a high level of current income; capital appreciation is the secondary
consideration. The Fund invests primarily in higher yielding and generally lower
quality debt securities, including corporate loan obligations. It is designed
for investors seeking a high level of current income and who are able to
tolerate greater credit risk and price fluctuations than those that exist in
funds investing in higher quality debt securities.
American Funds IS(R) International (Series I). The Fund seeks to provide
investors with long-term growth of capital. The Fund invests primarily in common
stocks of companies domiciled outside the United States, including companies
domiciled in developing countries, that the investment adviser believes have the
potential for growth. Although it focuses on investments in medium to larger
capitalization companies, the Fund's investments are not limited to a particular
capitalization size.
Capital Research and Management Company serves as the investment adviser to the
American Funds Insurance Series.
BLACKROCK VARIABLE SERIES FUNDS, INC.
BlackRock Global Allocation V.I. I. The Fund seeks high total investment return.
The Fund invests in a portfolio of equity, debt and money market securities.
Generally, its portfolio will include both equity and debt securities. In
selecting equity investments, the Fund mainly seeks securities that the adviser
believes are undervalued. The Fund may buy debt securities of varying
maturities, debt securities paying a fixed or fluctuating rate of interest, and
debt securities of any kind. It may invest up to 35% of its total assets in
"junk bonds," corporate loans and distressed securities. The Fund may also
invest in real estate investment trusts and securities related to real assets.
BlackRock Advisors, LLC serves as the investment adviser to BlackRock Global
Allocation V.I.I.
COLUMBIA THREADNEEDLE
Columbia VP Emerging Markets Bond 1. The Fund seeks to provide shareholders with
high total return through current income and, secondarily, through capital
appreciation. Under normal circumstances, at least 80% of the Fund's net assets
will be invested in fixed income securities of issuers that are located in
emerging markets countries, or that earn 50% or more of their total revenues
from goods or services produced in emerging markets countries or from sales made
in emerging markets countries. It may invest 25% or more of its total assets in
the securities of foreign governmental and corporate entities located in the
same country. The Fund is non-diversified.
Columbia Management Investment Advisers, LLC serves as the investment adviser to
Columbia VP Emerging Markets Bond 1.
DFA INVESTMENT DIMENSIONS GROUP INC.
DFA VA International Small. The Fund seeks long-term capital appreciation. The
Fund, using a market capitalization weighted approach, purchases securities of
(i) Japanese small companies; (ii) United Kingdom small companies; (iii) small
companies organized under the laws of certain European countries; (iv) small
companies associated with Australia, New Zealand and Pacific Rim Asian
countries; and (v) Canadian small companies. It may have some exposure to small
cap equity securities associated with other countries or regions.
DFA VA International Value. The Fund seeks long-term capital appreciation. The
Fund, using a market capitalization weighted approach, purchases securities of
large non-U.S. companies in countries with developed markets that the investment
adviser determines to be value stocks. It may gain exposure to companies
associated with approved markets by purchasing equity securities in the form of
depositary receipts, which may be listed or traded outside the issuer's domicile
country.
25
DFA VA US Large Value. The Fund seeks long-term capital appreciation. The Fund,
using a market capitalization weighted approach, purchases a broad and diverse
group of readily marketable securities of large U.S. companies that the
investment adviser determines to be value stocks. As a non-fundamental policy,
under normal circumstances, it will invest at least 80% of its net assets in
securities of large cap U.S. companies. The Fund may use derivatives, such as
futures contracts and options on futures contracts on U.S. equity securities and
indices, to adjust equity market exposure based on actual or expected cash
inflows to or outflows from the Portfolio.
DFA VA US Targeted Value. The Fund seeks long-term capital appreciation. The
Fund, using a market capitalization weighted approach, purchases a broad and
diverse group of readily marketable securities of U.S. small and mid-cap
companies that the investment adviser determines to be value stocks. As a
non-fundamental policy, under normal circumstances, it will invest at least 80%
of its net assets in securities of U.S. companies. The Fund may use derivatives,
such as futures contracts and options on futures contracts on U.S. equity
securities and indices, to adjust equity market exposure based on actual or
expected cash inflows to or outflows from the Fund.
Dimensional Fund Advisors LP serves as the investment adviser to the DFA
Investment Dimensions Group Inc.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus VIF Quality Bond (Institutional). The Fund seeks to maximize total
return, consisting of capital appreciation and current income. To pursue its
goal, the Fund normally invests at least 80% of its net assets, plus any
borrowings for investment purposes, in bonds. It may invest up to 10% of its net
assets in bonds issued by foreign issuers that are denominated in foreign
currencies, and up to 20% of its net assets in bonds issued by foreign issuers
whether denominated in U.S. dollars or in a foreign currency.
The Dreyfus Corporation serves at the investment adviser to the Dreyfus Variable
Investment Fund.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Franklin High Income VIP (Class 1). The Fund seeks a high level of current
income; capital appreciation is a secondary objective. Under normal market
conditions, the Fund invests predominantly in high yield, lower-rated debt
securities. Lower-rated securities generally pay higher yields than more highly
rated securities to compensate investors for the higher risk. These securities
include bonds, notes, debentures, convertible securities, and senior and
subordinated debt securities. The Fund may also invest in preferred stock.
Templeton Global Bond VIP (Class 1). The Fund seeks high current income
consistent with preservation of capital; capital appreciation is a secondary
objective. Under normal market conditions, the Fund invests at least 80% of its
net assets in "bonds." Bonds include debt securities of any maturity, such as
bonds, notes, bills and debentures. The Fund invests predominantly in bonds
issued by governments and government agencies located around the world. Under
normal market conditions, the investment adviser expects to invest at least 40%
of its net assets in foreign securities, and may invest without limit in
emerging or developing markets. It is non-diversified.
Franklin Advisors, Inc. serves as the investment adviser to the Franklin High
Income VIP Fund and the Templeton Global Bond VIP Fund.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
Goldman Sachs VIT Core Fixed Income Trust (Institutional). The Fund seeks a
total return consisting of capital appreciation and income that exceeds the
total return of the Barclays U.S. Aggregate Bond Index. The Fund invests, under
normal circumstances, at least 80% of its net assets plus any borrowings for
investment purposes in fixed income securities, including securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or sponsored
enterprises, corporate debt securities, privately
26
issued adjustable rate and fixed rate mortgage loans or other mortgage-related
securities and asset-backed securities.
Goldman Sachs Asset Management, L.P. serves as the investment adviser to Goldman
Sachs VIT Core Fixed Income Trust.
AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS)
Invesco V.I. Small Cap Equity Fund (Series I). The Fund seeks long-term growth
of capital. The Fund invests, under normal circumstances, at least 80% of its
net assets (plus any borrowings for investment purposes) in equity securities of
small-capitalization issuers. The principal type of equity security in which the
Fund invests is common stock. The Fund's managers consider an issuer to be a
small-capitalization issuer if it has a market capitalization, at the time of
purchase, no larger than the largest capitalized issuer included in the Russell
2000(R) Index. The Fund may also invest up to 25% of its net assets in foreign
securities.
Invesco Advisers, Inc. serves as the investment adviser to Invesco V.I. Small
Cap Equity Fund.
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Emerging Markets Equity Fund (Investor). The Fund seeks
long-term capital appreciation. The Fund invests primarily in equity securities,
principally common stocks, of non-U.S. companies whose principal activities are
located in emerging market countries and that the Investment Manager believes
are undervalued based on their earnings, cash flow or asset values. Under normal
circumstances, it invests at least 80% of its assets in equity securities of
companies whose principal business activities are located in emerging market
countries.
Lazard Asset Management LLC serves as the investment adviser to Lazard
Retirement Emerging Markets Equity Fund.
MFS(R) VARIABLE INSURANCE TRUST
MFS(R) VIT Total Return Bond (Initial). The Fund seeks total return with an
emphasis on current income, but also considering capital appreciation. The Fund
normally invests at least 80% of the Fund's net assets in debt instruments. Debt
instruments include corporate bonds, U.S. government securities, foreign
government securities, asset-backed securities, municipal instruments, and other
obligations to repay money borrowed. It primarily invests the Fund's assets in
investment grade debt instruments, but may also invest in below investment grade
quality debt instruments. The Fund may invest the Fund's assets in foreign
securities.
MFS(R) VIT Utilities Series (Initial). The Fund seeks total return. The Fund
normally invests at least 80% of the Fund's net assets in securities of issuers
in the utilities industry. It primarily invests the Fund's assets in equity
securities, but may also invest in debt instruments, including below investment
grade quality debt instruments. The Fund may invest the Fund's assets in
companies of any size. It may invest the Fund's assets in U.S. and foreign
securities, including emerging market securities. The Fund may invest a large
percentage of the Fund's assets in issuers in a single country, a small number
of countries, or a particular geographic region.
Massachusetts Financial Services Company serves as the investment adviser to
MFS(R) VIT Total Return Bond and MFS(R) VIT Utilities Series.
MORGAN STANLEY
Morgan Stanley UIF Global Infrastructure (Class 1). The Fund seeks both capital
appreciation and current income. The Fund normally invests at least 80% of its
assets in equity securities issued by companies located throughout the world
that are engaged in the infrastructure business. It may invest up to 100% of
27
its net assets in foreign securities, which may include emerging market
securities. Under normal market conditions, the Fund invests at least 40% of its
assets in the securities of issuers located outside of the United States. It is
non-diversified.
Morgan Stanley UIF Growth (Class 1). The Fund seeks long-term capital
appreciation. The Fund primarily invests in established and emerging companies
with market capitalizations of generally $10 billion or more. Its equity
investments may include common and preferred stocks, convertible securities and
equity-linked securities, rights and warrants to purchase common stocks,
depositary receipts, exchange-traded funds, limited partnership interests and
other specialty securities having equity features. The Fund may invest in
privately placed and restricted securities. It may invest up to 25% of the
Fund's net assets in foreign securities.
Morgan Stanley Investment Management Inc. serves as the investment adviser to
Morgan Stanley UIF Global Infrastructure and Morgan Stanley UIF Growth.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer International Growth Fund/VA (Non-Service Shares). The Fund seeks
capital appreciation. The Fund will invest at least 65% of its total assets in
equity securities of issuers that are domiciled or that have their primary
operations in at least three different countries outside of the United States
and may invest 100% of its total assets in foreign companies. It mainly invests
in "growth companies," which are companies whose earnings and stock prices are
expected to increase at a faster rate than the overall market. The Fund may
invest up to 25% of its total assets in emerging markets. It can also use
derivative instruments, such as options, futures, forwards and swaps.
OFI Global Asset Management, Inc. serves as the investment adviser, and
OppenheimerFunds, Inc., is the sub-adviser, to Oppenheimer International Growth
Fund/VA.
PIMCO VARIABLE INSURANCE TRUST
PIMCO Commodityrealreturn(R) Strategy Portfolio. The Fund seeks maximum real
return, consistent with prudent investment management. The Fund normally invests
in commodity-linked derivative instruments backed by a portfolio of
inflation-indexed securities and other fixed income instruments. It invests in
commodity-linked derivative instruments, including commodity index-linked notes,
swap agreements, commodity options, futures and options on futures, that provide
exposure to the investment returns of the commodities markets, without investing
directly in physical commodities. It is non-diversified.
PIMCO VIT All Asset (Institutional Class).* The Fund seeks maximum real return,
consistent with preservation of real capital and prudent investment management.
The Fund invests under normal circumstances substantially all of its assets in
Institutional Class or, as applicable, Class M shares of any funds of the PIMCO
Funds and PIMCO Equity Series, affiliated open-end investment companies, except
funds of funds, and shares of any actively-managed funds of the PIMCO ETF Trust,
an affiliated investment company. While the Fund is non-diversified, it invests
in diversified underlying holdings.
PIMCO VIT Real Return (Institutional Class). The Fund seeks maximum real return,
consistent with preservation of real capital and prudent investment management.
The Fund normally invests at least 80% of its net assets in inflation-indexed
bonds of varying maturities issued by the U.S. and non-U.S. governments, their
agencies or instrumentalities and corporations, which may be represented by
forwards or derivatives such as options, futures contracts or swap agreements.
It invests primarily in investment grade securities, but may invest up to 10% of
its total assets in high yield securities rated B or higher.
PIMCO serves as the investment adviser to the PIMCO Variable Insurance Trust.
*The Fund operates as a fund of funds.
28
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Blue Chip Growth Portfolio. The Fund seeks to provide long-term
capital growth; income is a secondary objective. The Fund normally invests at
least 80% of its net assets (including any borrowings for investment purposes)
in the common stocks of large-and medium-sized blue chip growth companies. It
focuses on companies with leading market position, seasoned management, and
strong financial fundamentals. The Fund may invest in foreign stocks in keeping
with the Fund's objectives. It may sell securities for a variety of reasons,
such as to secure gains, limit losses, or redeploy assets into more promising
opportunities.
T. Rowe Price Equity Income Portfolio. The Fund seeks a high level of dividend
income and long-term capital growth primarily through investments in stocks. The
Fund will normally invest at least 80% of its net assets (including any
borrowings for investment purposes) in common stocks, with an emphasis on
large-capitalization stocks that have a strong track record of paying dividends
or that are believed to be undervalued. It generally seeks investments in
large-capitalization companies and the Fund's yield, which reflects the level of
dividends paid by the Fund, is expected to normally exceed the yield of the S&P
500 Stock Index.
T. Rowe Price Associates serves as the investment adviser to the T. Rowe Price
Blue Chip Growth Portfolio and T. Rowe Price Equity Income Portfolio.
NORTHERN LIGHTS VARIABLE TRUST
TOPS(R) Aggressive Growth ETF (Class 1).* The Fund seeks capital appreciation.
The Fund employs a fund-of-funds structure that invests, under normal market
conditions, at least 80% of its assets in exchange-traded funds. The
exchange-traded funds included in the Fund invest primarily in securities
representing one of the following asset classes: common and preferred stocks;
real estate investment trusts; and natural resource-related securities.
TOPS(R) Balanced ETF (Class 1).* The Fund seeks income and capital appreciation.
The Fund employs a fund-of-funds structure that invests, under normal market
conditions, at least 80% of its assets in exchange-traded funds. The
exchange-traded funds included in the Fund invest primarily in securities
representing one of the following asset classes: government fixed income
securities; corporate fixed income securities; and common and preferred stocks.
TOPS(R) Conservative ETF (Class 1).* The Fund seeks to preserve capital and
provide moderate income and moderate capital appreciation. The Fund employs a
fund-of-funds structure that invests, under normal market conditions, at least
80% of its assets in exchange-traded funds. The exchange-traded funds included
in the Fund invest primarily in securities representing one of the following
asset classes: government fixed income securities; corporate fixed income
securities; and common and preferred stocks.
TOPS(R) Growth ETF (Class 1).* The Fund seeks capital appreciation. The Fund
employs a fund-of-funds structure that invests, under normal market conditions,
at least 80% of its assets in exchange-traded funds. The exchange-traded funds
included in the Fund invest primarily in securities representing one of the
following asset classes: government fixed income securities; corporate fixed
income securities; and common and preferred stocks.
TOPS(R) Moderate Growth ETF (Class 1).* The Fund seeks capital appreciation. The
Fund employs a fund-of-funds structure that invests, under normal market
conditions, at least 80% of its assets in exchange-traded funds. The
exchange-traded funds included in the Fund invest primarily in securities
representing one of the following asset classes: government fixed income
securities; corporate fixed income securities; and common and preferred stocks.
ValMark Advisers, Inc. serves as the investment adviser to TOPS(R) Aggressive
Growth ETF, TOPS(R) Balanced ETF, TOPS(R) Conservative ETF, TOPS(R) Growth ETF,
and TOPS(R) Moderate Growth ETF.
*The Fund operates as a fund of funds.
29
VANGUARD VARIABLE INSURANCE FUND
Vanguard VIF Capital Growth. The Fund seeks to provide long-term capital
appreciation. The Fund invests in stocks considered to have above-average
earnings growth potential that is not reflected in their current market prices.
It consists predominantly of large- and mid-capitalization stocks.
Vanguard VIF Diversified Value. The Fund seeks to provide long-term capital
appreciation and income. The Fund invests mainly in large- and
mid-capitalization companies whose stocks are considered by the investment
adviser to be undervalued. Undervalued stocks are generally those that are out
of favor with investors and that the investment adviser feels are trading at
prices that are below average in relation to such measures as earnings and book
value. These stocks often have above-average dividend yields.
Vanguard VIF Equity Index. The Fund seeks to track the performance of a
benchmark index that measures the investment return of large-capitalization
stocks. The Fund employs an indexing investment approach designed to track the
performance of the S&P 500 Index, a widely recognized benchmark of U.S. stock
market performance that is dominated by the stocks of large U.S. companies. The
investment adviser attempts to replicate the target index by investing all, or
substantially all, of its assets in the stocks that make up the index, holding
each stock in approximately the same proportion as its weighting in the index.
Vanguard VIF High Yield Bond. The Fund seeks to provide a high level of current
income. The Fund invests primarily in a diversified group of high-yielding,
higher-risk corporate bonds commonly known as "junk bonds" - with medium- and
lower-range credit-quality ratings. It invests at least 80% of its assets in
corporate bonds that are rated below Baa. The Fund may not invest more than 20%
of its assets in any of the following, taken as a whole: bonds with credit
ratings lower than B or the equivalent, convertible securities, preferred
stocks, and fixed and floating rate loans of medium- to lower-range credit
quality.
Vanguard VIF International. The Fund seeks to provide long-term capital
appreciation. The Fund invests predominantly in the stocks of companies located
outside the United States and is expected to diversify its assets in countries
across developed and emerging markets. In selecting stocks, its investment
advisers evaluate foreign markets around the world and choose large-, mid-, and
small-capitalization companies considered to have above-average growth
potential. The Fund uses multiple investment advisers.
Vanguard VIF Mid-Cap Index. The Fund seeks to track the performance of a
benchmark index that measures the investment return of mid-capitalization
stocks. The Fund employs an indexing investment approach designed to track the
performance of the CRSP US Mid Cap Index, a broadly diversified index of stocks
of mid-size U.S. companies. The investment adviser attempts to replicate the
target index by investing all, or substantially all, of its assets in the stocks
that make up the index, holding each stock in approximately the same proportion
as its weighting in the index.
Vanguard VIF Money Market. The Fund seeks to provide current income while
maintaining liquidity and a stable share price of $1. The Fund invests primarily
in high-quality, short-term money market instruments, including certificates of
deposit, banker's acceptances, commercial paper, Eurodollar and Yankee
obligations, and other money market securities. It invests more than 25% of its
assets in securities issued by companies in the financial services industry. The
Fund maintains a dollar-weighted average maturity of 60 days or less and a
dollar-weighted average life of 120 days or less.
Vanguard VIF REIT Index. The Fund seeks to provide a high level of income and
moderate long-term capital appreciation by tracking the performance of a
benchmark index that measures the performance of publicly traded equity real
estate investment trusts. The Fund employs an indexing investment approach
designed to track the performance of the MSCI US REIT Index. The index is
composed of stocks of
30
publicly traded equity real estate investment trusts. It attempts to replicate
the index by investing all, or substantially all, of its assets in the stocks
that make up the index, holding each stock in approximately the same proportion
as its weighting in the index.
Vanguard VIF Small Company Growth. The Fund seeks to provide long-term capital
appreciation. Under normal circumstances the Fund invests at least 80% of its
assets primarily in common stocks of small companies. These companies tend to be
unseasoned but are considered by the Fund's investment advisers to have superior
growth potential. Also, these companies often provide little or no dividend
income. It uses multiple investment advisers.
Vanguard VIF Total Bond Market Index. The Fund seeks to track the performance of
a broad, market- weighted bond index. The Fund employs an indexing investment
approach designed to track the performance of the Barclays U.S. Aggregate Float
Adjusted Index. This index represents a wide spectrum of public,
investment-grade, taxable, fixed income securities in the United
States-including government, corporate, and international dollar-denominated
bonds, as well as mortgage-backed and asset-backed securities-all with
maturities of more than 1 year. At least 80% of its assets will be invested in
bonds held in the index.
Vanguard VIF Total Stock Market Index. The Fund seeks to track the performance
of a benchmark index that measures the investment return of the overall stock
market. The Fund employs an indexing investment approach designed to track the
performance of the S&P Total Market Index by investing all, or substantially
all, of its assets in two Vanguard Funds- Vanguard Variable Insurance Fund
Equity Index Portfolio and Vanguard Extended Market Index Fund. The S&P Total
Market Index consists of substantially all of the U.S. common stocks regularly
traded on the New York Stock Exchange and the Nasdaq over-the-counter market.
The Vanguard Group, Inc. serves as the investment adviser to Vanguard VIF
Capital Growth, Vanguard VIF Diversified Value, Vanguard VIF Equity Index,
Vanguard VIF High Yield Bond, Vanguard VIF International, Vanguard VIF Mid-Cap
Index, Vanguard VIF Money Market, Vanguard VIF REIT Index, Vanguard VIF Small Co
Growth, Vanguard VIF Total Bond Market Index and Vanguard VIF Total Stock Market
Index.
These mutual fund portfolios 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. However,
the investment objectives and policies of certain portfolios available under the
Contract may be very similar to the investment objectives and policies of other
portfolios that are managed by the same investment adviser or manager.
Nevertheless, the investment performance and results of the portfolios available
under the Contract 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 Contract will be comparable to the investment results of any
other mutual fund portfolio, even in the other portfolio has the same investment
adviser or manager and the same investment objectives and policies, and a very
similar name.
There is no guarantee that the stated objectives and policies of any of the
Funds will be achieved. More detailed information concerning the investment
objectives, policies and restrictions of the Funds, the expenses of the Funds,
the risks attendant to investing in the Funds and other aspects of their
operations can be found in the current prospectuses for the Funds and the
current statement of additional information for each of the Funds. You may
obtain a prospectus or a statement of additional information for any of the
Funds by contacting the Company or by asking your financial professional. You
should read the Funds' prospectuses carefully before making any decision
concerning the allocation of Purchase Payments or transfers among the Variable
Subaccounts.
AVAILABILITY OF THE FUNDS
The Variable Separate Account purchases shares of a Fund in accordance with a
participation agreement. If a participation agreement terminates, the Variable
Separate Account may not be able to
31
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 Separate Account even if the participation agreement relating to
that Fund has not been terminated. In either event, Owners will no longer be
able to allocate Purchase Payments or transfer Contract Value to the Variable
Subaccount investing in the Fund.
We have entered into agreements with the investment adviser or distributor of
certain Funds pursuant to which the investment adviser or distributor pays us a
servicing fee based upon an annual percentage of the average daily net assets
invested by the Variable Separate Account in the Fund. These percentages vary
and currently range from [0.10% to 0.25%] of each Fund's average daily net
assets. The amount paid is based on assets of the particular Fund attributable
to the Contract issued by us. The amounts we receive under the servicing
agreements may be significant.
The service fees are for administrative services provided to the Funds by us and
our affiliates. These payments may be derived, in whole or in part, from the
investment management fees deducted from assets of the Funds. Owners, through
their indirect investment in the Funds, bear the costs of the investment
management fees.
In addition, certain Funds have adopted 12b-1 plans. Such plans allow the Fund
to pay Rule 12b-1 fees to those who sell or distribute Fund shares and/or
provide services to shareholders and Owners. Each of those Funds describes its
Rule 12b-1 plan in its prospectus. Under certain Rule 12b-1 plans, we may
receive 12b-1 fees for providing services to the Funds. Rule 12b-1 fees are
deducted from Fund assets and, therefore, are indirectly borne by Owners.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We may, subject to applicable law, make additions to, deletions from, or
substitutions for the shares of a Fund that are held in the Variable Separate
Account or that the Variable Separate Account may purchase. If the shares of a
Fund are no longer available for investment or if, in our judgment, further
investment in any Fund should become inappropriate, we may redeem the shares, if
any, of that Fund and substitute shares of another Fund. Such other Funds may
have different fees and expenses. We will not substitute any shares attributable
to a Contract's interest in a Variable Subaccount without prior notice and
approval of the SEC and state insurance authorities, to the extent required by
the 1940 Act or other applicable law.
We also may establish additional Variable Subaccounts of the Variable Separate
Account, each of which would invest in shares of a new corresponding Fund having
a specified investment objective. We may, in our sole discretion, establish new
Variable Subaccounts or eliminate or combine one or more Variable Subaccounts if
marketing needs, tax considerations, or investment conditions warrant. Any new
Variable Subaccounts may be made available to existing Owners on a basis to be
determined by us. Also, certain Variable Subaccounts may be closed to certain
customers. Subject to obtaining any approvals or consents required by applicable
law, the assets of one or more Variable Subaccounts may be transferred to any
other Variable Subaccount if, in our sole discretion, marketing, tax, or
investment conditions warrant.
In the event of any such substitution or change, we (by appropriate endorsement,
if necessary) may change the Contract to reflect the substitution or change.
FREQUENT TRANSFERS PROCEDURES
Frequent, large, or short-term transfers among Variable Subaccounts, such as
those associated with "market timing" transactions, can adversely affect the
Funds and the returns achieved by Owners. In particular, such transfers may
dilute the value of Fund shares, interfere with the efficient management of the
Funds, and increase brokerage and administrative costs of the Funds. These costs
are borne by all Owners allocating Purchase Payments or Contract Value to the
Variable Subaccounts and other Fund shareholders, not just the Owner making the
transfers.
32
In order to try to protect Owners and the Funds from potentially harmful trading
activity, we have adopted certain Frequent Transfers Procedures.
We employ various means in an attempt to detect, deter, and prevent
inappropriate frequent, large, or short-term transfer activity among the
Variable Subaccounts that may adversely affect other Owners or Fund
shareholders. We may vary the Frequent Transfers Procedures with respect to the
monitoring of potential harmful trading activity from Variable Subaccount to
Variable Subaccount, and may be more restrictive with regard to certain Variable
Subaccounts than others. However, we will apply the Frequent Transfers
Procedures, including any variance in the Frequent Transfers Procedures by
Variable Subaccount, uniformly to all Owners. We also coordinate with the Funds
to identify potentially inappropriate frequent trading, and will investigate any
patterns of trading behavior identified by Funds that may not have been captured
through operation of the Frequent Transfers Procedures. Please note that despite
our best efforts, we may not be able to detect nor stop all harmful transfers.
If we determine under the Frequent Transfers Procedures that an Owner has
engaged in inappropriate frequent transfers, we notify such Owner that from that
date forward, for three months from the date we mailed the notification letter,
the telephone transfer and withdrawal privilege will be revoked. He or she will
only be permitted to make transfers or withdrawals by Authorized Request with an
original signature conveyed through the U.S. mail or overnight delivery service.
In our sole discretion, we may revise the Frequent Transfers Procedures at any
time without prior notice as necessary to (i) better detect and deter frequent,
large, or short-term transfers that may adversely affect other Owners or Fund
shareholders, (ii) comply with state or federal regulatory requirements, or
(iii) impose additional or alternate restrictions on Owners who make
inappropriate frequent transfers (such as dollars or percentage limits on
transfers). We also may, to the extent permitted by applicable law, implement
and administer redemption fees imposed by one or more of the Funds in the
future. If required by applicable law, we may deduct redemption fees imposed by
the Funds. Further, to the extent permitted by law, we also may defer the
transfer privilege at any time that we are unable to purchase or redeem shares
of the Funds. You should be aware that we are contractually obligated to
prohibit purchases and transfers or redemptions of Fund shares at the Fund's
request.
We currently do not impose redemption fees on transfers, or expressly allow a
certain number of transfers in a given period, or limit the size of transfers in
a given period; however, we do impose a transfer fee as discussed under "Fees
and Expenses." Redemption fees, transfer limits, and other procedures or
restrictions may be more or less successful than our policies in deterring
inappropriate frequent transfers or other disruptive transfers and in preventing
or limiting harm from such transfers.
Our ability to detect and deter such transfer activity is limited by our
operational and technological systems, as well as by our ability to predict
strategies employed by Owners (or those acting on their behalf) to avoid
detection. Accordingly, despite our best efforts, we cannot guarantee that the
Frequent Transfers Procedures will detect or deter frequent or harmful transfers
by such Owners or intermediaries acting on their behalf. We apply the Frequent
Transfers Procedures consistently to all Owners without waiver or exception.
FUND FREQUENT TRADING POLICIES
The Funds have adopted their own policies and procedures with respect to
inappropriate frequent purchases and redemptions of their respective shares. The
prospectuses for the Funds describe any such policies and procedures. The
frequent trading policies and procedures of a Fund may be different, and more or
less restrictive, than the frequent trading policies and procedures of other
Funds and the policies and procedures we have adopted to discourage
inappropriate frequent transfers. Accordingly, Owners and other persons who have
material rights under the Contracts should assume that the sole protections they
may have against potential harm from frequent transfers are the protections, if
any, provided by the Frequent Transfers Procedures. You should read the
prospectuses of the Funds for more
33
details on their ability to refuse or restrict purchases or redemptions of their
shares.
Owners also should be aware that the purchase and redemption orders received by
the Funds generally are "omnibus" orders from intermediaries such as retirement
plans and separate accounts funding variable insurance contracts. The omnibus
orders reflect the aggregation and netting of multiple orders from individual
owners of variable insurance contracts and individual retirement plan
participants. The omnibus nature of these orders may limit each Fund's ability
to apply its respective frequent trading policies and procedures. In addition,
if a Fund believes that an omnibus order we submit may reflect one or more
transfer requests from Owners engaged in inappropriate frequent transfers, the
Fund may reject the entire omnibus order and thereby delay or prevent us from
implementing your request.
You should be aware that we are required to provide to a Fund or its designee,
promptly upon request, certain information about the transfer activity of
individual Owners and, if requested by the Fund, to restrict or prohibit further
purchases or transfers by specific Owners identified by the Fund as violating
the frequent trading policies established for that Fund.
VOTING RIGHTS
In accordance with our view of current applicable law, we will vote Fund shares
held in the Variable Separate Account at regular and special shareholder
meetings of the Funds in accordance with instructions received from persons
having voting interests in the corresponding Variable Subaccounts. If, however,
the 1940 Act or any regulation thereunder should be amended, or if the present
interpretation thereof should change, or we otherwise determine that we are
allowed to vote the shares in our own right, we may elect to do so.
The number of votes that an Owner has the right to instruct will be calculated
separately for each Variable Subaccount, and may include fractional votes. Prior
to the Payout Date, an Owner holds a voting interest in each Variable Subaccount
to which the Variable Subaccount Value is allocated. After the Payout Date, the
Owner has a voting interest in each Variable Subaccount from which income
payments are made.
Prior to the Payout Date, the number of votes attributable to a Variable
Subaccount will be determined by dividing the Variable Subaccount Value by the
net asset value per share of the Fund(s) in which that Variable Subaccount
invests.
The number of votes available to an Owner will be determined as of the date
coincident with the date established by the Fund for determining shareholders
eligible to vote at the relevant meeting of the Fund's shareholders. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established for the Fund. Each Owner having a voting
interest in a Variable Subaccount will receive proxy materials and reports
relating to any meeting of shareholders of the Fund in which that Variable
Subaccount invests.
Fund shares for which no timely instructions are received and shares held by us
in a Variable Subaccount for which no Owner has a beneficial interest will be
voted in proportion to the voting instructions which are received with respect
to all Contracts participating in that Variable Subaccount. This means that a
small number of Owners may determine the outcome of the vote. Voting
instructions to abstain on any item to be voted upon will be applied to reduce
the total number of votes eligible to be cast on a matter.
VARIABLE SUBACCOUNT VALUE
Your total Variable Subaccount Value for any Valuation Period is the sum of all
Variable Subaccount Values. The Variable Subaccount Value for each Variable
Subaccount is equal to:
o The number of the Variable Subaccount's Accumulation Units credited to
you; multiplied by
34
o The Accumulation Unit Value for that Variable Subaccount at the end of
the Valuation Period for which the determination is being made.
ACCUMULATION UNIT VALUES. The Accumulation Unit Value for each Variable
Subaccount was arbitrarily set initially at $10. Thereafter, the Accumulation
Unit Value at the end of every Valuation Period is determined by subtracting (b)
from (a) and dividing the result by (c) (i.e., (a - b) / c ), where:
(a) = The net assets of the Variable Subaccount as of the end of the
Valuation Period 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;
(b) = The daily Contract Fee multiplied by the number of days in the
Valuation Period; and
(c) = The number of Accumulation Units outstanding at the end of such
Valuation Period.
ACCUMULATION UNITS. For each Variable Subaccount, Purchase Payments or
transferred amounts are converted into Accumulation Units. The number of
Accumulation Units credited is determined by dividing the dollar amount directed
to each Variable Subaccount by the Accumulation Unit Value for that Variable
Subaccount at the end of the Valuation Period in which the Purchase Payment or
amount is received. The number of your Accumulation Units in a Variable
Subaccount is increased by additional Purchase Payments and transfers. The
number of Accumulation Units does not change as a result of investment
experience or deduction of the Contract Fee.
We will redeem Accumulation Units from a Variable Subaccount upon: (i) a partial
withdrawal or full surrender (including deduction of any Surrender Charge, if
applicable); (ii) a transfer from the Variable Subaccount; (iii) payment of the
Death Benefit; (iv) the Payout Date; (v) the deduction of the transfer fee; and
(vi) the deduction of any fees imposed by a Fund as a redemption fee or
liquidity fee in connection with the redemption of its shares or otherwise
imposed by applicable law.
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RISK CONTROL ACCOUNT OPTION
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The Risk Control Separate Account is a non-registered Separate Account in which
we hold reserves for our guarantees attributable to annuity contracts that offer
Risk Control Accounts. The assets in the Risk Control Separate Account are not
chargeable with liabilities arising out of any other business that we conduct.
Our General Account assets are also available to meet the guarantees under the
Contract, including the Risk Control Accounts, as well as our other general
obligations. The guarantees in this Contract are subject to the Company's
financial strength and claims-paying ability.
You may allocate your Purchase Payments and Variable Subaccount Value to the
Risk Control Accounts we currently make available. Currently, we offer two types
of Risk Control Accounts: a Secure Account and a Growth Account. We hold
reserves for the Index Rate Floor and Cap guarantees for amounts allocated to
the Risk Control Accounts in the Risk Control Separate Account. Purchase
Payments and Variable Subaccount Value you allocate to the Risk Control Accounts
become part of your Risk Control Account Value. Your Risk Control Account Value
reflects, in part, the performance of the reference Index, subject to the
applicable Interest Rate Cap and Interest Rate Floor.
RISK CONTROL ACCOUNT VALUE
Your Contract Value allocated to the Risk Control Accounts for any Valuation
Period is equal to the sum of your Risk Control Account Value in each Risk
Control Account. The Risk Control Account Value for each Risk Control Account is
equal to:
o The number of that Risk Control Account's Accumulation Credits credited
to you; multiplied by
35
o The Accumulation Credit Factor for that Risk Control Account at the end
of the Valuation Period for which the determination is being made.
ACCUMULATION CREDIT FACTORS. The Accumulation Credit Factor for each Risk
Control Account is arbitrarily set initially at $10 as of each Risk Control
Account Start Date. Thereafter, the Accumulation Credit Factor for the Risk
Control Account at the end of each Valuation Period is determined by multiplying
(a) by (b) and subtracting (c) (i.e., a x b - c), where:
(a) = The Accumulation Credit Factor for the Risk Control Account at the
start of the Risk Control Account Year;
(b) = The Index Rate of Return (defined below); and
(c) = The daily Contract Fee multiplied by the number of days that have
passed since the last Risk Control Account Anniversary.
The "Index Rate of Return" for each Risk Control Account on any Business Day is
equal to (A / B), where:
A = Adjusted Index Value (defined below) as of the current Business
Day; and
B = The Initial Index Value as of the start of the current Risk Control
Account Year. If a Risk Control Account Start Date or Risk Control
Account Anniversary does not fall on a Business Day, the Initial
Index Value for the next Business Day will be used.
The "Adjusted Index Value" is the Unadjusted Index Value adjusted for the Index
Rate Cap or Index Rate Floor for the current Risk Control Account Year. The
Adjusted Index Value is calculated each time the Index Rate of Return is
calculated. This can be as frequently as daily and occurs on each Contract
Anniversary or on any date when a partial withdrawal, surrender, Death Benefit
or annuitization is processed. The Unadjusted Index Value is the closing value
of an Index as of a Business Day. If the closing value of the Index is not
published on that date, we will use the closing value of the Index from the next
day on which the closing value of the Index is published. The Adjusted Index
Value for each Risk Control Account is calculated as follows:
o If the Unadjusted Index Value is greater than the Initial Index Value
multiplied by (1 + Index Rate Cap), then the Adjusted Index Value will
equal the Initial Index Value multiplied by (1 + Index Rate Cap).
o If the Unadjusted Index Value is less than the Initial Index Value
multiplied by (1 + Index Rate Floor), then the Adjusted Index Value will
equal the Initial Index Value multiplied by (1 + Index Rate Floor).
o If the Unadjusted Index Value is less than the Initial Index Value
multiplied by (1 + Index Rate Cap) but more than the Initial Index Value
multiplied by (1 + Index Rate Floor), then the Adjusted Index Value will
equal the Unadjusted Index Value.
For example, assume the following:
o Initial Index Value = 1,000
o Index Rate Cap = 15%
o Index Rate Floor = -10%
36
At the time the Index Rate of Return is calculated, the Adjusted Index Value
will be:
o Scenario 1: Unadjusted Index Value is greater than Initial Index Value
multiplied by (1 + Index Rate Cap)
o Unadjusted Index Value = 1,200
o 1,200 is greater than 1,150 (1,000 x (1 + 0.15)) so the Adjusted
Index Value is equal to 1,150.
o Scenario 2: Unadjusted Index Value is less than Initial Index Value
multiplied by (1 + Index Rate Floor)
o Unadjusted Index Value = 850
o 850 is less than 900 (1,000 x (1 - 0.10)) so the Adjusted Index
Value is equal to 900.
o Scenario 3: Unadjusted Index Value is less than Initial Index Value
multiplied by (1 + Index Rate Cap) but more than Initial Index Value
multiplied by (1 + Index Rate Floor)
o Unadjusted Index Value = 1,100
o 1,100 is less than 1,150 (1,000 x (1 + 0.15)) and greater than
900 (1,000 x (1 - 0.10)) so the Adjusted Index Value is equal to
1,100.
The Adjusted Index Value will never exceed the Initial Index Value multiplied by
(1 + Index Rate Cap) and will never be lower than the Initial Index Value
multiplied by (1 + Index Rate Floor).
ACCUMULATION CREDITS. In order to establish a Risk Control Account, Purchase
Payments and/or Variable Subaccount Value transferred to the Risk Control
Accounts are converted into Accumulation Credits. The number of Accumulation
Credits credited to each Risk Control Account is determined by dividing the
dollar amount directed to each Risk Control Account by the initial Accumulation
Credit Factor of $10.
We will redeem Accumulation Credits from a Risk Control Account upon: (i)
partial withdrawal or full surrender (including any applicable Surrender Charge
and negative Market Value Adjustment); (ii) a transfer from the Risk Control
Account; (iii) payment of the Death Benefit; (iv) the Payout Date; and (v) the
deduction of the transfer fee. We redeem Accumulation Credits as of the end of
the Valuation Period (or effective date of the transfer) in which we receive
your request for surrender, partial withdrawal or transfer or your Beneficiary's
request for payment of the Death Benefit in Good Order unless you or your
Beneficiary specify a later date. We redeem Accumulation Credits to cover the
transfer fee at the time the transfer occurs.
SETTING THE INDEX RATE CAP AND THE INDEX RATE FLOOR FOR THE SECURE ACCOUNT AND
THE GROWTH ACCOUNT. We consider various factors in determining the Index Rate
Caps and Index Rate Floors, including investment returns available at the time
that we issue the Contract, the costs of our risk management techniques, sales
commissions, administrative expenses, regulatory and tax requirements, general
economic trends, and competitive factors. We determine the Index Rate Cap and
the Index Rate Floor at our sole discretion. We set the Index Rate Cap on each
Risk Control Account Anniversary for the subsequent Risk Control Account Year,
and guarantee the Index Rate Cap for the duration of the Risk Control Account
Year. We guarantee the Index Rate Floor for the life of your Contract.
EXAMPLES. The following three examples illustrate how investment performance of
the reference Index of the Secure and Growth Account is reflected in the
Accumulation Credit Factor based on different levels of Index performance. The
change in the value of the Accumulation Credit Factor reflects the application
of the Index Rate of Return and a reduction for the Contract Fee. No withdrawals
are assumed to occur under these examples and all values are determined on Risk
Control Account Anniversaries. The examples assume the purchase of a Series B
Contract and the Index Rate Caps remain unchanged since Contract issue.
37
EXAMPLES: The following three examples illustrate how the investment performance
of the Secure and Growth Accounts is applied. The change in value of the
Accumulation Credit Factor includes the application of the investment
performance of the index tied to each Risk Control Account, which is then
reduced by the Contract Fee. No withdrawals are assumed to occur under these
examples and all values are determined on risk control account anniversaries.
Example 1: This example illustrates the calculation of the Accumulation Credit
Factor when the Index Rate of Return is greater than the Index Rate Cap and
Index Rate Floor.
Assume the following information:
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CONTRACT ISSUE
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Risk Control Account Start Date: 10/10/2015
Initial Index Value: 1,000.00
Contract Fee: 1.65%
Risk Control Accounts:
----------------------
S&P 500 Secure Account Value: $75,000.00
Accumulation Credit Factor: $10.000000
Accumulation Credits: 7,500.00
Index Rate Floor: 0.00%
Index Rate Cap: 8.00%
S&P 500 Growth Account Value: $25,000.00
Accumulation Credit Factor: $10.000000
Accumulation Credits: 2,500.00
Index Rate Floor: -10.00%
Index Rate Cap: 18.00%
--------------------------------------------------------------------------------
RISK CONTROL ACCOUNT ANNIVERSARY
--------------------------------------------------------------------------------
Risk Control Account Anniversary: 10/10/2016
Unadjusted Index Value: 1,200.00
Risk Control Accounts:
----------------------
S&P 500 Secure Account Value: $79,762.50
Accumulation Credit Factor: $10.635000
Accumulation Credits: 7,500.00
Adjusted Index Value: 1,080.00
Index Rate of Return: 8.00%
Contract Fee: 1.65%
S&P 500 Growth Account Value: $29,087.50
Accumulation Credit Factor: $11.635000
Accumulation Credits: 2,500.00
Adjusted Index Value: 1,180.00
Index Rate of Return: 18.00%
Contract Fee: 1.65%
The return on the Index is equal to the Unadjusted Index Value divided by the
Initial Index Value minus 1. In this example, the return on the Index is 20%
[(1,200/1,000)-1]. This is greater than the Index Rate Cap and above the Index
Rate Floor for both the Secure and Growth Accounts. Thus, the Index Rate of
Return for both the Secure Account and the Growth Account is set at the Index
Rate Cap level. After subtracting the Contract Fee from the Index Rate of
Return, the Accumulation Credit Factor for the Secure Account increases from $10
to $10.635 and the Accumulation Credit Factor for the Growth Account increases
from $10 to $11.635. The Risk Control Account Value in the Secure Account
increases by $4,762.50 and the Risk Control Account Value in the Growth Account
increases by $4,087.50.
38
Example 2: This example illustrates the calculation of the Accumulation Credit
Factor when the Index Rate of Return is less than the Index Rate Cap and greater
than the Index Rate Floor.
Assume the following information:
--------------------------------------------------------------------------------
PRIOR RISK CONTROL ACCOUNT ANNIVERSARY
--------------------------------------------------------------------------------
Risk Control Account Start Date: 10/10/2016
Initial Index Value: 1,200.00
Contract Fee: 1.65%
Risk Control Accounts:
----------------------
S&P 500 Secure Account Value: $79,762.50
Accumulation Credit Factor: $10.635000
Accumulation Credits: 7,500.00
Index Rate Floor: 0.00%
Index Rate Cap: 8.00%
S&P 500 Growth Account Value: $29,087.50
Accumulation Credit Factor: $11.635000
Accumulation Credits: 2,500.00
Index Rate Floor: -10.00%
Index Rate Cap: 18.00%
--------------------------------------------------------------------------------
RISK CONTROL ACCOUNT ANNIVERSARY
--------------------------------------------------------------------------------
Risk Control Account Anniversary: 10/10/2017
Unadjusted Index Value: 1,236.00
Risk Control Accounts:
----------------------
S&P 500 Secure Account Value: $80,839.30
Accumulation Credit Factor: $10.778573
Accumulation Credits: 7,500.00
Adjusted Index Value: 1,236.00
Index Rate of Return: 3.00%
Contract Fee: 1.65%
S&P 500 Growth Account Value: $29,480.18
Accumulation Credit Factor: $11.792073
Accumulation Credits: 2,500.00
Adjusted Index Value: 1,236.00
Index Rate of Return: 3.00%
Contract Fee: 1.65%
The return on the Index is equal to the Unadjusted Index Value divided by the
Initial Index Value minus 1. In this example, the return on the Index is 3%
[(1,236/1,200)-1]. This is below the Index Rate Cap and above the Index Rate
Floor for both the Secure and Growth Accounts. Thus, the Index Rate of Return
for both the Secure Account and the Growth Account is equal to 3%. After
subtracting the Contract Fee from the Index Rate of Return, the Accumulation
Credit Factor for the Secure Account increases from $10.635 to $10.778573 and
the Accumulation Credit Factor for the Growth Account increases from $11.635 to
$11.792073. The Risk Control Account Value in the Secure Account increases by
$1,076.80 and the Risk Control Account Value in the Growth Account increases by
$392.68.
39
Example 3: This example illustrates the calculation of the Accumulation Credit
Factor when the Index Rate of Return is less than the Index Rate Floor.
Assume the following information:
--------------------------------------------------------------------------------
PRIOR RISK CONTROL ACCOUNT ANNIVERSARY
--------------------------------------------------------------------------------
Risk Control Account Start Date: 10/10/2017
Initial Index Value: 1,236.00
Contract Fee: 1.65%
Risk Control Accounts:
----------------------
S&P 500 Secure Account Value: $80,839.30
Accumulation Credit Factor: $10.778573
Accumulation Credits: 7,500.00
Index Rate Floor: 0.00%
Index Rate Cap: 8.00%
S&P 500 Growth Account Value: $29,480.18
Accumulation Credit Factor: $11.792073
Accumulation Credits: 2,500.00
Index Rate Floor: -10.00%
Index Rate Cap: 18.00%
--------------------------------------------------------------------------------
RISK CONTROL ACCOUNT ANNIVERSARY
--------------------------------------------------------------------------------
Risk Control Account Anniversary: 10/10/2018
Unadjusted Index Value: 988.80
Risk Control Accounts:
----------------------
S&P 500 Secure Account Value: $79,505.45
Accumulation Credit Factor: $10.600727
Accumulation Credits: 7,500.00
Adjusted Index Value: 1,236.00
Index Rate of Return: 0.00%
Contract Fee: 1.65%
S&P 500 Growth Account Value: $26,045.74
Accumulation Credit Factor: $10.418296
Accumulation Credits: 2,500.00
Adjusted Index Value: 1,112.40
Index Rate of Return: -10.00%
Contract Fee: 1.65%
The return on the Index is equal to the Unadjusted Index Value divided by the
Initial Index Value minus 1. In this example, the return on the Index is -20%
[(988.8/1,236)-1]. This is below the Index Rate Floor for both the Secure and
Growth Accounts. Thus, the Index Rate of Return for both the Secure Account and
the Growth Account is equal to the Index Rate Floor. After subtracting the
Contract Fee from the Index Rate of Return, the Accumulation Credit Factor for
the Secure Account decreases from $10.778573 to $10.600727 and the Accumulation
Credit Factor for the Growth Account decreases from $11.792073 to $10.418296.
The Risk Control Account Value in the Secure Account decreases by $1,333.85 and
the Risk Control Account Value in the Growth Account decreases by $3,434.44.
WE RESERVE THE RIGHT TO ADD OR SUBSTITUTE THE INDEX. IF WE SUBSTITUTE THE INDEX,
THE PERFORMANCE OF THE NEW INDEX MAY DIFFER FROM THE ORIGINAL INDEX. THIS, IN
TURN, MAY AFFECT THE CREDITED INDEX INTEREST YOU EARN.
ADDITION OR SUBSTITUTION OF AN INDEX. The same Index will be used for each Risk
Control Account for the duration of the Risk Control Account Period. However,
there is no guarantee that the Index will be available during the entire time
you own your Contract. If: (i) the Index is discontinued, or (ii) the
calculation of that Index is materially changed, we may substitute a suitable
Index that will be used for the remainder of the Risk Control Account Period. If
we substitute an Index, the performance of the new Index may differ from the
original Index. This, in turn, may affect the Credited Index Interest you earn.
We will not substitute an Index until that Index has been approved by the
insurance department in your state.
In the unlikely event that we substitute the Index, we will attempt to add a
suitable alternative index as a replacement to the Index on the same day that we
remove the Index. If we are unable to do so, so that there is a brief interval
between the date on which we remove the Index and add a suitable alternative
index as a replacement, your Contract Value will continue to be allocated to the
Risk Control Accounts.
40
However, any credit to your Contract Value for that Contract Year will not
reflect changes in the value of the Index or the replacement index during that
interim period. If you take a partial withdrawal, surrender or annuitize the
Contract, or die during the interim period, we will apply to your Contract Value
allocated to a Risk Control Accounts based on the percentage change in the Index
from the beginning of the Contract Year to the date on which the Index became
unavailable under the Contract.
Please note that we may add or substitute an Index associated with the Risk
Control Accounts by sending you written notice at your last known address
stating the effective date on which the Index will be added or substituted. We
will send you the notice in your annual report unless earlier written notice is
necessary.
RISK CONTROL ACCOUNT MATURITY DATE
Rebalancing will occur automatically on the Risk Control Account Maturity Date.
You may also exercise one of the following options by Authorized Request,
without incurring a Market Value Adjustment or Surrender Charge. Surrender
Charges do not apply to Series C Contracts.
FIVE YEARS UNTIL PAYOUT DATE. If there are at least five years until the Payout
Date, you may exercise any of the following options by Authorized Request:
o Request a change to your allocation instructions as of the Risk Control
Account Maturity Date for any or all of the Allocation Levels;
o Request to transfer value (either a specific dollar amount or
percentage) from the Risk Control Account Option to the Variable
Subaccount Option (Level C), or vice versa, as of the Risk Control
Account Maturity Date. If you choose this option:
o The transfer will occur Pro Rata from the Risk Control Accounts,
or Variable Subaccounts, as applicable; and
o Rebalancing at Levels I and R will occur as of the Risk Control
Account Maturity Date. However, rebalancing at Levels C and V
will be discontinued, unless or until you elect to reinstate
rebalancing at Level C.
o Withdraw the total Risk Control Account Value as of the Risk Control
Account Maturity Date; or
o Withdraw a portion of the total Risk Control Account Value as of the
Risk Control Account Maturity Date. If you choose this option, you may
also change your allocation instructions or request to transfer value,
as described above.
You may also allocate additional Purchase Payments to the Risk Control Accounts
prior to a Risk Control Account Maturity Date.
A new Risk Control Account Period, with a newly declared Index Rate Cap, will
begin on the Risk Control Account Maturity Date unless there is no Risk Control
Account Value remaining as a result of a change to your allocation instructions
and/or withdrawal.
Your Authorized Request to change your allocation instructions, transfer value
and/or withdraw Risk Control Account Value must be received at least one
Business Day prior to the Risk Control Account Maturity Date to take effect as
of that date. If we do not receive such request at least one Business Day prior
to the Risk Control Account Maturity Date, the request is not in Good Order and
no transfer or withdrawal will occur based on such request. However, a new Risk
Control Account Period will begin and rebalancing will occur based on the
allocation instructions on file with us.
41
LESS THAN FIVE YEARS UNTIL PAYOUT DATE. If there are less than five years until
the Payout Date, a new Risk Control Account cannot be started. You may choose
one of the following by Authorized Request:
o Request to transfer the total Risk Control Account Value to one or more
Variable Subaccounts as of the Risk Control Account Maturity Date;
o Request to withdraw the total Risk Control Account Value as of the Risk
Control Account Maturity Date; or
o Request to transfer a portion of the Risk Control Account Value to one
or more Variable Subaccounts and withdraw the remaining Risk Control
Account Value as of the Risk Control Account Maturity Date.
Your Authorized Request to transfer Risk Control Account Value and/or withdraw
Risk Control Account Value must be received at least one Business Day prior to
the Risk Control Account Maturity Date. If we do not receive such request at
least one Business Day prior to the Risk Control Account Maturity Date, the
request is not in Good Order and no transfer or withdrawal will occur based on
such request. However, the total Risk Control Account Value will be transferred
to the Variable Subaccounts according to the allocation instructions on file
with us for Level V.
HOLDING ACCOUNT VALUE
THE HOLDING ACCOUNT VALUE AT ANY TIME IS EQUAL TO:
o The portion of the Purchase Payment(s) or transfer amount held in the
Holding Account pending allocation to a Risk Control Account;
o Plus interest credited; and
o Less any prior partial withdrawal.
We credit interest on Purchase Payments and transferred amounts that will be
allocated to one or more Risk Control Accounts for the duration those Purchase
Payments and transferred amounts remain in the Holding Account. If your initial
Purchase Payments are held in the Holding Account during the Multiple Source
Waiting Period or if amounts are held in the Holding Account during the thirty
days prior to a Risk Control Account Maturity Date, we will credit such amounts
with the annual effective rate of interest shown on your Contract data page for
the duration those amounts remain in the Holding Account. The credited rate of
interest will not be less than the Minimum Guaranteed Interest Rate described
below.
We determine a new Minimum Guaranteed Interest Rate each calendar quarter (on
each January 1 for the first calendar quarter, April 1 for the second calendar
quarter, July 1 for the third calendar quarter, and October 1 for the fourth
calendar quarter). For subsequent Purchase Payments and transferred amounts in
the Holding Account, the rate of interest credited on those amounts will be the
Minimum Guaranteed Interest Rate we determine for the calendar quarter in which
those Purchase Payments and transferred amounts are allocated to the Holding
Account. The Minimum Guaranteed Interest Rate will never be less than the lesser
of:
o An annual rate of interest of 3%; or
o An annual rate of interest determined as follows:
o The average of the three applicable monthly five-year Constant
Maturity Treasury rates reported by the Federal Reserve
(described below), and rounded to the nearest 0.05%;
42
o Minus 1.25%; and
o Subject to a minimum interest rate of 1.00%.
The three monthly five-year Constant Maturity Treasury rates used in the
calculation above are as follows:
o The prior September, October, and November monthly five-year Constant
Maturity Treasury rates will be used to determine the first quarter
Minimum Guaranteed Interest Rate effective each January 1;
o The prior December, January, and February monthly five-year Constant
Maturity Treasury rates will be used to determine the second quarter
Minimum Guaranteed Interest Rate effective each April 1;
o The prior March, April, and May monthly five-year Constant Maturity
Treasury rates will be used to determine the third quarter Minimum
Guaranteed Interest Rate effective each July 1; and
o The prior June, July, and August monthly five-year Constant Maturity
Treasury rates will be used to determine the fourth quarter Minimum
Guaranteed Interest Rate effective each October 1.
--------------------------------------------------------------------------------
MARKET VALUE ADJUSTMENT
--------------------------------------------------------------------------------
The Market Value Adjustment only applies to withdrawals from the Risk Control
Accounts and is calculated separately for each Risk Control Account. If you
surrender your Contract or take a partial withdrawal from a Risk Control Account
during the Accumulation Period, we will apply the Market Value Adjustment to the
amount being surrendered or withdrawn. No withdrawals or surrenders can be taken
once Contract Value has been allocated to an Income Payout Option, therefore no
Market Value Adjustment will apply after the end of the Accumulation Period.
IMPORTANT: THE MARKET VALUE ADJUSTMENT WILL EITHER INCREASE OR DECREASE THE
AMOUNT YOU RECEIVE FROM A PARTIAL WITHDRAWAL OR YOUR SURRENDER VALUE. YOU MAY
LOSE A PORTION OF YOUR PRINCIPAL DUE TO THE MARKET VALUE ADJUSTMENT REGARDLESS
OF THE RISK CONTROL ACCOUNT TO WHICH YOU ALLOCATED CONTRACT VALUE. YOU DIRECTLY
BEAR THE INVESTMENT RISK ASSOCIATED WITH A MARKET VALUE ADJUSTMENT. YOU SHOULD
CAREFULLY CONSIDER YOUR INCOME NEEDS BEFORE PURCHASING THE CONTRACT.
PURPOSE OF THE MARKET VALUE ADJUSTMENT
The Market Value Adjustment is an adjustment that may be made to the amount you
receive if you surrender the Contract or take a partial withdrawal from the Risk
Control Accounts during the Accumulation Period. In general, if interest rate
levels have increased at the time of surrender or partial withdrawal over their
levels at the Risk Control Account Start Date time we issued the Contract, the
Market Value Adjustment will be negative. Similarly, in general, if interest
rate levels have decreased at the time of surrender or partial withdrawal over
their levels at the Risk Control Account Start Date, the Market Value Adjustment
will be positive. The Market Value Adjustment reflects in part the difference
between the effective yield of the Constant Maturity Treasury rate, a rate
representing the average yield of various Treasury securities, on the Risk
Control Account Start Date for a duration equal to the Risk Control Account
Period and the effective yield of the Constant Maturity Treasury rate for a
duration equal to the remaining length of the Risk Control Account Period at the
time of surrender or partial withdrawal. In addition, the Market Value
Adjustment reflects in part the difference between the effective yield of the
Bank of America/Merrill Lynch 1-10 Year U.S. Corporate Constrained Index, Asset
Swap Spread (the "Bank of America/Merrill Lynch Index"), a rate representative
of investment grade corporate debt credit spreads in the U.S., on the Risk
Control Account Start Date and the effective yield of the Bank of
America/Merrill Lynch Index at the time of surrender or partial withdrawal. The
greater the difference in those effective yields, respectively, the greater the
effect the Market Value Adjustment will have.
43
We will increase the amount you will be paid from a partial withdrawal by the
amount of any positive Market Value Adjustment, and in the case of a surrender
of the Contract, we will increase your Surrender Value by the amount of any
positive Market Value Adjustment. Conversely, we will decrease the amount you
will be paid from a partial withdrawal by the amount of any negative Market
Value Adjustment, and in the case of a surrender of the Contract, we will
decrease your Surrender Value by the amount of any negative Market Value
Adjustment.
In general, if the Constant Maturity Treasury rate and Bank of America/Merrill
Lynch Index have increased at the time of surrender or partial withdrawal over
their levels at the Risk Control Account Start Date, the Market Value Adjustment
will be negative and will decrease the Surrender Value or amount you receive
from a partial withdrawal. Similarly, if the Constant Maturity Treasury rate and
Bank of America/Merrill Lynch Index have decreased at the time of surrender or
partial withdrawal over their levels at the Risk Control Account Start Date, the
Market Value Adjustment will be positive and will increase the Surrender Value
or amount you receive from a partial withdrawal. The Company uses both the
Constant Maturity Treasury rate and Bank of America/Merrill Lynch Index in
determining any Market Value Adjustment since together both indices represent a
broad mix of investments whose values may be affected by changes in market
interest rates.
The amount of the Market Value Adjustment also reflects in part any change in
the Accumulation Credit Factor for the Risk Control Account(s) determined at the
time of surrender or partial withdrawal. We use the change in the Accumulation
Credit Factor measured from the last Risk Control Account Anniversary (prior
Accumulation Credit Factor) to the date of surrender or partial withdrawal
(current Accumulation Credit Factor) to increase or decrease the amount of the
Market Value Adjustment. If the change in the Accumulation Credit Factor, the
current Accumulation Credit Factor divided by the prior Accumulation Credit
Factor, is positive (greater than one), we divide the amount of the withdrawal
subject to the Market Value Adjustment by the change in the Accumulation Credit
Factor, which will decrease the amount subject to the market value adjustment
factor and thereby reduce the amount of any positive or negative Market Value
Adjustment. Conversely, if the change is negative (less than one), we divide the
amount of the withdrawal subject to the Market Value Adjustment by the change in
the Accumulation Credit Factor, which will increase the amount subject to the
market value adjustment factor and therefore increase the amount of any positive
or negative Market Value Adjustment. If there is no change in the Accumulation
Credit Factor (the current Accumulation Credit Factor divided by the prior
Accumulation Credit Factor equals one), there will be no change in the amount of
the withdrawal subject to the market value adjustment factor and in the amount
of any positive or negative Market Value Adjustment.
The Market Value Adjustment helps us offset our costs and risks of owning fixed
income investments and other investments we use to back the guarantees under
your Contract from the date we issue the Contract to the time of a surrender or
partial withdrawal.
APPLICATION AND WAIVER
For each Risk Control Account, we will calculate the Market Value Adjustment as
of the date we receive your Authorized Request for surrender or partial
withdrawal in Good Order at our Administrative Office. If the Market Value
Adjustment is positive, we will increase your Surrender Value or amount you
receive from a partial withdrawal by the amount of the positive Market Value
Adjustment. If the Market Value Adjustment is negative, we will decrease the
Surrender Value or amount you receive from a partial withdrawal by the amount of
the negative Market Value Adjustment.
We will NOT apply a Market Value Adjustment to:
1. Death Benefit proceeds;
2. Transfers under the Bailout Provision;
44
3. Partial withdrawals taken as required minimum distributions under the
Internal Revenue Code that are withdrawn under a systematic withdrawal
program we provide;
4. Income payments during the Payout Period; and
5. Withdrawals from a Risk Control Account on the Risk Control Account
Maturity Date.
MARKET VALUE ADJUSTMENT FORMULA
A Market Value Adjustment is equal to the amount of the partial withdrawal or
surrender from the Risk Control Account (W) divided by the result of the current
Accumulation Credit Factor for the Risk Control Account divided by the prior
Accumulation Credit Factor for the Risk Control Account then multiplied by the
market value adjustment factor (MVAF) minus 1 or (W/(C/P))x(MVAF -1).
Where:
C = current Accumulation Credit Factor for the Risk Control Account
(i.e., as of the date of withdrawal); and
P = prior Accumulation Credit Factor for the Risk Control Account
(i.e., as of the Risk Control Account Anniversary immediately
preceding the date of withdrawal).
MVAF = ((1 + I + K)/(1 + J + L)) ^N where:
I = The Constant Maturity Treasury Rate as of the Risk Control
Account Start Date for a maturity consistent with the Risk Control
Account Period;
J = Constant Maturity Treasury Rate as of the date of withdrawal for
a maturity consistent with the remaining number of years (whole and
partial) in the Risk Control Account Period;
(if there is no corresponding maturity of the Constant Maturity
Treasury Rate, then the linear interpolation of the Index with
maturities closest to N will be used to determine I and J.)
K = The Bank of America/Merrill Lynch Index as of the Risk Control
Account Start Date;
L = The Bank of America/Merrill Lynch Index as of the date of
withdrawal; and
N = The number of years (whole and partial) from the date of
withdrawal until the Risk Control Account Maturity Date.
We determine I based on the Risk Control Account Period. For example, if the
Risk Control Account Period is 10 years, then I would correspond to the 10-year
Constant Maturity Treasury rate at the time we issue the Contract. We determine
J when you take a partial withdrawal or surrender. For example, if the Risk
Control Account Period is 10 years and you surrender the Contract 2 years into
the Risk Control Account Period, J would correspond to the Constant Maturity
Treasury rate consistent with the time remaining in the Risk Control Account
Period or 8 years (8 = 10 - 2). For I and J where there is no Constant Maturity
Treasury rate declared, we will use linear interpolation between declared
Constant Maturity rates to determine I and J.
The value of K and L on any Business Day will be equal to the closing value of
the Bank of America/Merrill Lynch Index on the previous Business Day.
45
If the publication of any component of the Market Value Adjustment Indices is
discontinued or if the calculation of the Market Value Adjustment Indices is
changed substantially, we may substitute a new Index for the discontinued or
substantially changed Index, subject to approval by the insurance department in
your state. Before we substitute a Market Value Adjustment Index, we will notify
you in writing of the substitution.
For examples of how we calculate Market Value Adjustments, see "Appendix A" to
this Prospectus.
BANK OF AMERICA/MERRILL LYNCH INDEX
The Contract is not sponsored, endorsed, sold or promoted by Bank of
America/Merrill Lynch ("BofA Merrill Lynch"). BofA Merrill Lynch has not passed
on the legality or suitability of, or the accuracy or adequacy of descriptions
and disclosures relating to, the Contract, nor makes any representation or
warranty, express or implied, to the Owners of the Contract or any member of the
public regarding the Contract or the advisability of investing in the Contract,
particularly the ability of the Bank of America/Merrill Lynch Index to track
performance of any market or strategy. BofA Merrill Lynch's only relationship to
the Company is the licensing of certain trademarks and trade names and indices
or components thereof. The Bank of America/Merrill Lynch Index is determined,
composed and calculated by BofA Merrill Lynch without regard to the Company or
the Contract or its Owners. BofA Merrill Lynch has no obligation to take the
needs of the Company or the Owners of the Contract into consideration in
determining, composing or calculating the Bank of America/Merrill Lynch Index.
BofA Merrill Lynch is not responsible for and has not participated in the
determination of the timing of, prices of, or quantities of the Contract to be
issued or in the determination or calculation of the equation by which the
Contract is to be priced, sold, purchased, or redeemed. BofA Merrill Lynch has
no obligation or liability in connection with the administration, marketing, or
trading of the Contract.
BOFA MERRILL LYNCH DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE BANK OF AMERICA/MERRILL LYNCH INDEX OR ANY DATA INCLUDED THEREIN AND BOFA
MERRILL LYNCH SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, UNAVAILABILITY,
OR INTERRUPTIONS THEREIN. BOFA MERRILL LYNCH MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, HOLDERS OF THE PRODUCT OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BANK OF AMERICA/MERRILL LYNCH
INDEX OR ANY DATA INCLUDED THEREIN. BOFA MERRILL LYNCH MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE, WITH RESPECT TO THE BANK OF
AMERICA/MERRILL LYNCH INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL BOFA MERRILL LYNCH HAVE ANY LIABILITY FOR
ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL, CONSEQUENTIAL DAMAGES, OR LOST
PROFITS, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Bank of America/Merrill Lynch Index is a trademark of Bank of
America/Merrill Lynch or its affiliates and has been licensed for use by the
Company.
--------------------------------------------------------------------------------
SURRENDER VALUE
--------------------------------------------------------------------------------
If you surrender the Contract, you will receive the Surrender Value, as of the
Business Day, we received your Authorized Request in Good Order. The Surrender
Value is equal to your Contract Value at the end of the Valuation Period in
which we receive your Authorized Request, minus any applicable Surrender Charge,
adjusted for any applicable Market Value Adjustment for Risk Control Accounts.
Surrender Charges do not apply to Series C Contracts.
Upon payment of the Surrender Value, the Contract is terminated, and we have no
further obligation under the Contract. We may require that the Contract be
returned to our Administrative Office prior to making payment. The Surrender
Value will not be less than the amount required by applicable state law. We
will pay you the amount you request in connection with a full surrender by
redeeming Accumulation
46
Units from the Variable Subaccounts and/or Accumulation Credits from the Risk
Control Accounts, and withdrawing Holding Account Value, if applicable.
--------------------------------------------------------------------------------
ACCESS TO YOUR MONEY
--------------------------------------------------------------------------------
PARTIAL WITHDRAWALS
At any time during the Accumulation Period you may make partial withdrawals by
Authorized Request in Good Order. The minimum partial withdrawal amount is $100.
Although withdrawal of Risk Control Account Value is generally not permitted
while there is Variable Subaccount Value, you may withdraw Risk Control Account
Value on the Risk Control Account Maturity Date. You may provide specific
instructions for withdrawal of Variable Subaccount Value. If you do not provide
specific instructions, withdrawals will be processed on a Pro Rata basis from
the value in all Variable Subaccounts. If there is insufficient Variable
Subaccount Value, or no Variable Subaccount Value, Holding Account Value will be
withdrawn. If there is insufficient Holding Account Value or no Holding Account
Value, Risk Control Account Value will be withdrawn on a Pro Rata basis. Any
applicable Surrender Charge and/or Market Value Adjustment will affect the
amount available for a partial withdrawal. We will pay you the amount you
request in connection with a partial withdrawal by redeeming Accumulation Units
from the appropriate Variable Subaccounts withdrawing Holding Account Value,
and/or redeeming Accumulation Credits from the appropriate Risk Control
Accounts, if applicable.
To make a partial withdrawal, you must do so by Authorized Request in Good
Order. The written consent of all Owners and Irrevocable Beneficiaries must be
obtained before we will process the partial withdrawal. If an Authorized Request
in Good Order is received by 4:00 P.M. Eastern Time, it will be processed that
day. If an Authorized Request in Good Order is received after 4:00 P.M. Eastern
Time, it will be processed on the next Business Day. If a partial withdrawal
would cause your Surrender Value to be less than $2,000, we will treat your
request for partial withdrawal as a request for full surrender of your Contract.
Partial withdrawals may be subject to Surrender Charges (for Series B Contracts
only) and/or a Market Value Adjustment (for Risk Control Accounts only). See
"Fees and Expenses" and "Market Value Adjustment." Partial withdrawals may also
be subject to income tax and, if taken before age 59 1/2, an additional 10%
federal penalty tax. You should consult your tax adviser before taking a
partial withdrawal. See "Federal Income Tax Matters."
SYSTEMATIC WITHDRAWALS. If elected at the time of the application or requested
at any other time by Authorized Request in Good Order, you may elect to receive
periodic partial withdrawals under our systematic withdrawal plan. Under the
systematic withdrawal plan, we will make partial withdrawals (on a monthly,
quarterly, semi-annual, or annual basis), as specified by you. Such withdrawals
must be at least $100 each. Generally, you must be at least age 59 1/2 to
participate in the systematic withdrawal plan. The withdrawals may be requested
on the following basis:
o As a specified dollar amount; or
o In an amount equal to your required minimum distribution under the
Internal Revenue Code.
Participation in the systematic withdrawal plan will terminate on the earliest
of the following events:
o The Variable Subaccount Value or Risk Control Account Value in a
Variable Subaccount or Risk Control Account from which partial
withdrawals are being made becomes zero;
o A termination date that you have specified is reached;
o You request that your participation in the plan cease; or
47
o A Surrender Charge would be applicable to amounts being withdrawn (i.e.,
partial withdrawals under the systematic withdrawal plan may not include
amounts subject to the Surrender Charge). However, you may, by
Authorized Request in Good Order, request that systematic withdrawals
continue even though a Surrender Charge or market value adjustment is
deducted in connection with such withdrawals. Also, if necessary to meet
the required minimum distribution under the Internal Revenue Code, we
may continue systematic withdrawals even though a Surrender Charge is
deducted. At this time, we waive Surrender Charges for all required
minimum distributions paid under the automatic withdrawal program.
There are federal income tax consequences to partial withdrawals through the
systematic withdrawal plan and you should consult with your tax adviser before
electing to participate in the plan. We may discontinue offering the systematic
withdrawal plan at any time.
ANNUAL FREE WITHDRAWAL AMOUNT. For Series B Contracts, each Contract Year, you
may withdraw up to 10% of the total Purchase Payments received that are within
the Surrender Charge Period at the time of the withdrawal for that Contract Year
without incurring a Surrender Charge. As long as the partial withdrawals you
take during a Contract Year do not exceed the Annual Free Withdrawal Amount, we
will not assess a Surrender Charge.
If you make a partial withdrawal of less than the Annual Free Withdrawal Amount,
the remaining Annual Free Withdrawal Amount will be applied to any subsequent
partial withdrawal which occurs during the same Contract Year. Any remaining
Annual Free Withdrawal Amount will not carry over to a subsequent Contract Year.
WAIVER OF SURRENDER CHARGES. We will not deduct a Surrender Charge for Series B
Contracts in the case of a partial withdrawal or surrender where the Owner or
Annuitant qualifies for the Nursing Home or Hospital or Terminal Illness waiver,
as described below. Before granting the waiver, we may request a second opinion
or examination of the Owner or Annuitant by one of our examiners. We will bear
the cost of such second opinion or examination. Each waiver may be exercised
only one time. The waivers described below do not apply to Series C Contracts,
since those Contracts are not subject to Surrender Charges.
o Nursing Home or Hospital Waiver. We will not deduct a Surrender Charge
in the case of a partial withdrawal or surrender where any Owner or
Annuitant is confined to a licensed Nursing Home or Hospital, and has
been confined to such Nursing Home or Hospital for at least 180
consecutive days after the latter of the Contract Issue Date or the date
of change of the Owner or Annuitant. We require verification of
confinement to the Nursing Home or Hospital, and such verification must
be signed by the administrator of the facility.
o Terminal Illness Waiver. We will not deduct a Surrender Charge in the
case of a partial withdrawal or surrender where any Owner or Annuitant
has a life expectancy of 12 months or less due to illness or accident.
As proof, we require a determination of the Terminal Illness. Such
determination must be signed by the physician making the determination
after the latter of Contract Issue Date or the date of change of the
Owner or Annuitant. The physician may not be a member of your or the
Annuitant's immediate family.
Please see your Contract for more information.
The laws of your state may limit the availability of the Surrender Charge
waivers and may also change certain terms and/or benefits under the waivers. You
should consult your Contract for further details on these variations. Also, even
if you do not pay a Surrender Charge because of the waivers, you still may be
required to pay taxes or tax penalties on the amount withdrawn. You should
consult a tax adviser to determine the effect of a partial withdrawal on your
taxes.
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SURRENDERS
You may surrender your Contract for the Surrender Value at any time during the
Accumulation Period by Authorized Request. If an Authorized Request in Good
Order is received before 4:00 P.M. Eastern Time, it will be processed that day.
If an Authorized Request in Good Order is received at or after 4:00 P.M Eastern
Time, it will be processed on the next Business Day.
To surrender your Contract, you must make an Authorized Request in Good Order to
our Administrative Office. The consent of all Owners and Irrevocable
Beneficiaries must be obtained before the Contract is surrendered.
Surrender Charges and/or a Market Value Adjustment may apply to your Contract
surrender. See "Market Value Adjustment" and "Fees and Expenses." A surrender
may also be subject to income tax and, if taken before age 59 1/2, an additional
10% federal penalty tax. You should consult a tax adviser before requesting a
surrender. See "Federal Income Tax Matters."
PARTIAL WITHDRAWAL AND SURRENDER RESTRICTIONS
Your right to make partial withdrawals and surrender the Contract is subject to
any restrictions imposed by any applicable law or employee benefit plan.
RIGHT TO DEFER PAYMENTS
Generally, the amount of any partial withdrawal or full surrender will be paid
to you within seven days after we receive your Authorized Request in Good Order.
With respect to the Risk Control Accounts and Holding Accounts, we reserve the
right to postpone payment for up to six months after we receive your Authorized
Request in Good Order, subject to obtaining prior written approval by the state
insurance commissioner if required by the law of the state in which we issued
the Contract. In the event of postponement as described above, we will pay
interest on the proceeds if required by state law, calculated at the effective
annual rate and for the time period required under state law.
With respect to Variable Subaccounts, to the extent permitted by applicable law,
we reserve the right to postpone payment of any partial withdrawal or full
surrender or death benefit proceeds for any period when: (i) the New York Stock
Exchange is closed (other than customary weekend and holiday closings), or the
SEC determines that trading on the exchange is restricted; (ii) the SEC
determines than an emergency exists such that disposal of securities held in the
Variable Separate Account, or the termination of their value, is not reasonably
practicable; or (iii) the SEC, by order, permits us to defer payment in order to
protect persons with interests in the Funds. In addition, pursuant to SEC rules,
if the money market fund available as one of the Fund options (the "Money Market
Fund") suspends payment of redemption proceeds in connection with the
liquidation of the Money Market Fund, we may delay a transfer or payment of any
partial withdrawal or full surrender from the Variable Subaccount investing in
the Money Market Fund ("Money Market Subaccount") until the Money Market Fund is
liquidated. Moreover, if the Money Market Fund suspends payment of redemption
proceeds in connection with the implementation of liquidity gates by such Money
Market Fund, we will delay transfer or payment of any partial withdrawal or full
surrender from the Money Market Subaccount until the removal of such liquidity
gates.
BAILOUT PROVISION
We will set a bailout rate for each Risk Control Account. The bailout rate will
be prominently displayed on your Contract Data Page attached to the front of the
cover page of the Contract and will not change during the Risk Control Account
Period. If the Index Rate Cap for your Risk Control Account is set below the
bailout rate for that Risk Control Account, the Bailout Provision allows you to
transfer the Risk Control Account Value from that Risk Control Account during
the 30-day period following the Risk Control Account Anniversary by Authorized
Request without the application of a Market Value Adjustment. We must receive
your Authorized Request under the Bailout Provision in Good Order during the
30-day
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period following the Risk Control Account Anniversary. At any time the Index
Rate Cap for your Risk Control Account is less than the bailout rate specified
on your Contract Data Page, we may, at our discretion, restrict transfers into
that Risk Control Account.
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DEATH BENEFIT
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DEATH OF THE OWNER
If the Owner dies during the Accumulation Period (if there are joint Owners, the
Death Benefit will become payable after the first joint Owner dies), a Death
Benefit will become payable to the Beneficiary. We will pay the Death Benefit
after we receive the following at our Administrative Office in a form and manner
satisfactory to us:
o Proof of Death of the Owner while the Contract is in force;
o our claim form from each Beneficiary, properly completed; and
o any other documents we require.
The Death Benefit will equal your Contract Value on the date we receive all the
documents listed above or use the wording in Section 14.04 of the Contract. If
we receive Proof of Death before 4:00 P.M. Eastern Time, we will determine the
amount of the Death Benefit as of that day. If we receive Proof of Death at or
after 4:00 P.M. Eastern Time, we will determine the amount of the Death Benefit
as of the next Business Day.
No Surrender Charges or Market Value Adjustments will apply to the Death
Benefit.
Within 60 days after we receive Proof of Death, the Beneficiary must elect the
payment method for the Death Benefit. Those options are described below. We will
pay the Death Benefit in a manner that complies with the requirements of Section
72(s) or 401(a)(9) of the Internal Revenue Code, as applicable.
DEATH OF ANNUITANT WHILE THE OWNER IS LIVING
If an Owner is a natural person and the Annuitant dies during the Accumulation
Period, the following will occur: (i) if there is a surviving Joint Annuitant,
the surviving Joint Annuitant will become the Annuitant; and (ii) if there is no
Joint Annuitant, the Owner will become the Annuitant (Primary Owner if Joint
Owner). If, however, the Owner is not a natural person and the Annuitant dies
during the Accumulation Period, the following will occur: (i) if there is a
surviving Joint Annuitant, the surviving Joint Annuitant will become the
Annuitant; and (ii) if there is no Joint Annuitant, the Beneficiary must elect
to receive the Death Benefit proceeds. If you have any questions concerning the
criteria you should use when choosing Annuitants under the Contract, consult
your financial professional.
DEATH BENEFIT PAYMENT OPTIONS
The following rules apply to the payment of the Death Benefit under a
Non-Qualified Contract:
o SPOUSES - If the sole Beneficiary is the surviving Spouse of the
deceased Owner, then he or she may choose to continue the Contract and
become the new Owner (except under certain Qualified Contracts). At the
death of the surviving Spouse, this provision may not be used again,
even if that surviving Spouse remarries. In that case, the rules for
non-Spouses will apply. A surviving Spouse may also elect to receive the
Death Benefit proceeds in a lump sum, apply the proceeds to an Income
Payout Option, or receive the Death Benefit proceeds within five years
of the date of the Owner's death.
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o NON-SPOUSES - If the Beneficiary is not the surviving Spouse of the
deceased Owner, then this Contract cannot be continued. Instead, upon
the death of any Owner, the Beneficiary must choose one of the
following:
o Receive the Death Benefit in one lump sum within five years of
the date of the Owner's death following our receipt of Proof of
Death;
o Receive the Death Benefit (if the Beneficiary is a natural
person) pursuant to one of the Income Payout Options. Payments
under an Income Payout Option must begin within one year of the
Owner's death and must not extend beyond a period certain equal
to the Beneficiary's life expectancy; or
o Receive the Death Benefit in one lump sum, deferred for up to
five years from the date of the Owner's death.
Upon receipt of Proof of Death, the Beneficiary must instruct us how to treat
the proceeds subject to the distribution rules discussed above. Other minimum
distribution rules apply to Qualified Contracts.
DEATH OF OWNER OR ANNUITANT AFTER THE PAYOUT DATE
If an Annuitant dies during the Payout Period, remaining income payments or
Death Benefit proceeds, if any, will be distributed as provided by the Income
Payout Option in effect. The Income Payout Option in effect will determine
whether additional income payments or a Death Benefit apply.
If an Owner dies during the Payout Period, any remaining income payments will be
distributed at least as rapidly as provided by the Income Payout Option in
effect.
INTEREST ON DEATH BENEFIT PROCEEDS
Interest will be paid on lump sum Death Benefit proceeds if required by state
law. Interest, if any, will be calculated at the rate and for the time period
required by state law.
ABANDONED PROPERTY REQUIREMENTS
Every state has unclaimed property laws which generally declare annuity
contracts to be abandoned after a period of inactivity of three to five years
from the date the Death Benefit is due and payable. For example, if the payment
of a Death Benefit has been triggered, but, if after a thorough search, we are
still unable to locate the Beneficiary, or the Beneficiary does not come forward
to claim the Death Benefit in a timely manner, the Death Benefit will be paid to
the abandoned property division or unclaimed property office of the state in
which the Beneficiary or you last resided, as shown on our books and records, or
to our state of domicile. The "escheatment" is revocable, however, and the state
is obligated to pay the Death Benefit (without interest) if your Beneficiary
steps forward to claim it with the proper documentation. To prevent such
escheatment, it is important that you update your Beneficiary designations,
including addresses, if and as they change. To make such changes, please contact
us by writing to us or calling us at our Administrative Office.
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INCOME PAYMENTS - THE PAYOUT PERIOD
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PAYOUT DATE
When you purchase the Contract, we will set the Payout Date as the Contract
Anniversary following the Annuitant's 95(th) birthday. If there are Joint
Annuitants, we will set the Payout Date based on the age of the oldest Joint
Annuitant. Please refer to the Data Page of your Contract for details.
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You may change the Payout Date by sending an Authorized Request in Good Order to
our Administrative Office provided: (i) the request is made while an Owner is
living; (ii) the request is received at our Administrative Office at least 30
days before the anticipated Payout Date; (iii) the requested Payout Date is at
least two years after the Contract Issue Date; and (iv) the requested Payout
Date is no later than the anticipated Payout Date as shown on your Contract Data
Page. Any such change is subject to any maximum maturity age restrictions that
may be imposed by law.
PAYOUT PERIOD
The Payout Period is the period of time that begins on the Payout Date and
continues until we make the last payment as provided by the Income Payout Option
chosen. On the first day of the Payout Period, the Contract Value will be
applied to the Income Payout Option you selected. A Surrender Charge (in the
case of Series B Contracts only) and Market Value Adjustment will not apply to
proceeds applied to an Income Payout Option. You cannot change the Annuitant or
Owner on or after the Payout Date for any reason.
TERMS OF INCOME PAYMENTS
We use fixed rates of interest to determine the amount of fixed income payments
payable under the Income Payout Options. Fixed income payments are periodic
payments from us to the designated Payee, the amount of which is fixed and
guaranteed by us. The amount of each payment depends only on the form and
duration of the Income Payout 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 1%. We may, in our discretion and on a non-discriminatory basis, make
Income Payments in an amount based on a higher interest rate. Once income
payments begin, you cannot change the terms or method of those payments. We do
not apply a Surrender Charge or Market Value Adjustment to income payments.
The Owner may name the person to receive income payments. If no person is named,
payments will be made to the Owner.
If there is one Annuitant living on the Payout Date, we will apply your Contract
Value to provide for a Life Income Option with a 10-Year Guaranteed Period
Certain, unless you have elected an Income Payout Option before the Payout Date
or we are otherwise required under the Internal Revenue Code. If there are two
Annuitants living on the Payout Date, we will apply your Contract Value to a
Joint and Survivor Life Income Option with a 10-Year Guaranteed Period Certain,
unless you have elected an Income Payout Option before the Payout Date or we are
otherwise required by the Internal Revenue Code. We describe the Life Income
Option and the Joint and Survivor Life Income Option under "Income Payout
Options" below.
We will make the first income payment on the Payout Date. We may require proof
of age and gender (if the Income Payout Option Rates is based on gender) of the
Annuitant/Joint Annuitants before making the first income payment. To receive
income payments, the Annuitant/Joint Annuitant must be living on the Payout Date
and on the date that each subsequent payment is due as required by the terms of
the Income Payout Option. We may require proof from time to time that this
condition has been met.
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INCOME PAYOUT OPTIONS
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ELECTION OF AN INCOME PAYOUT OPTION
You and/or the Beneficiary may elect to receive one of the Income Payout Options
described under "Options" below. The Income Payout Option and distribution,
however, must satisfy the applicable distribution requirements of Section 72(s)
or 401(a)(9) of the Internal Revenue Code, as applicable.
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The election of an Income Payout Option must be made by Authorized Request. The
election is irrevocable after the payments commence. The Payee may not assign or
transfer any future payments under any option.
The amount applied under each option must be at least $2,500, or the amount
required to provide an initial monthly income payment of $20.
We will make income payments monthly, quarterly, semiannually, or annually for
the Installment Option. Life Income and Joint Survivor options allow monthly
income payments. We will also furnish the amount of such payments on request.
Payments that are less than $20 will only be made annually.
If you do not select an Income Payout Option, we will make monthly payments on
the following basis, unless otherwise required under the Internal Revenue Code:
o Life Income Option with a 10-Year Guaranteed Period Certain (as
described below) for Contracts with one Annuitant; and
o Joint and Survivor Life Income Option with a 10-Year Guaranteed Period
Certain (as described below) for Contracts with two Annuitants.
You may change your Income Payout Option any time before payments begin on the
Payout Date.
OPTIONS
We offer the following Income Payout Options.
OPTION 1 -- INSTALLMENT OPTION. We will pay monthly income payments for a chosen
number of years, not less than 10, nor more than 30. If the Annuitant dies
before income payments have been made for the chosen number of years: (a) income
payments will be continued for the remainder of the period to the Payee; or (b)
the present value of the remaining income payments, computed at the interest
rate used to create the Option 1 rates, will be paid to the Payee or to the
Owner, if there is no surviving Payee. For purposes of the present value
calculation, guaranteed rates will be used.
OPTION 2 -- LIFE INCOME OPTION -- GUARANTEED PERIOD CERTAIN. We will pay monthly
income payments for as long as the Annuitant lives. If the Annuitant dies before
all the income payments have been made for the guaranteed period certain: (a)
income payments will be continued for the remainder of the guaranteed period to
the Payee; or (b) the present value of the remaining income payments, computed
at the interest rate used to create the Option 2 rates, will be paid to the
Payee or to the Owner, if there is no surviving Payee. For purposes of the
present value calculation, guaranteed rates will be used. The guaranteed period
certain choices are 0 (life income only), 5, 10, 15, or 20 years.
OPTION 3 -- JOINT AND SURVIVOR LIFE INCOME OPTION -- GUARANTEED PERIOD CERTAIN.
We will pay monthly income payments for as long as either of the Annuitants
lives. If at the death of the second surviving Annuitant, income payments have
been made for less than 10 years: (a) income payments will be continued for the
remainder of the guaranteed period certain to the Payee; or (b) the present
value of the remaining income payments, computed at the interest rate used to
create the Option 3 rates, will be paid to the Payee or to the Owner, if there
is no surviving Payee. For purposes of the present value calculation, guaranteed
rates will be used.
The Income Payout Options described above may not be offered in all states.
Further, we may offer other Income Payout Options. More than one option may be
elected. If your Contract is a Qualified Contract, not all options may satisfy
required minimum distribution rules. Consult a tax advisor. Option 2 and Option
3 pay monthly income payments. We do allow partial annuitization.
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FEDERAL INCOME TAX MATTERS
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The following discussion is general in nature and is not intended as tax advice.
Each person concerned should consult a competent tax adviser. No attempt is made
to consider any applicable state or other income tax laws, any state and local
estate or inheritance tax, or other tax consequences of ownership or receipt of
distributions under a Contract.
When you invest in an annuity contract, you usually do not pay taxes on your
investment gains until you withdraw the money--generally for retirement
purposes. If you invest in an annuity as part of an individual retirement plan,
pension plan or employer-sponsored retirement program, your contract is called a
Qualified Contract. If your annuity is independent of any formal retirement or
pension plan, it is termed a Non-Qualified Contract. The tax rules applicable to
Qualified Contracts vary according to the type of retirement plan and the terms
and conditions of the plan. See "Non-Natural Person" below for a discussion of
Non-Qualified Contracts owned by persons such as corporations and trusts that
are not natural persons.
TAX STATUS OF THE CONTRACTS
Tax law imposes several requirements that annuities must satisfy in order to
receive the tax treatment normally accorded to annuity contracts.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for
Federal income tax purposes, Section 72(s) of the Internal Revenue Code requires
any Non-Qualified Contract to contain certain provisions specifying how your
interest in the Contract will be distributed in the event of the death of an
Owner of the Contract. Specifically, Section 72(s) requires that (i) if any
Owner dies on or after the annuity starting date, but prior to the time the
entire interest in the Contract has been distributed, the entire interest in the
Contract will be distributed at least as rapidly as under the method of
distribution being used as of the date of such Owner's death; and (ii) if any
Owner dies prior to the annuity starting date, the entire interest in the
Contract will be distributed within five years after the date of such Owner's
death unless distributions are made over life or life expectancy, beginning
within one year of the death of the Owner.
The Non-Qualified Contracts contain provisions that are intended to comply with
these Internal Revenue Code requirements, although no regulations interpreting
these requirements have yet been issued. We intend to review such provisions and
modify them if necessary to assure that they comply with the applicable
requirements when such requirements are clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON. If a non-natural person (e.g., a corporation or a trust)
owns a Non-Qualified Contract, the taxpayer generally must include in income any
increase in the excess of the account value over the investment in the Contract
(generally, the Purchase Payments or other consideration paid for the Contract)
during the taxable year. There are some exceptions to this rule and a
prospective Owner that is not a natural person should discuss these with a tax
adviser.
The following discussion generally applies to Contracts owned by natural
persons.
WITHDRAWALS. When a withdrawal from a Non-Qualified Contract occurs, the amount
received will be treated as ordinary income subject to tax up to an amount equal
to the excess (if any) of the Contract Value, without adjustment for any
applicable Surrender Charge, immediately before the distribution over the
Owner's investment in the Contract (generally, the Purchase Payments or other
consideration paid for the Contract, reduced by any amount previously
distributed from the Contract that was not subject to tax) at that time. The
Contract Value immediately before a withdrawal may have to be increased by any
positive Market Value Adjustment that results from a withdrawal. There is,
however, no definitive
54
guidance on the proper tax treatment of Market Value Adjustments and you may
want to discuss the potential tax consequences of a Market Value Adjustment with
your tax adviser. In the case of a surrender under a Non-Qualified Contract, the
amount received generally will be taxable only to the extent it exceeds the
Owner's investment in the Contract.
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the "investment in
the contract" to the individual's total account balance or accrued benefit under
the retirement plan. The "investment in the contract" generally equals the
amount of any non-deductible Purchase Payment paid by or on behalf of any
individual. In many cases, the "investment in the contract" under a Qualified
Contract can be zero.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution from a
Non-Qualified Contract and Qualified Contract, there may be an imposed federal
tax penalty equal to ten percent of the amount treated as income. In general,
however, there is no penalty on distributions if they are:
o made on or after the taxpayer reaches age 59 1/2;
o made on or after the death of an Owner;
o attributable to the taxpayer's becoming disabled; or
o made as part of a series of substantially equal periodic payments for
the life (or life expectancy) of the taxpayer.
Other exceptions may be applicable under certain circumstances and special rules
may be applicable in connection with the exceptions enumerated above. Additional
exceptions may apply to distributions from a Qualified Contract. You should
consult a qualified tax adviser.
INCOME PAYMENTS. Although tax consequences may vary depending on the payout
option elected under an annuity contract, a portion of each income payment is
generally not taxed and the remainder is taxed as ordinary income. The
non-taxable portion of an income payment is generally determined in a manner
that is designed to allow you to recover your investment in the Contract ratably
on a tax-free basis over the expected stream of income payments, as determined
when income payments start. Once your investment in the Contract has been fully
recovered, however, the full amount of each income payment is subject to tax as
ordinary income.
PARTIAL ANNUITIZATION. Under a new tax provision enacted in 2010, if part of an
annuity contract's value is applied to an annuity option that provides payments
for one or more lives or for a period of at least ten years, those payments may
be taxed as annuity payments instead of withdrawals. The payment options under
the Contract are intended to qualify for this "partial annuitization" treatment.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a Contract
because of your death or the death of the Annuitant. Generally, such amounts are
includible in the income of the recipient as follows: (i) if distributed in a
lump sum, they are taxed in the same manner as surrender of the Contract, or
(ii) if distributed under a payout option, they are taxed in the same way as
income payments.
WITHHOLDING. Annuity distributions are generally subject to withholding for the
recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
MULTIPLE CONTRACTS. All Non-Qualified deferred annuity contracts that are issued
by us (or our affiliates) to the same Owner during any calendar year are treated
as one annuity contract for purposes of determining the amount includible in
such Owner's income when a taxable distribution occurs.
FURTHER INFORMATION. We believe that the Contracts will qualify as annuity
contracts for Federal income tax purposes and the above discussion is based on
that assumption.
TAXATION OF QUALIFIED CONTRACTS
The tax rules applicable to Qualified Contracts vary according to the type of
retirement plan and the terms and conditions of the plan. Your rights under a
Qualified Contract may be subject to the terms of the
55
retirement plan itself, regardless of the terms of the Qualified Contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions with respect to the Contract comply with
the law.
INDIVIDUAL RETIREMENT ANNUITIES (IRAs), as defined in Section 408 of the
Internal Revenue Code, permit individuals to make annual contributions of up to
the lesser of a specified dollar amount for the year or the amount of
compensation includible in the individual's gross income for the year. The
contributions may be deductible in whole or in part, depending on the
individual's income. Distributions from certain retirement plans may be "rolled
over" into an IRA on a tax-deferred basis without regard to these limits.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. A 10% penalty tax generally applies to distributions
made before age 59 1/2, unless an exception applies. Distributions that are
rolled over to an IRA within 60 days are not immediately taxable, however only
one such rollover is permitted each year. Beginning in 2015, an individual can
make only one rollover from an IRA to another (or the same) IRA in any 12-month
period, regardless of the number of IRAs that are owned. The limit will apply
by aggregating all of an individual's IRAs, including SEP and SIMPLE IRAs as
well as traditional and Roth IRAs, effectively treating them as one IRA for
purposes of the limit. This limit does not apply to direct trustee-to-trustee
transfers or conversation to Roth IRAs.
ROTH IRAs, as described in Internal Revenue Code Section 408A, permit certain
eligible individuals to contribute to make non-deductible contributions to a
Roth IRA 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 is generally subject
to tax and other special rules apply. The Owner may wish to 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 (i) before age 59 1/2 (subject
to certain exceptions), or (ii) during the five taxable years starting with the
year in which the first contribution is made to any Roth IRA. A 10% penalty tax
may apply to amounts attributable to a conversion from an IRA if they are
distributed during the five taxable years beginning with the year in which the
conversion was made. Distributions that are rolled over to an IRA within 60
days are not immediately taxable, however only one such rollover is permitted
each year. Beginning in 2015, an individual can make only one rollover from an
IRA to another (or the same) IRA in any 12-month period, regardless of the
number of IRAs that are owned. The limit will apply by aggregating all of an
individual's IRAs, including SEP and SIMPLE IRAs as well as traditional and
Roth IRAs, effectively treating them as one IRA for purposes of the limit. This
limit does not apply to direct trustee-to-trustee transfers or conversions to
Roth IRAs.
SECTION 457 PLANS, while not actually providing for a qualified plan as that
term is normally used, provides for certain deferred compensation plans with
respect to service for state governments, local governments, political
subdivisions, agencies, instrumentalities and certain affiliates of such
entities, and tax exempt organizations. The Contract can be used with such
plans. Under such plans, a participant may specify the form of investment in
which his or her participation will be made. Under a non-governmental plan, all
such investments, however, are owned by and are subject to, the claims of the
general creditors of the sponsoring employer.
OTHER TAX ISSUES. Qualified Contracts have minimum distribution rules that
govern the timing and amount of distributions. You should refer to your
retirement plan, adoption agreement, or consult a tax adviser for more
information about these distribution rules.
Distributions from Qualified Contracts generally are subject to withholding for
the Owner's federal income tax liability. The withholding rate varies according
to the type of distribution and the Owner's tax status. The Owner will be
provided the opportunity to elect not have tax withheld from distributions.
"Eligible rollover distributions" from Section 401(a), 403(b), and governmental
457 plans are subject to a mandatory federal income tax withholding of 20%. For
this purpose, an eligible rollover distribution is any distribution to an
employee (or employee's spouse or former spouse as Beneficiary or alternate
Payee) from such a plan, except certain distributions such as distributions
required by the Internal Revenue
56
Code, distributions in a specified annuity form, or hardship distributions. The
20% withholding does not apply, however, to nontaxable distributions or if the
employee chooses a "direct rollover" from the plan to a tax-qualified plan, IRA
or tax sheltered annuity or to a governmental 457 plan that agrees to separately
account for rollover contributions.
FEDERAL ESTATE TAXES, GIFT AND GENERATION-SKIPPING TRANSFER TAXES
While no attempt is being made to discuss in detail the Federal estate tax
implications of the Contract, a purchaser should keep in mind that the value of
an annuity contract owned by a decedent and payable to a Beneficiary by virtue
of surviving the decedent is included in the decedent's gross estate. Depending
on the terms of the annuity contract, the value of the annuity included in the
gross estate may be the value of the lump sum payment payable to the contingent
Owner or the actuarial value of the payments to be received by the Beneficiary.
Consult an estate planning adviser for more information.
Under certain circumstances, the Internal Revenue Code may impose a "generation
skipping transfer ("GST") tax" when all or part of an annuity contract is
transferred to, or a Death Benefit is paid to, an individual two or more
generations younger than the Owner. Regulations issued under the Internal
Revenue Code may require us to deduct the tax from your Contract, or from any
applicable payment, and pay it directly to the IRS. For 2015, the federal estate
tax, gift tax and GST tax exemptions and maximum rates are $5,430,000 and 40%,
respectively.
The potential application of these taxes underscores the importance of seeking
guidance from a qualified adviser to help ensure that your estate plan
adequately addresses your needs and those of your beneficiaries under all
possible scenarios.
MEDICARE TAX
Distributions from non-qualified annuity policies will be considered "investment
income" for purposes of the newly enacted Medicare tax on investment income.
Thus, in certain circumstances, a 3.8% tax may be applied to some or all of the
taxable portion of distributions (e.g., earnings) to individuals whose income
exceeds certain threshold amounts. Please consult a tax advisor for more
information.
SAME-SEX SPOUSES
The Contract provides that upon your death, a surviving spouse may have certain
continuation rights that he or she may elect to exercise for the Contract's
Death Benefit and any joint-life coverage under an optional living benefit. All
Contract provisions relating to spousal continuation are available only to a
person who meets the definition of "spouse" under federal law. The U.S. Supreme
Court has held marriages must be recognized for federal law purposes regardless
of whether they are same or different sex. Consult a tax adviser for more
information on this subject.
ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal income
tax consequences to annuity purchasers that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. federal withholding tax on taxable distributions from annuity contracts at
a 30% rate, unless a lower treaty rate applies. In addition, such purchasers may
be subject to state and/or municipal taxes and taxes that may be imposed by the
purchaser's country of citizenship or residence. Additional withholding may
occur with respect to entity purchasers (including foreign corporations,
partnerships and trusts) that are not U.S. residents. Prospective purchasers are
advised to consult with a qualified tax adviser regarding U.S., state, and
foreign taxation with respect to an annuity contract purchase.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is always the
possibility that the tax
57
treatment of the Contract could change by legislation or otherwise. Consult a
tax adviser with respect to legislative developments and their effect on the
Contract.
We have the right to modify the Contract in response to legislative changes that
could otherwise diminish the favorable tax treatment that annuity contract
owners currently receive. We make no guarantee regarding the tax status of the
Contract and do not intend the above discussion as tax advice.
IMPORTANT INFORMATION ABOUT THE INDICES
S&P 500 INDEX. The Contract is not sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of the McGraw-Hill Companies, Inc. ("S&P"). S&P
makes no representation or warranty, express or implied, to the owners of the
Contract or any member of the public regarding the advisability of investing in
securities generally or in the Contract particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the Company is the licensing of certain trademarks and trade names of S&P and of
the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Company or the Contract. S&P has no obligation to take the needs
of the Company or the Owners of the Contract into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the prices and amount of the Contract
or the timing of the issuance or sale of the Contract or in determination or
calculation of the equation by which the Contract is to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Contract.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE COMPANY, OWNERS OF THE PRODUCT, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The S&P 500 Index is a stock market index based on the market capitalizations of
500 leading companies publicly traded in the U.S. stock market, as determined by
Standard & Poors. The S&P 500 Index can go up or down based on the stock prices
of the 500 companies that comprise the Index. The S&P 500 Index does not include
dividends paid on the stocks comprising the Index and therefore does not reflect
the full investment performance of the underlying stocks.
The S&P 500 Index is a trademark of Standard & Poors or its affiliates and has
been licensed for use by the Company.
MSCI EAFE INDEX. The Contract is not sponsored, endorsed, sold or promoted by
Morgan Stanley Capital International Inc. ("MSCI"). MSCI makes no representation
or warranty, express or implied, to the owners of the Contract or any member of
the public regarding the advisability of investing in securities generally or in
the Contract particularly or the ability of the MSCI EAFE Index to track general
stock market performance. MSCI's only relationship to the Company is in the
licensing of certain trademarks and trade names of MSCI and of the MSCI EAFE
Index which is determined, composed and calculated by MSCI without regard to the
Company or the Contract. MSCI has no obligation to take the needs of the Company
or the Owners of the Contract into consideration in determining, composing or
calculating the MSCI EAFE Index. MSCI is not responsible for and has not
participated in the determination of the prices and amount of the Contract or
the timing of the issuance or sale of the Contract or in determination or
calculation of the equation by which the Contract is to be converted into cash.
MSCI has no obligation or liability in connection with the administration,
marketing or trading of the Contract.
58
MSCI DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE MSCI EAFE
INDEX OR ANY DATA INCLUDED THEREIN AND MSCI SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. MSCI MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, OWNERS OF THE PRODUCT, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE MSCI INDEX OR ANY DATA INCLUDED
THEREIN. MSCI MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE MSCI EAFE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MSCI HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The MSCI EAFE Index is an equity index which captures large and mid cap
representation across developed markets countries around the world, excluding
the U.S. and Canada. With 912 constituents, the MSCI EAFE Index covers
approximately 85% of the free float-adjusted market capitalization in each
country.
The MSCI EAFE Index is a trademark of MSCI or its affiliates and has been
licensed for use by the Company.
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OTHER INFORMATION
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DISTRIBUTION OF THE CONTRACT
We offer the Contract on a continuous basis. We have entered into a distribution
agreement with our affiliate, CUNA Brokerage Services, Inc., for the
distribution of the Contract. MEMBERS Life Insurance Company and CUNA Brokerage
Services, Inc are both wholly-owned subsidiaries of CUNA Mutual Investment
Corporation. The principal business address of CUNA Brokerage Services, Inc. is
2000 Heritage Way, Waverly, IA 50677. Contracts are sold by licensed insurance
agents (the "Selling Agents") in those states where the Contract may be lawfully
sold. Such Selling Agents will be registered representatives of CUNA Brokerage
Services, Inc. or other affiliated and unaffiliated broker-dealer firms (the
"Selling Broker-Dealers") registered under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), who are members of the Financial Industry
Regulatory Authority, Inc. ("FINRA") and who have entered into the Company's
selling agreements with us and the principal underwriter, CUNA Brokerage
Services, Inc.
We pay CUNA Brokerage Services, Inc. and/or our affiliates pay the Selling
Broker-Dealers compensation for the promotion and sale of the Contract. The
Selling Agents who solicit sales of the Contract typically receive a portion of
the compensation paid by the Company to CUNA Brokerage Services, Inc. and the
Selling Broker-Dealers in the form of commissions or other compensation,
depending on the agreement between the Selling Broker-Dealer and the Selling
Agent. The Selling Agents are also licensed as insurance agents by applicable
state insurance authorities and appointed as agents of the Company. Selling
Agents who are registered representatives of CUNA Brokerage Services, Inc. or
our affiliates are also eligible for various cash benefits, such as bonuses,
insurance benefits and financing arrangements, and non-cash items that we may
jointly provide with CUNA Brokerage Services, Inc. or our affiliates. Non-cash
items include conferences, seminars and trips (including travel, lodging and
meals in connection therewith), entertainment, merchandise and other similar
items. Sales of the Contracts may help registered representatives of CUNA
Brokerage Services, Inc. qualify for such benefits.
The amount and timing of commissions we may pay to Selling Broker-Dealers may
vary depending on the selling agreement and the Contract sold but is not
expected to be more than [o]% of each Purchase Payment. We may pay or allow
other promotional incentives or payments in the form of cash or other
compensation to the extent permitted by FINRA rules and other applicable laws
and regulations.
59
We also pay compensation to wholesaling broker-dealers or other firms or
intermediaries, including payments to affiliates of ours, in return for
wholesaling services such as providing marketing and sales support, product
training and administrative services to the Selling Agents of the Selling
Broker-Dealers. These allowances may be based on a percentage of each Purchase
Payment.
In addition to the compensation described above, we may make additional cash
payments, in certain circumstances referred to as "override" compensation or
reimbursements to Selling Broker-Dealers in recognition of their marketing and
distribution, transaction processing and/or administrative services support.
These payments are not offered to all Selling Broker-Dealers, and the terms of
any particular agreement governing the payments may vary among Selling
Broker-Dealers depending on, among other things, the level and type of marketing
and distribution support provided. Marketing and distribution support services
may include, among other services, placement of the Company's products on the
Selling Broker-Dealers' preferred or recommended list, increased access to the
Selling Broker-Dealers' registered representatives for purposes of promoting
sales of our products, assistance in training and education of the Selling
Agents, and opportunities for us to participate in sales conferences and
educational seminars. The payments or reimbursements may be calculated as a
percentage of the particular Selling Broker-Dealer's actual or expected
aggregate sales of our annuity contracts (including the Contract) and/or may be
a fixed dollar amount. Broker-dealers receiving these additional payments may
pass on some or all of the payments to the Selling Agent.
You should ask your Selling Agent for further information about what commissions
or other compensation he or she, or the Selling Broker-Dealer for which he or
she works, may receive in connection with your purchase of a Contract.
Commissions and other incentives or payments described above are not charged
directly to you. We intend to recoup commissions and other sales expenses
through fees and charges deducted under the Contract.
CYBER SECURITY
Our business is highly dependent upon the effective operation of our computer
systems and those of our business partners, so that our business is potentially
susceptible to operational and information security risks resulting from a
cyber-attack. These risks include, among other things, the theft, misuse,
corruption and destruction of data maintained online or digitally, denial of
service on websites and other operational disruption and unauthorized release of
confidential customer information. Cyber-attacks affecting us, CUNA Brokerage
Services, Inc., and intermediaries may adversely affect us and your Contract
Value. For instance, cyber-attacks may interfere with our processing of Contract
transactions, cause the release and possible destruction of confidential Owner
or business information, impede order processing, subject us and/or CUNA
Brokerage Services, Inc. and intermediaries to regulatory fines and financial
losses and/or cause reputational damage. There can be no assurance that we or
CUNA Brokerage Services, Inc. will avoid losses affecting your Contract due to
cyber-attacks or information security breaches in the future.
AUTHORITY TO CHANGE
Only the President or Secretary of the Company may change or waive any of the
terms of your Contract. Any change must be in writing and signed by the
President or Secretary of the Company. You will be notified of any such change,
as required by law.
INCONTESTABILITY
We consider all statements in your application (in the absence of fraud) to be
representations and not warranties. We will not contest your Contract.
60
MISSTATEMENT OF AGE OR GENDER
If an Annuitant's date of birth is misstated, we will adjust the income payments
under the Contract to be equal to the payout amount the Contract Value would
have purchased based on the Annuitant's correct date of birth. If an Annuitant's
gender has been misstated, and the Life Income Rate Type is based on gender, we
will adjust the income payments under the Contract to be equal to the payout
amount the Contract Value would have purchased based on the Annuitant's correct
gender. We will add any underpayments to the next payment. We will subtract any
overpayment from future payments. We will not credit or charge any interest to
any underpayment or overpayment.
CONFORMITY WITH APPLICABLE LAWS
The provisions of the Contract conform to the minimum requirements of the state
in which the Contract is delivered (i.e., the "state of issue"). The laws of the
state of issue control any conflicting laws of any other state in which the
Owner may live on or after the Contract Issue Date. If any provision of your
Contract is determined not to provide the minimum benefits required by the state
in which the Contract is issued, such provision will be deemed to be amended to
conform or comply with such laws or regulations. Further, the Company will
amend the Contract to comply with any changes in law governing the Contract or
the taxation of benefits under the Contract.
REPORTS TO OWNERS
At least annually, we will mail a report to you at your last known address of
record, a report that will state the beginning and end dates for the current
report period; your Contract Value at the beginning and end of the current
report period; the amounts that have been credited and debited to your Contract
Value during the current report period, identified by the type of activity the
amount represents; the Surrender Value at the end of the current report period;
and any other information required by any applicable law or regulation.
You also will receive confirmations of each financial transaction, such as
transfers, withdrawals, and surrenders.
CHANGE OF ADDRESS
You may change your address by writing to us at our Administrative Office. If
you change your address, we will send a confirmation of the address change to
your old addresses.
INQUIRIES
You may make inquiries regarding your Contract by writing to us or calling us at
our Administrative Office.
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CORPORATE HISTORY OF THE COMPANY
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[To be updated by amendment.] We are a wholly-owned indirect subsidiary of CMFG
Life Insurance Company ("CMFG Life") and a direct wholly-owned subsidiary of
CUNA Mutual Investment Corporation ("CMIC"). We were formed by CMFG Life on
February 27, 1976, as a stock life insurance company under the laws of the State
of Wisconsin for the purpose of writing credit disability insurance. The
original name of the Company was CUDIS Insurance Society, Inc. On August 3,
1989, the Company's name changed to CUMIS Life Insurance, Inc., and was
subsequently changed to its current name on January 1, 1993. League Life
Insurance Company (Michigan) merged into the Company on January 1, 1992 and
MEMBERS Life Insurance Company (Texas) merged into the Company on January 1,
1993. The Company re-domiciled from Wisconsin to Iowa on May 3, 2007. The
Company is 100% owned by CMIC, which is in turn 100% owned by CMFG Life. On
February 17, 2012, we amended and restated our Articles of Incorporation
pursuant to which we amended our purpose to be the writing of any and all of the
lines of insurance and annuity business authorized by Iowa Code Chapter 508 and
any other line of
61
insurance or annuity business authorized by the laws of the State of Iowa.
Currently, the Company has no employees.
CMFG Life is a stock insurance company organized on May 20, 1935 and domiciled
in Iowa. CMFG Life is one of the world's largest direct underwriters of credit
life and disability insurance, and is a major provider of qualified pension
products to credit unions. Further, CMFG Life and its affiliated companies
currently offer deferred and immediate annuities, individual term and permanent
life insurance, and accident and health insurance. In 2012, CMFG Life was
reorganized as a wholly-owned subsidiary of CUNA Mutual Holding Company, a
mutual holding company organized under the laws of Iowa.
The Company is authorized to sell life, health and annuity policies in all
states in the U.S. and the District of Columbia, except New York. In 2014,
approximately 63%, 22% and 5% of the premiums paid under policies issued by the
Company were generated in Michigan, Texas and California, respectively. No other
state accounts for more than 5% of the premiums paid under the Company's
policies for any year in the three years ended December 31, 2014. In 2014,
approximately 12% of annuities related to the Index-Linked Annuity Contract
were generated in Michigan; no other state accounted for more than 10% of sales
of the Index-Linked Annuity Contract paid to the Company for the year ended
December 31, 2014. As of December 31, 2014 and 2013, we had more than $399
million and $138 million in assets and we had more than $129 million and $147
million of life insurance in force, respectively.
Currently, the Company primarily services existing blocks of individual and
group life policies. In addition, in August 2013, the Company began issuing the
Index-Linked Annuity Contract under the name "MEMBERS Zone Annuity". The
Contract described in this Prospectus is first being offered as of the date of
this Prospectus.
CMFG Life provides significant services required in the conduct of the Company's
operations. We have entered into the following two contracts for the
administration of our business:
o a Cost Sharing, Procurement, Disbursement, Billing and Collection
Agreement , pursuant to which CMFG Life performs certain administrative
functions related to agent licensing, payment of commissions, actuarial
services, annuity policy issuance and service, accounting and financial
compliance, market conduct, general and informational services and
marketing as well as share certain resources and personnel with us; and
o a Procurement and Disbursement and Billing and Collection Services
Agreement, pursuant to which CMFG Life provides certain procurement,
disbursement, billing and collection services.
You may write us at 2000 Heritage Way, Waverly, Iowa 50677-9202, or call us at
1-800-798-5500.
We share space with our parent, CMFG Life. CMFG Life occupies office space in
Madison, Wisconsin and Waverly, Iowa that is owned by CMFG Life. Expenses
associated with the facilities are allocated to us through the Cost Sharing,
Procurement, Disbursement, Billing and Collection Agreement described above.
FINANCIAL INFORMATION
Our financial statements have been prepared in accordance with U.S. GAAP.
INVESTMENTS
Our investment portfolio consists primarily of fixed income securities.
62
REINSURANCE
We reinsure portions of our life insurance exposure with affiliated insurance
companies under traditional indemnity reinsurance arrangements. We entered into
a Coinsurance Agreement with CMFG Life in 2012. Under this agreement, we agreed
to cede 95% of all insurance in force, including annuity contracts, as of
October 31, 2012 to CMFG Life. In 2013, we entered into a second Coinsurance
Agreement to cede 100% of all insurance issued on and after January 1, 2013 to
CMFG Life. These agreements do not relieve us of our obligations to our
policyholders under contracts covered by these agreements. However, they do
transfer nearly all of the Company's underwriting profits and losses to CMFG
Life and require CMFG Life to indemnify the Company for nearly all of its
liabilities.
POLICY LIABILITIES AND ACCRUALS
The applicable accounting standards and state insurance laws under which we
operate require that we record policy liabilities to meet the future obligations
associated with all of our outstanding policies.
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POTENTIAL RISK FACTORS THAT MAY AFFECT OUR BUSINESS AND OUR FUTURE RESULTS
--------------------------------------------------------------------------------
[TO BE UPDATED BY AMENDMENT.]
ALTHOUGH ECONOMIC CONDITIONS BOTH DOMESTICALLY AND GLOBALLY HAVE CONTINUED TO
IMPROVE SINCE THE FINANCIAL CRISIS IN 2008, WE REMAIN VULNERABLE TO MARKET
UNCERTAINTY AND CONTINUED FINANCIAL INSTABILITY OF NATIONAL, STATE AND LOCAL
GOVERNMENTS. CONTINUED DIFFICULT CONDITIONS IN THE GLOBAL CAPITAL MARKETS AND
ECONOMY COULD DETERIORATE IN THE NEAR FUTURE AND AFFECT OUR FINANCIAL POSITION
AND OUR LEVEL OF EARNINGS FROM OUR OPERATIONS.
Markets in the United States and elsewhere experienced extreme volatility and
disruption since the second half of 2007, due in part to the financial stresses
affecting the liquidity of the banking system and the financial markets. This
volatility and disruption reached unprecedented levels in late 2008 and early
2009. The United States entered a severe recession and recovery was slow with
long-term high unemployment rates and lower average household income levels. One
of the strategies used by the U.S. government to stimulate the economy has been
to keep interest rates low and increase the supply of United States dollars.
While these strategies have appeared to have had positive effects, any future
economic downturn or market disruption could negatively impact our ability to
invest our funds.
Specifically, if market conditions deteriorate in 2015 or beyond:
o our investment portfolio could incur other than temporary impairments;
o due to potential downgrades in our investment portfolio, we could be
required to raise additional capital to sustain our current business in
force and new sales of our annuity products, which may be difficult in a
distressed market. If capital would be available, it may be at terms
that are not favorable to us; or
o our liquidity could be negatively affected and we could be forced to
further limit our operations and our business could suffer, as we need
liquidity to pay our policyholder benefits and operating expenses.
The principal sources of our liquidity are monthly settlements under the
coinsurance agreements with CMFG Life, annuity deposits, investment income,
proceeds from the sale, maturity and call of investments and capital
contributions from CMFG Life.
GOVERNMENTAL INITIATIVES INTENDED TO IMPROVE GLOBAL AND LOCAL ECONOMIES THAT
HAVE BEEN ADOPTED MAY NOT BE EFFECTIVE AND, IN ANY EVENT, MAY BE ACCOMPANIED BY
OTHER INITIATIVES, INCLUDING NEW CAPITAL REQUIREMENTS OR OTHER REGULATIONS THAT
COULD MATERIALLY AFFECT OUR RESULTS OF OPERATIONS, FINANCIAL CONDITION AND
LIQUIDITY IN WAYS THAT WE CANNOT PREDICT.
63
We are subject to extensive laws and regulations that are administered and
enforced by a number of different regulatory authorities including state
insurance regulators, the National Association of Insurance Commissioners
("NAIC") and the SEC. Some of these authorities are or may in the future
consider enhanced or new regulatory requirements intended to prevent future
crises or otherwise assure the stability of institutions under their
supervision. These authorities may also seek to exercise their supervisory or
enforcement authority in new or more robust ways. All of these possibilities, if
they occurred, could affect the way we conduct our business and manage our
capital, and may require us to satisfy increased capital requirements, any of
which in turn could materially affect our results of operations, financial
condition and liquidity.
WE FACE POTENTIAL COMPETITION FROM COMPANIES THAT HAVE GREATER FINANCIAL
RESOURCES, BROADER ARRAYS OF PRODUCTS, HIGHER RATINGS AND STRONGER FINANCIAL
PERFORMANCE, WHICH MAY IMPAIR OUR ABILITY TO ATTRACT NEW CUSTOMERS AND MAINTAIN
OUR PROFITABILITY AND FINANCIAL STRENGTH. IT MAY ALSO IMPAIR OUR ABILITY TO
RETAIN CUSTOMERS WHICH COULD INCREASE SURRENDERS AND IMPACT PROFITABILITY AND
FINANCIAL STRENGTH.
We operate in a highly competitive industry. Many of our competitors are
substantially larger and enjoy substantially greater financial resources,
claims-paying ability and financial strength, broader and more diversified
product lines and more widespread distribution relationships. Our annuity
products compete with fixed indexed, traditional fixed rate and variable
annuities (and combinations thereof) sold by other insurance companies and also
with mutual fund products, traditional bank investments and other investment and
retirement funding alternatives offered by asset managers, banks and
broker-dealers. Our annuity products also compete with products of other
insurance companies, financial intermediaries and other institutions based on a
number of factors, including crediting rates, policy terms and conditions,
services provided to distribution channels and policyholders, ratings,
reputation and distribution compensation.
Our ability to compete will depend in part on the performance of our products.
We will not be able to accumulate and retain assets under management for our
products if our products underperform the market or the competition, since such
underperformance likely would result in asset withdrawals and reduced sales.
We compete for distribution sources for our products. We believe that our
success in competing for distributors will depend on factors such as our
financial strength, the services we provide to, and the relationships we develop
with these distributors and offering competitive commission structures. Our
distributors will generally be free to sell products from whichever providers
they wish, which makes it important for us to continually offer distributors
products and services they find attractive. If our products or services fall
short of distributors' needs, we may not be able to establish and maintain
satisfactory relationships with distributors of our annuity products. Our
ability to compete will also depend in part on our ability to develop innovative
new products and bring them to market more quickly than our competitors. In
order for us to compete in the future, we will need to continue to bring
innovative products to market in a timely fashion. Otherwise, our revenues and
profitability could suffer.
THE LOSS OF KEY EMPLOYEES COULD DISRUPT OUR OPERATIONS.
Our success depends in part on the continued service of key executives within
our Company and our ability to attract and retain additional executives and
employees. The loss of key employees or our inability to recruit and retain
additional qualified personnel could cause disruption in our business and
prevent us from fully implementing our business strategies, which could
materially and adversely affect our business, growth and profitability.
64
CHANGES IN STATE AND FEDERAL REGULATION MAY AFFECT OUR PROFITABILITY.
We are subject to regulation under applicable insurance statutes, including
insurance holding company statutes, in the various states in which we transact
business. Insurance regulation is intended to provide safeguards for
policyholders rather than to protect shareholders of insurance companies or
their holding companies. As increased scrutiny has been placed upon the
insurance regulatory framework, a number of state legislatures have considered
or enacted legislative proposals that alter, and in many cases increase, state
authority to regulate insurance companies and holding company systems.
Regulators oversee matters relating to trade practices, policy forms, claims
practices, guaranty funds, types and amounts of investments, reserve adequacy,
insurer solvency, minimum amounts of capital and surplus, transactions with
related parties, changes in control and payment of dividends.
State insurance regulators and the NAIC continually reexamine existing laws and
regulations and may impose changes in the future.
We are subject to the NAIC's risk-based capital requirements which are intended
to be used by insurance regulators as an early warning tool to identify
deteriorating or weakly capitalized insurance companies for the purpose of
initiating regulatory action. We also may be required, under solvency or
guaranty laws of most states in which we do business, to pay assessments up to
certain prescribed limits to fund policyholder losses or liabilities for
insolvent insurance companies.
Although the federal government does not directly regulate the insurance
business, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services
regulation, securities regulation and federal taxation, can significantly affect
the insurance business. In addition, legislation has been enacted which could
result in the federal government assuming some role in the regulation of the
insurance industry.
In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
"Dodd-Frank Act") was enacted and signed into law, making extensive changes to
the laws regulating the financial services industry. Among other things, the
Dodd-Frank Act imposes a comprehensive new regulatory regime on the
over-the-counter ("OTC") derivatives marketplace and grants new joint regulatory
authority to the SEC and the U.S. Commodity Futures Trading Commission ("CFTC")
over OTC derivatives. While the SEC and CFTC continue to promulgate rules
required by the Dodd-Frank Act, most rules have been finalized and, as a result,
certain of derivatives operations that support the Company's products are
subject to, among other things, new recordkeeping, reporting and documentation
requirements and new clearing requirements for certain swap transactions
(currently, certain interest rate swaps and index-based credit default swaps;
cleared swaps require the posting of margin to a clearinghouse via a futures
commission merchant and, in some case, to the futures commission merchant as
well). In addition, non-cleared derivatives entered into as part of the
Company's derivatives operations will, in the future, become subject to initial
and variation margin requirements. On September 3, 2014, the Board of Governors
of the Federal Reserve System jointly adopted, with certain federal banking
regulators, referred to as the "Prudential Regulators," re-proposed rules that
would require certain derivatives market participants to collect margin from,
and post margin to, their counterparties. Under the re-proposed rules, the
Company would be considered a "financial end-user" that, when facing the
relevant market participants, are required to post and collect variation margin
in cash and, depending on their derivatives exposure, may be required to post
and collect initial margin. The CFTC re-proposed substantially similar rules on
September 17, 2014 that may also affect certain of the Company's U.S.
derivatives operations. Other regulatory requirements may indirectly impact the
Company. For example, non-U.S. counterparties of the Company may also be subject
non-U.S. regulation of their derivatives transactions with the Company. In
addition, counterparties regulated by the Prudential Regulators are subject to
liquidity, leverage and capital requirements that impact their derivatives
transactions with the Company. Collectively, these new requirements have
increased the direct and indirect costs of the Company's derivatives activities
and may further increase them in the future.
65
The Dodd-Frank Act also established a Federal Insurance Office ("FIO") under the
U.S. Treasury Department. Although the Federal Insurance Office was not granted
general supervisory authority over the insurance industry, it is authorized to,
among other things, (1) monitor all aspects of the insurance industry and of
lines of business other than certain health insurance, certain long-term care
insurance and crop insurance and (2) recommend changes to the state system of
insurance regulation to the U.S. Congress. The FIO is required to issue several
reports to Congress on the insurance industry, most notably, (i) a report on
"how to modernize and improve the system of insurance regulation in the United
States", and (ii) a report on "the breadth and scope of the global reinsurance
market and the critical role such market plays in supporting insurance in the
United States." The FIO issued its report on how to modernize and improve the
system of insurance regulation in the United States in December 2013. The report
details the strengths and weaknesses of the current insurance regulatory system
and makes recommendations in the areas of insurance sector solvency and
marketplace regulation. Although the report stops short of recommending direct
federal regulation of insurance, it does recommend significantly greater federal
involvement in a number of areas. In December 2014, the FIO published its report
on the breadth and scope of the global reinsurance market. In this reinsurance
report, the FIO indicates that reinsurance collateral continues to be at the
forefront of its thinking with regard to potential direct federal involvement in
insurance regulation. Specifically, the FIO's report argues that federal
officials are well-positioned to make determinations regarding whether a
foreign jurisdiction has sufficiently effective regulation and, in doing so,
consider other prudential issues pending in the U.S. and between the U.S. and
affected foreign jurisdictions. The reinsurance report notes that work continues
towards initiating negotiations for covered agreements with leading reinsurance
jurisdictions that may have the effect of preempting inconsistent state laws. It
remains to be seen whether, in 2015, one or more proposed "covered agreements"
with major U.S. trading partners (including possibly the entirety of the
European Union), that trade collateral reduction--and possibly more--for
recognition of the U.S. system of insurance regulation as equivalent, will be
entered into. More generally, it remains to be seen whether either of the FIO's
reports will affect the manner in which insurance and reinsurance are regulated
in the U.S. and, thereby, the Company's business.
The Dodd-Frank Act established a new federal council of financial regulators,
the Financial Stability Oversight Council ("Council"), which is charged with
identifying risks to the financial stability of the U.S. financial markets,
promoting market discipline, and responding to emerging threats to the stability
of the U.S. financial markets. The Council is empowered to make recommendations
to primary financial regulatory agencies regarding the application of new or
heightened standards and safeguards for financial activities or practices, and
certain participation in such activities, that threaten the stability of the
U.S. financial markets. In addition, the Council is authorized to determine
whether an insurance company is systematically significant and to recommend that
it should be subject to enhanced prudential standards and to supervision by the
Board of Governors of the Federal Reserve System. In April 2012, the Council
approved its final rule for designating non-bank financial companies as
systemically important financial institutions ("SIFI"). Under the final rule,
the Company's assets, liabilities and operations do not currently satisfy the
financial thresholds that serve as the first step of the three-stage process to
designate a non-bank financial company as a SIFI. Despite not being a SIFI, the
Company could potentially be subject to the orderly liquidation authority of the
Federal Deposit Insurance Corporation ("FDIC"), in accordance with Title II of
the Dodd-Frank Act. Title II of the Dodd-Frank Act provides that the FDIC, under
certain circumstances, may be appointed receiver of a "covered financial
company," which could include an insurance company, for purposes of liquidating
such company. This would apply to insurance companies in a limited context,
where the relevant state insurance regulator has failed to act within 60 days
after a determination has been made to subject the insurance company to the
FDIC's orderly liquidation authority, and resolution by the FDIC would be in
accordance with state insurance law.
CHANGES IN FEDERAL INCOME TAXATION LAWS MAY AFFECT SALES OF OUR PRODUCTS AND
PROFITABILITY.
The annuity products that we market generally provide the policyholder with
certain federal income tax advantages. For example, federal income taxation on
any increases in non-qualified annuity contract values (i.e., the "inside
build-up") is deferred until it is received by the policyholder. With other
savings and investments, such as certificates of deposit and taxable bonds, the
increase in value is generally taxed each year as it is earned.
66
From time to time, various tax law changes have been proposed that could have an
adverse effect on our business, including the elimination of all or a portion of
the income tax advantages for annuities. If legislation were enacted to
eliminate the tax deferral for annuities, such a change may have an adverse
effect on our ability to sell non-qualified annuities. Non-qualified annuities
are annuities that are not sold to a qualified retirement plan.
Distributions from non-qualified annuity policies have been considered
"investment income" for purposes of the Medicare tax on investment income
contained in the Health Care and Education Reconciliation Act of 2010. As a
result, in certain circumstances, a 3.8% tax ("Medicare Tax") may be applied to
some or all of the taxable portion of distributions from non-qualified annuities
to individuals whose income exceeds certain threshold amounts. This new tax may
have an adverse effect on our ability to sell non-qualified annuities to
individuals whose income exceeds these threshold amounts and could accelerate
withdrawals due to this additional tax. The constitutionality of the Health Care
and Education Reconciliation Act of 2010 is currently the subject of multiple
litigation actions initiated by various state attorneys general, and the Act is
also the subject of several proposals in the U.S. Congress for amendment and/or
repeal. The outcome of such litigation and legislative action as it relates to
the 3.8% Medicare Tax is unknown at this time.
WE FACE RISKS RELATING TO LITIGATION, INCLUDING THE COSTS OF SUCH LITIGATION,
MANAGEMENT DISTRACTION AND THE POTENTIAL FOR DAMAGE AWARDS, WHICH MAY ADVERSELY
IMPACT OUR BUSINESS.
We may become involved in litigation, both as a defendant and as a plaintiff,
relating to claims arising out of our operations in the normal course of
business. In addition, state regulatory bodies, such as state insurance
departments, the SEC, FINRA, the Department of Labor, and other regulatory
bodies regularly make inquiries and conduct examinations or investigations of
companies in the annuity business concerning compliance with, among other
things, insurance laws, securities laws, the Employee Retirement Income Security
Act of 1974, as amended, and laws governing the activities of broker-dealers.
Companies in the annuity business have faced litigation, including class action
lawsuits, alleging improper product design, improper sales practices and similar
claims. There can be no assurance that any future litigation will not have a
material adverse effect on our business, financial condition or results of
operations through distraction of our management or otherwise.
--------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
[To be updated by amendment.]
The following selected financial data is derived from the Company's financial
statements and should be read in conjunction with the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The results of operations data for the years ended December 31,
2014, 2013 and 2012 and the balance sheet data as of December 31, 2014 and 2013
should be read in conjunction with our financial statements and related notes
appearing elsewhere in this Prospectus. The results for the past periods are not
necessarily indicative of results that may be expected for future periods. The
Company entered into agreements in 2013 and 2012 which impact the Company's
financial results. See the reinsurance footnote within the Company's financial
statements appearing elsewhere in this Prospectus.
67
--------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
RESULTS OF OPERATIONS DATA: 2014 2013 2012 2011 2010
--------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
REVENUES
Life and health premiums $ 127 $ 139 $ (20,459) $ 3,409 $ 3,744
Contract charges 24 46 460 501 533
Net investment income 278 176 1,928 2,175 2,090
Net realized gains on investments - - 4,319 119 245
Other income - 293 - - -
--------------------------------------------------------------------------------------------------------
Total revenues 429 654 (13,752) 6,204 6,612
--------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Life and health insurance claims
and benefits 112 179 (20,028) 2,268 2,261
Interest credited to policyholder
account balances 8 9 158 164 163
Operating and other expenses 137 86 1,087 1,040 827
--------------------------------------------------------------------------------------------------------
Total benefits and expenses 257 274 (18,783) 3,472 3,251
--------------------------------------------------------------------------------------------------------
Income before income taxes 172 380 5,031 2,732 3,361
Income tax expense 11 249 1,679 921 1,074
--------------------------------------------------------------------------------------------------------
Net income $ 161 $ 131 $ 3,352 $ 1,811 $ 2,287
--------------------------------------------------------------------------------------------------------
DECEMBER 31,
BALANCE SHEET DATA: 2014 2013 2012 2011 2010
--------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
ASSETS:
Total investments $ 13,313 $ 6,681 $ 8,691 $ 53,678 $ 50,145
Cash and cash equivalents 5,602 11,105 4,926 3,853 2,259
Reinsurance recoverable 25,532 25,525 26,391 - -
Assets on deposits 349,937 89,313 - - -
Total assets 399,381 138,582 47,405 64,248 62,416
LIABILITIES AND STOCKHOLDER'S EQUITY:
Claim and policy benefit reserves 22,368 23,196 24,112 23,974 24,896
Policyholder account balances 353,549 93,047 3,797 3,885 4,118
Total liabilities 380,166 119,481 28,281 28,212 29,408
Total stockholder's equity 19,215 19,101 19,124 36,036 33,008
--------------------------------------------------------------------------------------------------------
68
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
[To be updated by amendment.]
Management's Discussion and Analysis of Financial Condition and Results of
Operations reviews our financial condition at December 31, 2014 and December 31,
2013; our results of operations for the years ended December 31, 2014, 2013 and
2012; and where appropriate, factors that may affect future financial
performance. This discussion should be read in conjunction with our financial
statements and notes thereto appearing elsewhere in this Prospectus. The dollar
amounts disclosed in this Management's Discussion and Analysis of Financial
Condition and Results of Operations are "in thousands."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
All statements, trend analyses and other information contained in this
Prospectus and elsewhere (such as in press releases, presentations by us, our
immediate parent CMIC, or CMFG Life, our management or oral statements) relative
to markets for our products and trends in our operations or financial results,
as well as other statements including words such as "anticipate", "believe",
"plan", "estimate", "expect", "intend", and other similar expressions,
constitute forward-looking statements. We caution that these statements may vary
from actual results and the differences between these statements and actual
results can be material. Accordingly, we cannot assure you that actual results
will not differ materially from those expressed or implied by the
forward-looking statements. Factors that could contribute to these differences
include, among other things:
o general economic conditions and other factors, including prevailing
interest rate levels and stock and credit market performance which may
affect (among other things) our ability to sell our products, our ability
to access capital resources and the costs associated therewith, the fair
value of our investments, which could result in other than temporary
impairments, and certain liabilities, and the lapse rate and profitability
of policies;
o customer response to new products and marketing initiatives;
o changes in the Federal income tax laws and regulations which may affect the
relative income tax advantages of our products;
o increasing competition in the sale of annuities;
o regulatory changes or actions, including those relating to regulation of
financial services affecting (among other things) bank and credit union
sales and underwriting of insurance products and regulation of the sale,
underwriting and pricing of products; and
o the risk factors or uncertainties listed in this Prospectus.
For a detailed discussion of these and other factors that might affect our
performance see the section entitled "Potential Risk Factors That May Affect Our
Business and Our Future Results."
OVERVIEW
We are a wholly-owned indirect subsidiary of CMFG Life and a direct wholly-owned
subsidiary of CMIC. Our ultimate parent is CUNA Mutual Holding Company ("CM
Holding"), a mutual holding company organized under the laws of Iowa. On May 3,
2007, the Company re-domiciled from Wisconsin to Iowa. On February 17, 2012, we
amended and restated our Articles of Incorporation pursuant to which we
69
amended our purpose to be the writing of any and all of the lines of insurance
and annuity business authorized by Iowa Code Chapter 508 as authorized by the
laws of the State of Iowa.
The Company is authorized to sell life, health and annuity policies in all
states in the U.S. and the District of Columbia, except New York. In 2014,
approximately 63%, 22% and 5% of the premiums paid under policies issued by the
Company were generated in Michigan, Texas and California, respectively. No other
state accounts for more than 5% of the premiums paid under the Company's
policies for any year in the three years ended December 31, 2014. In 2014,
approximately 12% of annuities related to the Index- Linked Annuity Contract
were generated in Michigan; no other state accounted for more than 10% of sales
of the Index-Linked Annuity Contract paid to the Company for the year ended
December 31, 2014. As of December 31, 2014 and 2013, we had more than $399
million and $138 million in assets and we had more than $129 million and $147
million of life insurance in force, respectively.
Currently, the Company primarily services existing blocks of individual and
group life policies and began marketing the Index-Linked Annuity Contract in
August 2013. The Contract discussed in this Prospectus is first being offered as
of the date of this Prospectus. We distribute the Contract through multiple
face-to-face distribution channels, including:
o Managed Agents: employees of the Company who sell insurance and investment
products to members of credit unions that have contracted with the Company
and its affiliates to provide these services;
o Dual Employee Agents: employees of credit unions who sell insurance and
investment products to members of credit unions that have contracted with
the Company and its affiliates to provide these services. These agents are
registered representatives of the Company's affiliated broker dealer, CUNA
Brokerage Services, Inc.; and
o Independent Agents: agents who also represent other insurance companies
and, along with or through an unaffiliated broker-dealer, contract with
the Company to offer its individual life insurance and annuity products
that are made available for distribution through this channel.
We entered into a coinsurance agreement with CMFG Life in 2012. Under this
agreement, we agreed to cede 95% of all insurance in force as of October 31,
2012 to CMFG Life. In 2013, we entered into a second agreement to cede 100% of
all insurance issued on and after January 1, 2013 to CMFG Life. These
agreements do not relieve us of our obligations to our policyholders under
contracts covered by these agreements. However, they do transfer nearly all of
the Company's underwriting profits and losses to CMFG Life and require CMFG Life
to indemnify the Company for nearly all of its liabilities. As a result, the
Company believes its profitability going forward will be minimal.
CMFG Life provides significant services required in the conduct of the Company's
operations. CMFG Life allocates expenses to us on the basis of estimated time
spent by employees of CMFG Life on Company matters and the use of operational
resources. Management believes the allocations of expenses are reasonable and
that the results of the Company's operations may have materially differed in a
negative manner from the results reflected in the accompanying financial
statements if the Company did not have this relationship.
CRITICAL ACCOUNTING POLICIES
The increasing complexity of the business environment and applicable
authoritative accounting guidance requires us to closely monitor our accounting
policies. The following summary of our critical accounting policies is intended
to enhance your ability to assess our financial condition and results of
operations and the potential volatility due to changes in estimates.
USE OF ESTIMATES. The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and
70
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and in some cases the difference could be material. Investment valuations,
embedded derivatives, claim and policyholder benefit reserves and deferred tax
asset valuation reserves are most affected by the use of estimates and
assumptions.
INVESTMENT VALUATION. Investments in debt securities are classified as available
for sale and are carried at fair value. Unrealized gains and losses on
investments in debt securities, net of federal income taxes, are included in
accumulated other comprehensive income as a separate component of stockholder's
equity.
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
The fair value hierarchy prioritizes the inputs to valuation techniques used to
measure fair value of assets and liabilities into three broad levels. The
Company has categorized its financial instruments, based on the degree of
subjectivity inherent in the valuation technique, as follows:
o Level 1: Inputs are directly observable and represent quoted prices for
identical assets or liabilities in active markets the Company has the
ability to access at the measurement date.
o Level 2: All significant inputs are observable, either directly or
indirectly, other than quoted prices included in Level 1, for the asset or
liability. This includes: (i) quoted prices for similar instruments in
active markets, (ii) quoted prices for identical or similar instruments in
markets that are not active, (iii) inputs other than quoted prices that
are observable for the instruments, and (iv) inputs that are derived
principally from or corroborated by observable market data by correlation
or other means.
o Level 3: One or more significant inputs are unobservable and reflect the
Company's estimates of the assumptions that market participants would use
in pricing the asset or liability, including assumptions about risk.
For purposes of determining the fair value of the Company's investments,
observable inputs are those inputs used by market participants in valuing
financial instruments, which are developed based on market data obtained from
independent sources. In the absence of sufficient observable inputs,
unobservable inputs, reflecting the Company's estimates of the assumptions
market participants would use in valuing investments, are developed based on the
best information available in the circumstances. The Company uses prices and
inputs that are current as of the measurement date. In some instances, valuation
inputs used to measure fair value fall into different levels of the fair value
hierarchy. The category level in the fair value hierarchy is determined based on
the lowest level input that is significant to the fair value measurement in its
entirety.
The hierarchy requires the use of market observable information when available
for assessing fair value. The availability of observable inputs varies by
investment. In situations where the fair value is based on inputs that are
unobservable in the market or on inputs from inactive markets, the determination
of fair value requires more judgment and is subject to the risk of variability.
The degree of judgment exercised by the Company in determining fair value is
typically greatest for investments categorized in Level 3.
71
Our assets and liabilities which are measured at fair value on a recurring basis
as of December 31, 2014 are presented below based on the fair value hierarchy
levels.
----------------------------------------------------------------------------------------------------------------
ASSETS, AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------------
Cash equivalents $ 3,681 $ - $ - $ 3,681
Debt securities:
U.S. government and agencies - 9,987 - 9,987
Mortgage-backed securities:
Residential mortgage-backed - 3,207 - 3,207
----------------------------------------------------------------------------------------------------------------
Total debt securities - 13,194 - 13,194
Derivatives embedded in assets on
deposits - - 45,503 45,503
----------------------------------------------------------------------------------------------------------------
Total assets $ 3,681 $ 13,194 $ 45,503 $ 62,378
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
LIABILITIES, AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------------
Derivatives embedded in annuity contracts $ - $ - $ 45,503 $ 45,503
----------------------------------------------------------------------------------------------------------------
Total liabilities $ - $ - $ 45,503 $ 45,503
----------------------------------------------------------------------------------------------------------------
Our assets which are measured at fair value on a recurring basis as of December
31, 2013 are presented below based on the fair value hierarchy levels.
----------------------------------------------------------------------------------------------------------------
ASSETS, AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------------
Cash equivalents $ 10,336 $ - $ - $ 10,336
Debt securities:
U.S. government and agencies 2,556 - - $ 2,556
Mortgage-backed securities:
Residential mortgage-backed - 4,000 - 4,000
----------------------------------------------------------------------------------------------------------------
Total debt securities 2,556 4,000 - 6,556
Derivatives embedded in assets on
deposits - - 8,652 8,652
----------------------------------------------------------------------------------------------------------------
Total assets $ 12,739 $ 153 $ 8,652 $ 25,544
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
LIABILITIES, AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------------
Derivatives embedded in annuity contracts $ - $ - $ 8,652 $ 8,652
----------------------------------------------------------------------------------------------------------------
Total liabilities $ - $ - $ 8,652 $ 8,652
----------------------------------------------------------------------------------------------------------------
OTHER-THAN-TEMPORARY INVESTMENT IMPAIRMENTS. Investment securities are reviewed
for other than temporary impairment ("OTTI") on an ongoing basis. The Company
creates a watchlist of securities
72
based largely on the fair value of an investment security relative to its cost
basis. When the fair value drops below the Company's cost, the Company monitors
the security for OTTI. The determination of OTTI requires significant judgment
on the part of the Company and depends on several factors, including:
o the existence of any plans to sell the investment security;
o the extent to which fair value is less than book value;
o the underlying reason for the decline in fair value (credit concerns,
interest rates, etc.);
o the financial condition and near term prospects of the issuer/borrower,
including the ability to meet contractual obligations, relevant industry
trends and conditions;
o the Company's intent and ability to retain the investment for a period of
time sufficient to allow for an anticipated recovery in fair value;
o the Company's ability to recover all amounts due according to the
contractual terms of the agreements; and
o the Company's collateral position in the case of bankruptcy or
restructuring.
A debt security is considered other-than-temporarily impaired when the fair
value is less than the amortized cost basis and its value is not expected to
recover through the Company's holding period of the security. If a credit loss
exists, but the Company does not intend to sell the impaired debt security and
is not more likely than not to be required to sell before recovery, it is
required to bifurcate the impairment into the loss that is attributable to
credit and non-credit related risk. The credit portion of the OTTI is the
difference between the present value of the expected future cash flows and
amortized cost. Only the estimated credit loss amount is recognized in earnings,
with the remainder of the loss amount recognized in other comprehensive income.
If the Company intends to sell, at the time this determination is made, the
Company records a realized loss equal to the difference between the amortized
cost and fair value. The fair value of the other-than-temporarily impaired
security becomes its new cost basis. In determining whether an unrealized loss
is expected to be other than temporary, the Company considers, among other
factors, any plans to sell the security, the severity of impairment, financial
position of the issuer, recent events affecting the issuer's business and
industry sector, credit ratings, and the ability of the Company to hold the
investment until the fair value has recovered at least its original cost basis.
For securitized debt securities, the Company considers factors including
commercial and residential property changes in value that vary by property type
and location and average cumulative collateral loss rates that vary by vintage
year. These assumptions require the use of significant management judgment and
include the probability of issuer default and estimates regarding timing and
amount of expected recoveries. In addition, projections of expected future debt
security cash flows may change based upon new information regarding the
performance of the issuer and/or underlying collateral.
For certain securitized financial assets with contractual cash flows, the
Company is required to periodically update its best estimate of cash flows over
the life of the security. If the fair value of a securitized financial asset is
less than its cost or amortized cost and there has been a decrease in the
present value of the estimated cash flows since the last revised estimate,
considering both timing and amount, an OTTI charge is recognized. The Company
also considers its intent to retain a temporarily impaired security until
recovery. Estimating future cash flows involves judgment and includes both
quantitative and qualitative factors. Such determinations incorporate various
information and assessments regarding the future performance of the underlying
collateral. In addition, projections of expected future cash flows may change
based upon new information regarding the performance of the underlying
collateral.
Management has completed a review for other-than-temporarily impaired securities
at December 31,
73
2014, 2013 and 2012 and recorded no OTTI. As a result of the subjective nature
of these estimates, however, provisions may subsequently be determined to be
necessary as new facts emerge and a greater understanding of economic trends
develops. Consistent with the Company's practices, OTTI will be recorded as
appropriate and as determined by the Company's regular monitoring procedures of
additional facts.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company issues deferred annuity contracts
that contain embedded derivatives. Derivatives embedded within non-derivative
host contracts are separated from the host instrument when the embedded
derivative is not clearly and closely related to the host instrument. Such
embedded derivatives are recorded at fair value, and they are reported as part
of assets on deposit and policyholder account balances in the balance sheets,
with the change in the value being recorded in net realized investment gains.
Changes in the fair value of the embedded derivative in assets on deposit offset
changes in the fair value of the embedded derivative in policyholder account
balances; both of these changes are included in net realized investment gains.
Accretion of the interest on assets on deposit offsets accretion of the interest
on the host contract; both of these activities are included in interest credited
on policyholder account balances.
REINSURANCE. Reinsurance premiums, claims and benefits, commission expense
reimbursements, and reserves related to reinsured business ceded are accounted
for on a basis consistent with the accounting for the underlying direct policies
that have been ceded and the terms of the reinsurance contracts. Premiums and
insurance claims and benefits in the statements of operations and comprehensive
income (loss) are reported net of the amounts ceded to other companies under
such reinsurance contracts. Ceded insurance reserves and ceded benefits paid
are included in reinsurance recoverables along with certain ceded policyholder
account balances which include mortality risk. A prepaid reinsurance asset is
also recorded for the portion of unearned premiums related to ceded policies.
The Company entered into a coinsurance agreement with CMFG Life, as described
above under "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview." As consideration for the reinsurance
provided under this agreement, we transfer nearly all of our revenues to CMFG
Life. Specifically, CMFG Life receives 95% of all premiums and insurance claims
and benefits received on account of our existing business.
The Company entered into a second agreement with CMFG Life, as described above
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Overview," to cede 100% of its new business, which includes
investment type contracts such as the Contract. Accordingly, the agreement is
accounted for using the deposit method of accounting.
ASSETS ON DEPOSIT. Assets on deposit represent the amount of policyholder
account balances related to deferred annuity contracts, an investment type
contract, that are ceded to CMFG Life. These investment type contracts are
accounted for on a basis consistent with the accounting for the underlying
contracts. Since the related product is an investment type contract, the
Company accounts for the reinsurance of these contracts using the deposit method
of accounting consistent with the terms of the reinsurance agreement with CMFG
Life. The related contract charges and interest credited to policyholder account
balances in the statements of operations and comprehensive income (loss) are
reported net of the amounts ceded under the agreement. See Note 7 of the Notes
to the Financial Statements appearing elsewhere in this Prospectus for a further
discussion of the ceding agreement.
INSURANCE RESERVES. Life and health claim and policy benefit reserves consist
principally of future policy benefit reserves and reserves for estimates of
future payments on incurred claims reported but not yet paid and unreported
incurred claims. Such estimates are developed using actuarial principles and
assumptions based on past experience adjusted for current trends. Any change in
the probable ultimate liabilities is reflected in net income in the period in
which the change is determined.
74
When actual experiences indicate that existing contract liabilities, together
with the present value of future gross premiums, will not be sufficient to
recover the present value of future benefits or recover unamortized deferred
acquisition costs, a premium deficiency will be recognized by either a reduction
in unamortized acquisition costs or an increase in liability of future benefits.
The Company entered into two agreements with CMFG Life, as described above under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview." These agreements do not relieve the Company of its
obligations to its policyholders under contracts covered by these agreements.
However, they do transfer nearly all of the Company's underwriting profits and
losses to CMFG Life and require CMFG Life to indemnify the Company for nearly
all of its liabilities.
POLICYHOLDER ACCOUNT BALANCES. The Company recognizes a liability at the stated
account value for policyholder deposits that are not subject to significant
policyholder mortality or longevity risk and for universal life-type policies.
The account value equals the sum of the original deposit and accumulated
interest, less any withdrawals and expense charges. The average credited rate of
interest applied to the account values was 4.5% in 2014, 2013 and 2012. The
minimum guaranteed rate of interest that must be credited to such account values
for the life of those contracts is 4.5%.
The single premium deferred annuities, which are included in policyholder
account balances, have two risk control accounts, referred to as the Secure and
Growth Accounts; the Secure Account has a yearly credited interest rate floor of
0% and the yearly credited interest rate for the Growth Account is -10%. The
Secure and Growth Accounts both have credited interest rate caps that vary with
issuance. Interest is credited at the end of each selected index term based on
the allocation between risk control accounts and the performance of an external
index during the index term, subject to the interest rate floor and cap. Both
the Secure and Growth Accounts use the S&P500 Index as a referenced index. At
the end of the initial index term only the Secure Account will continue to be
available as an option to the policyholder. The average annualized credited rate
was 1.10% and 0.72% in 2014 and 2013, respectively.
The flexible premium deferred annuities, which will be included in policyholder
account balances, have two risk control accounts, referred to as the Secure and
Growth Accounts; the Secure Account has a yearly credited interest rate floor of
0% and the yearly credited interest rate for the Growth Account is -10%. The
Secure Account and Growth Accounts both have credited interest rate caps that
vary with issuance. Interest is credited at the end of each contract year during
the selected index term based on the allocation between risk control accounts
and the performance of an external index during the index term, subject to the
interest rate floor and cap. Performance of both the Secure Account and the
Growth Account is calculated based, in part, on the performance of the S&P 500
Index and/or the MSCI EAFE Index. At the end of the initial index term, a new
term may be started subject to certain limitations, subject to the interest rate
floor and cap.
INCOME TAXES. The Company recognizes taxes payable or refundable and deferred
taxes for the tax consequences of differences between the financial reporting
and tax basis of assets and liabilities. Deferred tax assets and liabilities
are measured by applying the enacted tax rates to the difference between the
financial statement and tax basis of assets and liabilities. The Company records
current tax benefits and deferred tax assets utilizing a benefits-for-loss
approach. Under this approach, current benefits are realized and deferred tax
assets are considered realizable by the Company when realized or realizable by
the consolidated group of which the Company is a member even if the benefits
would not be realized on a stand-alone basis. The Company records a valuation
allowance for deferred tax assets if it determines it is more likely than not
that the asset will not be realized by the consolidated group. Deferred income
tax assets can be realized through future earnings, including, but not limited
to the generation of future income, reversal of existing temporary differences
and available tax planning strategies.
The Company is subject to tax-related audits. These audits may result in
additional tax assets or liabilities. In establishing tax liabilities, the
Company determines whether a tax position is more likely than not to be
sustained under examination by the appropriate taxing authority. Tax positions
that do not meet the more likely than not standard are not recognized. Tax
positions that meet this standard are recognized in the financial statements.
75
The Company is included in the consolidated federal income tax return of CUNA
Mutual Holding Company ("CM Holding"), the Company's ultimate parent. The
Company has entered into a tax sharing agreement with CM Holding and its
subsidiaries. The agreement provides for the allocation of expenses based on
each subsidiary's contribution to the consolidated federal income tax liability.
Pursuant to the agreement, subsidiaries that have incurred losses are reimbursed
regardless of the utilization of the loss in the current year. Federal income
taxes recoverable reported on the balance sheet are due from affiliates.
EXECUTIVE SUMMARY
The Company provides life and health insurance throughout the United States
servicing its existing blocks of individual and group life policies, and began
marketing the Index-Linked Annuity Contract in 2013 and the Contract offered by
this Prospectus as of the date hereof. The Company is managed as two reportable
business segments, (1) life and health, and (2) annuities. See Note 10 of the
Notes to the Financial Statements appearing elsewhere in this Prospectus for
information related to the two business segments.
In 2012, the Company entered into a reinsurance agreement with CMFG Life to cede
95% of its business inforce as of October 31, 2012. In 2013, it entered into a
second agreement with CMFG Life to cede 100% of any new business written. See
Note 7 of the Notes to the Financial Statements appearing elsewhere in this
Prospectus for information on the 2012 and 2013 agreements.
The Company began distributing the Index-Linked Annuity Contract, an individual
or joint owned, single premium deferred annuity contract, in 2013 which became
the Company's second reportable business segment. The Company began distributing
the Contract as of the date of this Prospectus. The Company's annuities segment,
which includes the Index-Linked Annuity Contract and the Contract, is ceded 100%
to CMFG Life under the 2013 ceding agreement and accordingly does not impact the
results of operations.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
Total revenues, which consisted mainly of premiums, net realized investment
gains and investment income, were $429, $654 and ($13,752) for the years ended
December 31, 2014, 2013 and 2012, respectively. The decrease in total revenues
in 2014 is reflective of a settlement received on investments that had
previously been sold along with fewer investments to generate investment income
in 2013. The increase in total revenues in 2013 is reflective of the reinsurance
agreement executed in 2012 and an increase in other income which is a settlement
received on investments that had previously been sold, partially offset by fewer
investments to generate investment income. Premium revenue was $127, $139 and
($20,459) for the years ended December 31, 2014, 2013 and 2012, respectively,
and consists of life and health direct (and ceded) written renewal premium. The
decrease in 2014 premium revenue is due to the gradual runoff of the Company's
life and health products. The increase in 2013 premium revenue is reflective of
the reinsurance agreement executed in 2012. Total net investment income was
$278, $176 and $1,928 for the years ended December 31, 2014, 2013 and 2012,
respectively, which represents an average yield earned of 1.4%, 1.1% and 3.9%
for the same periods, respectively. The increase in the Company's net investment
income in 2014 is due to a 22% increase in invested assets and the reduction of
investment expenses. The decrease in the Company's net investment income in 2013
is due to the Company having fewer investments after the transfer of investments
in 2012 related to the 2012 reinsurance agreement and the return of capital to
CMIC, with a total fair value of $44,587. The increase in average yield in 2014
is due to the Company increasing its invested assets in higher yielding
investments. The decrease in average yield in 2013 is due to the Company
investing in lower yielding assets. Net realized investment gains were $4,319
for the year ended December 31, 2012. There were no sales of investments in 2014
or 2013 that resulted in a realized gain or loss. The net realized investment
gains in 2012 were due to the transfer of investments to CMFG Life in payment of
ceded premium for the Company's coinsurance agreement on its inforce business
and on investments transferred for the Company's return of capital to CMIC.
76
Total benefits and expenses were $257, $274 and ($18,783) for the years ended
December 31, 2014, 2013 and 2012, respectively. The primary decrease in life and
health benefits in 2014 is due to fewer claims incurred by the Company in 2014.
The difference in life and health benefits and expenses in 2013 compared to 2012
is primarily due to benefits being ceded to CMFG Life in 2012 and an increase in
product launch expenses related to the Company's Index-Linked Annuity Contract.
Life and health benefits totaled $112, $179 and ($20,028) for the years ended
December 31, 2014, 2013 and 2012, respectively. The Company ceded $23,114 of
life and health benefits in 2012, leading to the increase in benefits in 2013
from 2012. The Company's primary expense is the payment of claims related to
life insurance policies. Operating expenses totaled $137, $86 and $1,087 for the
years ended December 31, 2014, 2013 and 2012, respectively. CMFG Life provides
significant services required in the conduct of the Company's operations.
Operating expenses incurred by the Company that are specifically identifiable
are borne by the Company; other operating expenses are allocated from CMFG Life
on the basis of estimated time and usage studies. Operating expenses are
primarily related to and include employee costs such as wages and benefits, and
credit union reimbursements whereby the Company reimburses credit unions for
certain administrative expenses they incur in the production of new and renewal
business sold for the Company and other operating expenses such as rent,
insurance and utilities. The decrease in operating expenses in 2013 is due to
the Company receiving a commission from CMFG Life for all expenses related to
the Index-Linked Annuity Contract.
Income tax expense is recorded at 35% offset by prior year tax expense or
benefits primarily related to interest on accrued refunds, resulting in an
effective tax rate of 6.4%, 65.5% and 33.4% for the years ended December 31,
2014, 2013 and 2012, respectively.
Net income was $161, $131 and $3,352 for the years ended December 31, 2014, 2013
and 2012, respectively. The larger 2012 net income was primarily due to a
significant increase in realized gains on investments transferred to CMFG Life
in payment of ceded premium and on investments transferred for the Company's
return of capital to CMIC.
FINANCIAL CONDITION
Our investment strategy is based upon a strategic asset allocation framework
that considers the need to manage our General Account investment portfolio on a
risk-adjusted spread basis for the underwriting of contract liabilities and to
maximize return on retained capital. Our investment in bonds consists of
publicly traded corporate bonds, mortgage-backed securities, and U.S. Treasury
securities. While the investments are categorized as available for sale, we
generally hold our bond portfolio to maturity.
Insurance statutes regulate the type of investments that we are permitted to
purchase and limit the amount of funds that may be used for any one type of
investment. In light of these statutes and regulations and our business and
investment strategy, we generally seek to invest in United States government and
government-sponsored agency securities and debt securities rated investment
grade by established nationally recognized rating organizations or in securities
of comparable investment quality, if not rated.
The composition of our investment portfolio at December 31, 2014 and December
31, 2013 was as follows:
--------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------
2014 % 2013 %
--------------------------------------------------------------------------------
Debt Securities $13,194 99.1% $ 6,556 98.2%
Policy loans 104 0.8 110 1.6
Receivable for securities sold 15 01 15 0.2
--------------------------------------------------------------------------------
Total investments $13,313 100.0% $ 8,691 100.0%
--------------------------------------------------------------------------------
77
The table below presents our total debt securities by type at December 31, 2013
and December 31, 2012.
--------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------
2014 % 2013 %
--------------------------------------------------------------------------------
U.S. government and agencies $ 9,987 75.6% $ 2,556 39.0%
Mortgage-backed securities:
Residential mortgage-backed 3,207 24.4 4,000 61.0
--------------------------------------------------------------------------------
Total debt securities $13,194 100.0% $ 6,556 100.0%
--------------------------------------------------------------------------------
The amortized cost and estimated fair value of debt securities by contractual
maturity are shown below at December 31, 2014. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
--------------------------------------------------------------------------------
AMORTIZED COST ESTIMATED FAIR VALUE
--------------------------------------------------------------------------------
Due after one year through five years $ 9,888 $ 9,987
Mortgage-backed securities:
Residential mortgage-backed 2,966 3,207
--------------------------------------------------------------------------------
Total debt securities $ 12,854 $ 13,194
--------------------------------------------------------------------------------
We have classified our debt securities as available for sale. Available for sale
securities are reported at fair value and unrealized gains and losses, if any,
on these securities (net of income taxes) are included as a separate component
of stockholder's equity, thereby exposing stockholder's equity to volatility for
changes in the reported fair value of securities classified as available for
sale.
The Company had one debt security with a gross unrealized loss of $4 at December
31, 2014. We did not have any gross unrealized losses at December 31, 2013.
LIQUIDITY AND CAPITAL RESOURCES
We entered into a coinsurance agreement with CMFG Life in 2012. Under this
agreement, we agreed to cede 95% of all insurance in force as of October 31,
2012 to CMFG Life. In 2013, we entered into an agreement to cede 100% of all
insurance issued on and after January 1, 2013 to CMFG Life. These agreements do
not relieve us of our obligations to our policyholders under contracts covered
by these agreements. However, they do transfer nearly all of the Company's
underwriting profits and losses to CMFG Life and require CMFG Life to indemnify
the Company for nearly all of its liabilities.
As consideration for the reinsurance provided under these agreements, we
transfer nearly all of our revenues to CMFG Life. Specifically, CMFG Life
receives 95% and 100% of all premiums and other amounts received on account of
our existing business and new business, respectively. As additional
consideration, we transferred assets equal to approximately 95% of our reserves
as of October 31, 2012 to CMFG Life. CMFG Life pays us a monthly expense
allowance to reimburse the Company for expenses and costs incurred on account of
its insurance business.
While the reinsurance transactions have a minimal impact on our stockholder's
equity, they substantially diminish our net liabilities and greatly decrease the
amount of capital and liquidity needed within the Company. As a result, the
Company was able to return $18,000 of capital to its shareholder, CMIC, on
78
November 30, 2012. This reduction in capital was approved by the Iowa Insurance
Division on November 26, 2012.
Operating activities provided $1,327, $4,286 and $1,840 in net cash flow for the
years ended December 31, 2014, 2013, and 2012, respectively. The Company's
primary use of funds includes the payment of benefits and related operating
expenses. The decrease in cash flow in 2014 from 2013 was primarily due to the
receipt of tax receivables in 2013 and the non-renewal of business on the
Company's older policies. The increase in cash flow in 2013 from 2012 was
primarily due to the Company's Index-Linked Annuity Contract and the receipt of
cash on taxes from the Company's parent company. The Company's sources of funds
include renewal premiums and investment income.
Investing activities used $6,779 and $683 for the years ended December 31, 2014
and 2012, respectively, and provided $1,665 of net cash flow for the year ended
December 31, 2013. The Company's main investing activities include the purchase
and sale of debt securities. The Company purchased $7,535 of debt securities in
2014, contributing to the net use of cash. The increase in the cash provided in
2013 was driven by the Company receiving proceeds on the sale of debt securities
and not making any purchases of investments in 2013. The funds used in 2012 were
due to the Company making purchases of debt securities in 2012.
The Company used $51 and $84 of net cash flow for financing activities for the
year ended December 31, 2014 and 2012, respectively, and financing activities
provided $228 of net cash flow for the year ended December 31, 2013. The
Company's main financing activities include the collection of deposits and
payment of withdrawals from policyholder's accounts. The Company had slightly
increasing withdrawals on policyholder account balances in 2014 from 2013
leading to cash being used in financing activities in 2014. The deposits on
policyholder account balances were offset by the assets on deposit which were
ceded to CMFG Life under the 2013 ceding agreement. The Company provided a
return of capital to its parent company of $18,000 in 2012, of which $296 was in
cash contributing to the decrease in cash provided in 2012.
Going forward, liquidity requirements will be met primarily through monthly
settlements under the coinsurance agreements with CMFG Life. We anticipate
receiving adequate cash flow from these settlements and our investment income to
meet our obligations. However, a primary liquidity concern going forward will be
the risk of an extraordinary level of early policyholder withdrawals. We include
provisions within our policies, such as Surrender Charges, that help limit and
discourage early withdrawals.
We believe that cash flows generated from sources above will be sufficient to
satisfy the near term liquidity requirements of our operations, including
reasonable foreseeable contingencies. However, we cannot predict future
experience regarding benefits and surrenders since benefit and surrender levels
are influenced by such factors as the interest rate environment, our claims
paying ability and our financial credit ratings.
Most funds we receive going forward, funds which we will receive as annuity
deposits, will be invested in high quality investments, those identified by the
Company as investment grade, to fund our future commitments. We believe that the
settlement we receive under the reinsurance agreements with CMFG Life, the
diversity of our investment portfolio and a concentration of investments in high
quality securities should provide sufficient liquidity to meet foreseeable cash
requirements. Although there is no present need or intent to dispose of our
investments, we could readily liquidate portions of our investments, if such a
need arose. Sales of available for sale securities in an unrealized loss
position are subject to other than temporary impairment considerations including
our intent to sell.
STATUTORY FINANCIAL DATA AND DIVIDEND RESTRICTIONS
We are a life and health insurer domiciled in Iowa. We file statutory basis
financial statements with regulatory authorities. Our statutory capital and
surplus was $18,365 and $17,829 as of December 31,
79
2014 and 2013, respectively. Our statutory basis net income (loss) was ($1,792),
($1,562) and $3,259 for the years ended December 31, 2014, 2013, and 2012,
respectively.
We are subject to statutory regulations as to maintenance of equity and the
payment of dividends. Generally, ordinary dividends from an insurance
subsidiary to its parent company must meet notice requirements promulgated by
the regulator of the subsidiary's state of domicile ("Insurance Department").
Extraordinary dividends, as defined by state statutes, must be approved by the
Insurance Department. Based on Iowa statutory regulations, the Company could
pay dividends of $1,836 during 2015, without prior approval of the Iowa
Insurance Department.
Risk-based capital requirements promulgated by the NAIC require U.S. insurers to
maintain minimum capitalization levels that are determined based on formulas
incorporating credit risk, insurance risk, interest rate risk, and general
business risk. At December 31, 2014 and 2013, the Company's adjusted capital
exceeded the minimum capitalization requirements.
CONTRACTUAL OBLIGATIONS
In December 2007, the Company entered into a Procurement and Disbursement and
Billing and Collection Services Agreement with CMFG Life and certain other
affiliated companies whereby CMFG Life has agreed to provide certain of our
operational requirements. In January 2008, the Company entered into a Cost
Sharing, Procurement, Disbursement, Billing and Collection Agreement with CMFG
Life and certain other affiliated companies. Pursuant to this agreement, CMFG
Life has agreed to provide the Company with certain office and market services
and personnel services. Additionally, we are allocated a certain portion of the
total compensation of each of our executive officers and directors, based on
various factors, the primary being the estimated time allocated to providing
services to the Company. In exchange for providing these administrative
functions and use of shared resources and personnel, the Company reimburses CMFG
Life for the cost of providing such administrative functions, resources and
personnel. The Company reimbursed CMFG Life $5,641, $2,492, and $1,044 for these
expenses for the years ended December 31, 2014, 2013 and 2012, respectively.
For detailed discussion of the management services agreement, the investment
advisory agreement and the coinsurance agreements, see "Management -
Transactions with Related Persons, Promoters and Certain Control Persons."
Going forward, we may enter into financing transactions, lease agreements, or
other commitments in the normal course of our business.
The Company has the following future minimum estimated claim and benefit
payments as of December 31, 2014.
--------------------------------------------------------------------------------
ESTIMATED FUTURE CLAIM
AND BENEFIT PAYMENTS
--------------------------------------------------------------------------------
Due in one year or less $ 20,554
Due after one year through three years 47,496
Due after three years through five years 72,539
Due after five years 292,437
--------------------------------------------------------------------------------
Total estimated payments $ 433,026
--------------------------------------------------------------------------------
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Given our limited operations in writing new business to date, we are not
currently subject to any material market risk exposures. However, in future
periods, we expect to have exposure to market risk through
80
both our insurance operations and investment activities, although a significant
portion of this risk will be reinsured by CMFG Life pursuant to the coinsurance
agreements discussed above. In addition, many of the measures described herein
to offset these market risks will be taken by CMFG Life as it will hold nearly
all of the assets related to our insurance business as a result of the
coinsurance and ceding agreements.
Interest rate risk will be our primary market risk exposure. Substantial and
sustained increases and decreases in market interest rates will affect the
profitability of our annuity products and the fair value of our investments.
Most of the interest rate risk is absorbed by CMFG Life under the agreements.
The profitability of most of our annuity products will depend on the spreads
between interest yield on investments and rates credited on the annuity
products. We will have the ability to adjust crediting rates (caps,
participation rates or asset fee rates for indexed annuities) on substantially
all of our annuity products at least annually (subject to minimum guaranteed
values). In addition, substantially all of our annuity products will have
surrender and withdrawal penalty provisions designed to encourage persistency
and to help ensure targeted spreads are earned. However, competitive factors,
including the impact of the level of surrenders and withdrawals, may limit our
ability to adjust or maintain crediting rates at levels necessary to avoid
narrowing of spreads under certain market conditions.
A major component of our interest rate risk management program is structuring
the General Account investment portfolio with cash flow characteristics
consistent with the cash flow characteristics of our annuity products. We use
computer models to simulate cash flows expected from our existing business under
various interest rate scenarios. These simulations enable us to measure the
potential gain or loss in fair value of our interest rate-sensitive financial
instruments, to evaluate the adequacy of expected cash flows from our assets to
meet the expected cash requirements of our annuity products and to determine if
it is necessary to lengthen or shorten the average life and duration of our
investment portfolio. The "duration" of a security is the time weighted present
value of the security's expected cash flows and is used to measure a security's
sensitivity to changes in interest rates. When the durations of assets and
liabilities are similar, exposure to interest rate risk is minimized because a
change in value of assets should be largely offset by a change in the value of
liabilities. As of December 31, 2014, the Company's fixed debt investment
portfolio consisted of U.S. government and agency securities and residential
mortgage-backed securities with fair values of $9,987 and $3,207, respectively,
and has an average duration of 15.1 years.
With respect to our index-linked annuities (including this Contract and our
Index-Linked Annuity Contract), we intend to purchase call options on the
applicable indices to fund the annual index credits on such annuities. These
options will be primarily one-year instruments purchased to match the funding
requirements of the underlying policies. Fair value changes associated with
these investments should substantially be offset by an increase or decrease in
the amounts added to policyholder account balances for indexed products. We also
intend to utilize a hedging process in which we purchase options out of the
money to the extent of any anticipated annual index credits under the indexed
annuities. On the anniversary dates of the indexed annuities, we will purchase
new one-year call options to fund the next annual index credits. The risk
associated with these prospective purchases is the uncertainty of the cost,
which will determine whether we are able to earn our spread on our index
business. We will manage this risk through the terms of our annuities, which
will permit us to change caps, participation rates and asset fees, subject to
contractual features. By modifying caps, participation rates or asset fees, we
can limit option costs to budgeted amounts, except in cases where the
contractual features would prevent further modifications.
81
--------------------------------------------------------------------------------
MANAGEMENT
--------------------------------------------------------------------------------
[To be updated by amendment.]
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
NAME AGE POSITION
------------------------------------ ------ -------------------------
Robert N. Trunzo 59 President and Director
Steven R. Suleski 61 Secretary
Brian J. Borakove 36 Treasurer
Christopher J. Copeland 41 Director
Thomas J. Merfeld 57 Director
James M. Power 53 Director
M. Jeffrey Bosco 50 Director
All executive officers and directors are elected annually.
Robert N. Trunzo has served as our President since May 30, 2009. Mr. Trunzo
was appointed director as of November 16, 2012. He also serves as the Executive
Vice President between February 2006 and December 2013 for CMFG Life. He became
President and CEO of CMFG Life effective January 1, 2014. Mr. Trunzo has also
served as the Executive Vice President of Frank F. Haack and Associates, the
largest insurance-benefits and property-casualty brokerage and consulting firm
in Wisconsin, from September, 2002 to June, 2005. Before joining Frank F. Haack
and Associates, Mr. Trunzo served as Secretary of Commerce under Wisconsin
Governor Tommy Thompson, where he directed Wisconsin's economic development
efforts. He has served on the board of directors of the U.S. Chamber of
Commerce. Additionally, he is a member of the American Council of Life Insurers
("ACLI") and sits on the ACLI's CEO Steering Committee on Retirement and
Financial Security.
Steven R. Suleski has served as our Secretary and Senior Vice President
since February 1, 2012. He has served as Associate General Counsel at CMFG Life,
from May 1999 to January 2014. He serves as Chief Governance & Compliance
Officer effective January 2014 to present. Before joining the Company, Mr.
Suleski spent 12 years at Foley & Lardner, LLP, in Madison, Wisconsin, where he
was a partner specializing in securities law, mergers and acquisitions and
general corporate law.
Brian J. Borakove has served as our Treasurer since November 9, 2012 and
Vice President, Corporate Treasurer since November 19, 2012 at CMFG Life. Prior
to joining CMFG Life, he was a Senior Manager, Investment Finance at Liberty
Mutual Insurance in Boston, Massachusetts from 2005 to 2007. Prior to joining
Liberty Mutual Insurance, Mr. Borakove served as a Senior Analyst, Treasury at
FM Global in Johnston, Rhode Island from 2003-2005. Mr. Borakove held various
positions at State Street Bank in Boston, Massachusetts from 2001-2003.
Christopher J. Copeland has been a director of the Company since January 1,
2015. He also serves as the Senior Vice President, Chief Actuary for CMFG Life
where he is responsible for leading the actuarial functions for CMFG Life.
Before joining CMFG Life in 2000, Mr. Copeland was a Senior Actuary in the
Corporate Risk Management department at AEGON USA in Cedar Rapids, Iowa. Mr.
Copeland began his career as an Actuarial Associate with Towers Perrin,
Minneapolis, Minnesota.
Thomas J. Merfeld has been a director of the Company since February 16,
2011. He also has served as the Senior Vice President, in charge of
investment/market risk for CMFG Life where he assesses, coordinates, and
manages all investment risks for CMFG Life. Mr. Merfeld served as head of
asset/liability management for MEMBERS Capital Advisors, Inc. ("MCA"), an
affiliate of the Company. Prior to joining CMFG Life in 1994, Mr. Merfeld
served as the Chief Financial Officer for Savers Life
82
Insurance Company in Kansas City, Missouri. Mr. Merfeld served an investment
analyst for Franklin Savings Association in Ottawa, Kansas. Mr. Merfeld served
as an assistant economist for the Federal Reserve Bank in Kansas City, Missouri.
James M. Power has been director of the Company since February 16, 2011. Mr.
Power has also served as the Senior Vice President, Chief Products Officer for
CMFG Life since July 2009. Mr. Power spent seven years, from April 1998 to
April 2005, with Fireman's Fund Insurance Company, ultimately serving as that
company's top regional executive in the Midwest. Mr. Power has more than 20
years of progressive leadership experience in strategic planning, underwriting,
marketing and agency and distribution management for Fortune 100 companies, as
well as other leading national insurance companies.
M. Jeffrey Bosco has been a director of the Company since January 1, 2015.
He also serves as the Senior Vice President of Wealth Management for CMFG Life
where leads overall business strategy and product management for CUNA Brokerage
Services, Inc. and CMFG Life's and affiliates family of annuity products. Prior
to joining CMFG Life in 2011, Mr. Bosco held a number of positions at American
Family Insurance Group, Madison, Wisconsin.
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
POLICY REGARDING RELATED PERSON TRANSACTIONS. It is our policy to enter into or
ratify related person transactions only when our Board of Directors determines
that the transaction either is in, or is not inconsistent with, our best
interests, including but not limited to situations where we may obtain products
or services of a nature, quantity or quality, or on other terms, that are not
readily available from alternative sources or when we provide products or
services to related persons on an arm's length basis on terms comparable to
those provided to unrelated third parties or on terms comparable to those
provided to employees generally.
Therefore, we have adopted the following written procedures for the review,
approval or ratification of related person transactions. For purposes of the
related person transaction policy, a related person transaction is a
transaction, arrangement, or relationship (or any series of similar
transactions, arrangements, or relationships) in which (i) we were, are or will
be a participant, (ii) the amount of the transaction, arrangement or
relationship exceeds $120,000, and (iii) in which a related person had, has or
will have a direct or indirect material interest in the transaction.
A related person means:
o any person who is, or at any time since the beginning of our last fiscal
year was, a member of our Board of Directors or an executive officer or a
nominee to become a member of our Board of Directors;
o any person who is known to be the beneficial owner of more than 5% of any
class of our voting securities;
o any immediate family member of any of the foregoing persons; or
o any firm, corporation, or other entity in which any of the foregoing
persons is employed or is a general partner or principal or in a similar
position or in which such person has a 5% or greater beneficial ownership
interest.
Any proposed transaction with a related person shall be consummated or amended
only if the following steps are taken:
o Counsel (either inside or outside) will assess whether the proposed
transaction is a related person transaction for purposes of this policy.
o If counsel determines that the proposed transaction is a related person
transaction, the proposed transaction shall be submitted to the Board of
Directors for consideration at the next meeting or,
83
in those instances in which counsel, in consultation with the President or
the Treasurer, determines that it is not practicable or desirable for us to
wait until the next committee meeting, to the President of the Company
(who has been delegated authority to act between meetings).
o The Board of Directors shall consider all of the relevant facts and
circumstances available, including (if applicable) but not limited to: (i)
the benefits to the Company; (ii) the impact on a director's independence
in the event the related person is a director, an immediate family member
of a director, or an entity in which a director is a partner, shareholder,
or executive officer; (iii) the availability of other suppliers or
customers for comparable products or services; (iv) the terms of the
transaction; and (v) the terms available to unrelated third parties or to
employees generally.
o The Board of Directors shall approve only those related person transactions
that are in, or are not inconsistent with, the best interests of the
Company and its shareholders, as the Board of Directors determines in good
faith. The Board of Directors shall convey the decision to counsel, who
shall convey the decision to the appropriate persons within the Company.
At the Board of Director's first meeting of each fiscal year, it shall review
any previously approved related person transactions that remain ongoing and have
a remaining term of more than six months or remaining amounts payable to or
receivable from the Company of more than $120,000. Based on all relevant facts
and circumstances, taking into consideration the Company's contractual
obligations, the Board of Directors shall determine if it is in the best
interests of the Company and its shareholders to continue, modify, or terminate
the related person transaction.
No member of the Board of Directors shall participate in any review,
consideration, or approval of any related person transaction with respect to
which such member or any of his or her immediate family members is the related
person.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS. Except for the agreements
noted below, there have been no transactions between the Company and any related
person since January 1, 2011, nor are any such related person transactions
currently being contemplated for which disclosure would be required.
We entered into a coinsurance agreement with CMFG Life in 2012. Under this
agreement, we agreed to cede 95% of all insurance in force as of October 31,
2012 to CMFG Life. In 2013, we entered into a second coinsurance agreement to
cede 100% of all insurance issued on and after January 1, 2013 to CMFG Life.
These agreements do not relieve us of our obligations to our policyholders under
contracts covered by these agreements. However, they do transfer nearly all of
the Company's underwriting profits and losses to CMFG Life and require CMFG Life
to indemnify the Company for nearly all of its liabilities.
As consideration for the reinsurance provided under these agreements, we
transfer nearly all of our revenues to CMFG Life. Specifically, CMFG Life
receives 95% and 100% of all premiums and other amounts received on account of
our existing business and new business, respectively. As additional
consideration, we transferred assets equal to 95% of our reserves as of October
31, 2012 to CMFG Life. CMFG Life pays us a monthly expense allowance to
reimburse the Company for expenses and costs incurred on account of its
insurance business. For the years ended December 31, 2014, 2013 and 2012, we
ceded $2,486, $2,672 and $23,114, respectively. See Note 7 to the Financial
Statements appearing elsewhere in this Prospectus.
In December 2007, the Company entered into a Procurement and Disbursement and
Billing and Collection Services Agreement with CMFG Life and certain other
affiliated companies whereby CMFG Life has agreed to provide certain of our
operational requirements. In January 2008, the Company entered into a Cost
Sharing, Procurement, Disbursement, Billing and Collection Agreement with CMFG
Life and certain other affiliated companies. Pursuant to this agreement, CMFG
Life has agreed to provide the Company with certain office and market services
and personnel services. Additionally, we are allocated a certain portion of the
total compensation of each of our executive officers and directors, based on
various factors, the primary being the estimated time allocated to providing
services to the Company.
84
In exchange for providing these administrative functions and use of shared
resources and personnel, the Company reimburses CMFG Life for the cost of
providing such administrative functions, resources and personnel. The Company
reimbursed CMFG Life $5,641, $2,492 and $1,044 for these expenses in 2014, 2013
and 2012, respectively.
The Company has hired MCA to provide investment advisory services with respect
to the Company's General Account assets. MCA, which is 100% owned by CMIC,
manages substantially all of the Company's invested assets in accordance with
policies, directives and guidelines established by the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has not established any committees. The
Board relies upon the committees of CUNA Mutual Holding Company to oversee
actions over the subsidiary companies. For example the CUNA Mutual Holding
Company Audit Committee will assist with oversight of the Company's external
auditors, performance of internal audit functions, and legal and regulatory
compliance requirements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board of Directors has not established a compensation committee. None of our
executive officers has served on the board of directors or compensation
committee (or other committee serving an equivalent function) of any other
entity whose executive officers served on our Board of Directors.
EXECUTIVE COMPENSATION. We share personnel with our parent company, CMFG Life,
pursuant to a Cost Sharing, Procurement, Disbursement, Billing and Collection
Agreement between CMFG Life and us. Our operational needs are met by CMFG Life
and certain of its affiliates pursuant to the Cost Sharing, Procurement,
Disbursement, Billing and Collection Agreement and the CUNA Mutual Group Cost
Sharing, Procurement, Disbursement, Billing and Collection Agreement. Certain
employees who provide services to us under such agreement are CMFG Life
executive officers or employees and are paid by CMFG Life. Their
compensation-related costs are allocated to us based on various factors, the
primary being the estimated time allocated to providing services to us. The
Company had not been issuing new policies for several years and the primary
business had been managing its block of existing business. As a result, some of
the current officers have not devoted any significant amounts of time to the
Company and its operations. The introduction of the Index-Linked Annuity
Contract in 2013, and the Contract described in this Prospectus as of the date
hereof, resulted in all officers and directors devoting more time to the
Company's business and more of their compensation-related costs allocated to the
Company based upon the increased time devoted to development of this business.
In order to help you understand our compensation-related costs, we have set
forth below a discussion of CMFG Life's compensation policies and programs as
such policies and programs relate to our named executive officers.
COMPENSATION DISCUSSION AND ANALYSIS. These compensation policies and programs
are designed to attract and retain highly qualified and motivated executive
officers and employees and encourage and reward achievement of annual and
long-term goals.
Federal income tax law limits deductibility of compensation in excess of $1
million paid to certain named executive officers unless this compensation
qualifies as "performance-based compensation." It is the intent of CMFG Life to
qualify its executives' compensation for deductibility under applicable tax
laws, while recognizing that there may be situations in which compensation for
executive officers may not be tax deductible.
NAMED EXECUTIVE OFFICERS. The primary elements of compensation for our named
executive officers, who are officers of and compensated by CMFG Life, include
base pay and incentive compensation.
85
BASE PAY. The Board of Directors of CM Holding, the indirect parent of CMFG
Life, engages Mercer (US) Inc. ("Mercer") as a compensation consultant to
provide advice and data with respect to compensation bench-marking and market
practices for executives of CMFG Life. The most recent executive compensation
review was presented to the Compensation Committee of CUNA Mutual Holding
Company's Board of Directors by Mercer on May 7, 2013. Mercer develops a blended
market consensus base salary for each of the positions of the named executive
officers. Mercer utilizes proxy data and private survey data from selected peer
insurance companies public and private survey data from 2012 for the financial
service and insurance industries of companies.
The Company primarily services existing blocks of individual and group life
policies and began marketing the Contract in August, 2013. The amount of
compensation allocated to the Company for Mr. Trunzo in 2014, 2013 and 2012 was
$43,000, $5,800 and zero, respectively. The amount of compensation allocated to
the Company for Mr. Borakove for 2014, 2013 and 2012 was $2,600, $1,300 and
$800, respectively. This represents an allocation of gross wages and Corporate
Success Sharing Plan ("CSSP)"
INCENTIVE COMPENSATION. Under the CSSP for 2015, an incentive compensation pool
is created if CMFG Life has positive earnings for the year. If CMFG Life meets
this objective, the Board of Directors of CUNA Mutual Holding Company ("Board")
determines the amount of the pool that may be paid to leadership and staff based
on CMFG Life performance, using the following guidelines and weighting factors:
Pre-Tax Operating Gain (as may be adjusted by the Board) 75% and Operating
Revenue 25%. Depending upon the level of CMFG Life's success as determined by
the Board, compensation is paid out of this pool as a percentage of the base
salary according to the level of individual performance. Our management and the
Board believe that this CSSP design creates the proper focus, flexibility and
alignment for maximizing short-term and long-term policyholder value creation to
benefit the policyholders who own CUNA Mutual Holding Company, the ultimate
parent of both CMFG Life and the Company.
The costs of the CSSP and other incentive programs and benefits that have been
allocated to the Company for the President for 2014 is $35,000. These
allocations increased as management has been required to devote more time to the
operations of the Company.
The costs of the CSSP and other incentive programs and benefits that have been
allocated to the Company for the Treasurer for 2014 is $1,000. These allocations
increased as management has been required to devote more time to the operations
of the Company.
There is an additional incentive program for senior management personnel of CMFG
Life, which includes some of the named executives, known as the Long Term
Incentive Plan ("LTIP"). This plan is formula driven like the CSSP plan and is
based upon CMFG Life meeting certain financial objectives, but differs from the
CSSP plan because the payments are not based upon individual performance but on
whether or not CMFG Life meets the pre-determined corporate objectives.
At the time the performance goals for the different incentive plans were
approved by the Board, it was believed that the performance targets reflected
an appropriate degree of stretch but that they were attainable based on
successful execution of the Company's business plan and the realization of
macro-economic and market conditions reasonably aligned with the Company's near
term expectations.
CHANGE IN CONTROL, SEPARATION AND RETIREMENT ARRANGEMENTS. CMFG Life has a
written employment contract with Mr. Trunzo. None of the other named executive
officers have employment contracts or separation agreements with CMFG Life. No
costs associated with this employment contract have previously been allocated to
the Company.
NON-QUALIFIED DEFERRED COMPENSATION ARRANGEMENTS. CMFG Life permits eligible
employees to defer on an elective basis a specified portion of their base
salaries and incentive compensation. Any such deferrals must be made pursuant to
a non-qualified deferred compensation plan between the officer and the Company.
The investment of deferred amounts is directed by the individual officers and
the returns on
86
such investments is reflected in the deferred account balance of such officer.
The balance of the deferred compensation accounts will be distributed to each
executive who has elected to make such deferrals upon his or her death,
disability or separation from service.
OTHER COMPENSATION. CMFG Life has a qualified 401(k) plan for all eligible
employees who are eligible after thirty days of employment and attainment of age
18. CMFG Life matches 100% of employee contributions to the plan up to 5% of the
employee's total compensation, subject to the limitations specified in the
Internal Revenue Code. CMFG Life also maintains a Supplemental 401(k) plan in
which some of the named executive officers participate that provides additional
benefits and a company match within the limits prescribed by the Internal
Revenue Code. In addition to the 401(k) plan, all employees of CMFG Life
participate in a Defined Benefit Pension Plan. There is a non-qualified plan to
which CMFG Life contributes for some of the named executives amounts that would
otherwise be paid into the Defined Benefit Pension Plan but for limitations on
qualified plan contributions by CMFG Life. CMFG Life offers a package of
insurance benefits to all employees including health, dental, long-term
disability and life insurance. Some of the named executive officers receive an
annual retention payment which is a flat fee. Several of the named executive
officers receive perquisites including car allowances, use of Company owned
aircraft, travel to Company conventions for themselves and their spouse, tax
benefits and tax preparation fees.
COMPENSATION SUMMARY. The following table sets forth the allocated compensation
based upon the estimated percentage of time the following officers devote to the
affairs of the Company for the 2012, 2013 and 2014 fiscal years:
------------------------------------------------------------------------------------------
SALARY BONUS TOTAL**
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)
------------------------------------------------------------------------------------------
(a) (b) (c) (d) (j)
------------------------------------------------------------------------------------------
Robert N. Trunzo, President and 2012 - - -
Director* 2013 $2,800 $3,000 $5,800
2014 $8,000 $35,000 $43,000
------------------------------------------------------------------------------------------
Brian J. Borakove, Treasurer** 2012 $500 $300 $800
2013 $1,000 $300 $1,300
2014 $1,600 $1,000 $2,600
------------------------------------------------------------------------------------------
* No costs associated with Mr. Trunzo's compensation were allocated to the
Company for 2012.
** Includes compensation paid by CMFG Life that was allocated to the Company
for service rendered by Mr. Borakove.
DIRECTOR COMPENSATION
The following directors of the Company are all officers of CMFG Life. The
Company's directors receive no compensation for their service as directors of
the Company but are compensated by CMFG Life for their services as officers of
that company. Accordingly, no costs were allocated to the Company for services
of these persons in their role as directors: M. Jeffrey Bosco, Christopher J.
Copeland, Thomas J. Merfeld, and James M. Power.
LEGAL PROCEEDINGS
Like other insurance companies, we routinely are involved in litigation and
other proceedings, including class actions, reinsurance claims and regulatory
proceedings arising in the ordinary course of our business. In recent years, the
life insurance and annuity industry, including us and our affiliated companies,
has been subject to an increase in litigation pursued on behalf of both
individual and purported classes of insurance and annuity purchasers,
questioning the conduct of insurance companies and their agents in the marketing
of their products. In addition, state and federal regulatory bodies, such
87
as state insurance departments and attorneys general, periodically make
inquiries and conduct examinations concerning compliance by us and others with
applicable insurance and other laws.
In connection with regulatory examinations and proceedings, government
authorities may seek various forms of relief, including penalties, restitution
and changes in business practices. The Company has established procedures and
policies to facilitate compliance with laws and regulations and to support
financial reporting. These actions are based on a variety of issues and involve
a range of the Company's practices. We respond to such inquiries and cooperate
with regulatory examinations in the ordinary course of business. In the opinion
of management, the ultimate liability, if any, resulting from all such pending
actions will not materially affect the financial statements of the Company.
***
WE DO NOT FILE REPORTS UNDER THE 1934 ACT IN RELIANCE ON RULE 12H-7 UNDER THE
1934 ACT, WHICH PROVIDES AN EXEMPTION FROM THE REPORTING REQUIREMENTS OF
SECTIONS 13 AND 15 OF THE 1934 ACT.
88
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
[To be updated by amendment.]
89
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
--------------------------------------------------------------------------------
TABLE OF CONTENTS
MEMBERS LIFE INSURANCE COMPANY ............................................. S-1
ADDITIONAL CONTRACT PROVISIONS ............................................. S-1
PRINCIPAL UNDERWRITER ...................................................... S-1
INCOME PAYMENTS ............................................................ S-2
OTHER INFORMATION .......................................................... S-4
CUSTODIAN .................................................................. S-4
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM .............................. S-4
FINANCIAL STATEMENTS ....................................................... S-4
You may obtain a copy of the SAI free of charge by writing to our Administrative
Office at 2000 Heritage Way, Waverly, Iowa 50677, or by calling 1-800-798-5500.
90
--------------------------------------------------------------------------------
APPENDIX A: EXAMPLES OF PARTIAL WITHDRAWALS AND FULL SURRENDER WITH APPLICATION
OF SURRENDER CHARGE AND MARKET VALUE ADJUSTMENT
--------------------------------------------------------------------------------
EXAMPLE 1: PARTIAL WITHDRAWAL WITH A NEGATIVE MARKET VALUE ADJUSTMENT (MVA)
Assume the following information as it relates to the Contract:
o The Contract was issued on 06/05/2015 with an initial deposit of
$100,000.00.
o The Series B Contract is purchased; therefore, the Contract Fee is 1.65%.
o Money is allocated to the Variable Subaccounts and S&P 500 Risk Control
Accounts.
o There have been no additional Purchase Payments.
o A gross withdrawal of $20,000.00 is taken on 12/10/2016. No other
withdrawals have been previously taken.
Assume the following information as it relates to the Variable Subaccounts:
o As of the withdrawal date, there are 1,012.09 Variable Subaccount
Accumulation Units with an Accumulation Unit Value of $10.560000.
Assume the following information as it relates to the Risk Control Accounts:
o The Risk Control Account Start Date is 06/10/2015.
o The S&P 500 Secure Risk Control Account has a 0.00% Index Rate Floor and a
7.00% Index Rate Cap.
o The S&P 500 Growth Risk Control Account has a -10.00% Index Rate Floor and
a 17.00% Index Rate Cap.
o As of the withdrawal date, there are 5,940.59 S&P 500 Secure Risk Control
Account Accumulation Credits.
o As of the withdrawal date, there are 3,902.44 S&P 500 Growth Risk Control
Account Accumulation Credits.
o The Accumulation Credit Factor (P) at the start of the Risk Control
Account Year immediately preceding the withdrawal for the S&P 500 Secure
Risk Control Account is $10.100000.
o The Accumulation Credit Factor (P) at the start of the Risk Control
Account Year immediately preceding the withdrawal for the S&P 500 Growth
Risk Control Account is $10.250000.
o The S&P 500 Index value at the start of the Risk Control Account Year
immediately preceding the withdrawal is 1000.00.
o The S&P 500 Index value at the time of the withdrawal is 1200.00.
o On the Risk Control Account Start Date, the 5-year Constant Maturity
Treasury Rate (I) was 2.50% and the Bank of America/Merrill Lynch Index
(K) was 1.00%.
o At the time of the withdrawal the Constant Maturity Treasury Rate for the
remaining Index period (J) is 2.90% and the Bank of America/Merrill Lynch
Index (L) is 1.10%.
o At the time of the withdrawal there are 3.50 years remaining in the Risk
Control Account Period (N).
A-1
We take the following steps to determine the net partial withdrawal amount
(excluding taxes) payable to the Owner:
First, we calculate the Contract Value at the time of the withdrawal.
--------------------------------------------------------------------------------------------------------------
(1) (2) (3)
UNITS / UNIT VALUE / CONTRACT VALUE
ACCUMULATION ACCUMULATION AT TIME OF
ACCOUNT CREDITS CREDIT FACTOR WITHDRAWAL
--------------------------------------------------------------------------------------------------------------
VARIABLE SUBACCOUNTS 1,012.09 $10.560000 $10,687.67
S&P 500 SECURE RISK CONTROL ACCOUNT 5,940.59 $10.723675 $63,704.96
S&P 500 GROWTH RISK CONTROL ACCOUNT 3,902.44 $11.907938 $46,470.01
---------------------------------------------------------------------------------------------------------------
TOTAL $120,862.64
---------------------------------------------------------------------------------------------------------------
(1),(2),(3)
The current Variable Subaccounts Value is 1,012.09 x $10.560000 which equals
$10,687.67.
The return of the Index is equal to the Unadjusted Index Value divided by the
Initial Index Value minus 1. The return of the S&P 500 Index is calculated to be
20% (1,200.00 / 1,000.00 - 1). This is greater than the Index Rate Cap and above
the Index Rate Floor for both the S&P 500 Secure and Growth accounts. Therefore,
the Index Rate of Return is set at the Index Rate Cap level, 7.00% for the S&P
500 Secure Risk Control Account and 17% for the S&P 500 Growth Risk Control
Account. The Contract Fee is multiplied by 0.50 because the withdrawal is taken
0.50 years into the Risk Control Account Year, and this is then deducted from
the Index Rate of Return. The resulting return is added to 1 and multiplied by
the Accumulation Credit Factor at the start of the Risk Control Account Year.
For the S&P 500 Secure Risk Control Account, this results in an Accumulation
Credit Factor at the time of the withdrawal of $10.100000 x (1 + 7.00% - (1.65%
x 0.50)) which equals $10.723675. The current S&P 500 Secure Risk Control
Account Contract Value is then calculated as 5,940.59 x $10.723675 which equals
$63,704.96.
For the S&P 500 Growth Risk Control Account, this results in an Accumulation
Credit Factor at the time of the withdrawal of $10.250000 x (1 + 17.00% - (1.65%
x 0.50)) which equals $11.907938. The current S&P 500 Growth Risk Control
Account Contract Value is then calculated as 3,902.44 x $11.907938 which equals
$46,470.01.
A-2
Next, we calculate the gross withdrawal from each account.
----------------------------------------------------------------------
(4)
GROSS
ACCOUNT WITHDRAWAL
----------------------------------------------------------------------
VARIABLE SUBACCOUNTS $10,687.67
S&P 500 SECURE RISK CONTROL ACCOUNT $5,384.54
S&P 500 GROWTH RISK CONTROL ACCOUNT $3,927.79
----------------------------------------------------------------------
TOTAL $20,000.00
----------------------------------------------------------------------
(4)
Withdrawal of Risk Control Account Value is not permitted while there is
Variable Subaccount Value. Therefore, the withdrawal of $20,000.00 will first be
taken from the Variable Subaccounts. The Variable Subaccount Value of $10,687.67
is insufficient to cover the gross withdrawal, and there is no Holding Account
Value. Therefore, the remaining withdrawal of $9,312.33 will be taken Pro Rata
from the Risk Control Accounts.
The Pro Rata withdrawal from the S&P 500 Secure Risk Control Account is the
Contract Value in this account divided by the total S&P 500 Risk Control Account
Contract Value multiplied by the Risk Control Account withdrawal. This is
calculated as $63,704.96 / $110,174.97 x $9,312.33 which equals $5,384.54. The
Pro Rata withdrawal from the S&P 500 Growth Risk Control Account is calculated
the same way to be $46,470.01 / $110,174.97 x $9,312.33 which equals $3,927.79.
Next, we calculate the net withdrawal from each account.
---------------------------------------------------------------------------------------------------------------------------
(5) (6) (7) (8) (9)
WITHDRAWAL
WITHDRAWAL SUBJECT TO
SUBJECT TO SURRENDER SURRENDER NET
ACCOUNT MVA MVA CHARGE CHARGE WITHDRAWAL
---------------------------------------------------------------------------------------------------------------------------
VARIABLE SUBACCOUNTS $0.00 $0.00 $687.67 $61.89 $10,625.78
S&P 500 SECURE RISK CONTROL ACCOUNT $5,384.54 ($84.82) $5,384.54 $484.61 $4,815.11
S&P 500 GROWTH RISK CONTROL ACCOUNT $3,927.79 ($56.55) $3,927.79 $353.50 $3,517.74
---------------------------------------------------------------------------------------------------------------------------
TOTAL $9,312.33 ($141.37) $10,000.00 $900.00 $18,958.63
---------------------------------------------------------------------------------------------------------------------------
(5)
100% of the withdrawal from a Risk Control Account is subject to the MVA. The
MVA does not apply to Variable Subaccounts.
(6)
The MVA equals (W/(C/P)) x (MVAF - 1), where W is the amount of withdrawal from
the Risk Control Account Value, C is the Current Accumulation Credit Factor for
the Risk Control Account, and P is Prior Accumulation Credit Factor for the Risk
Control Account. At the time of the withdrawal there are 3.50 years remaining in
the Risk Control Account Period (N). Therefore, MVAF = ((1 + I + K)/(1 + J +
L))^N = ((1 + 2.50% + 1.00%)/(1 + 2.90% + 1.10%))^3.50 = 0.983274.
A-3
For the S&P 500 Secure Risk Control Account, the MVA is ($5,384.54 / ($10.723675
/ $10.100000) x (0.983274 - 1) which equals -$84.82. For the S&P 500 Growth Risk
Control Account, the MVA is ($3,927.79 / ($11.907938 / $10.250000) x (0.983274 -
1) which equals -$56.55.
(7)
The amount of the withdrawal that is free of Surrender Charges is equal to 10%
of the Purchase Payments received that are within the Surrender Charge Period.
Because there have been no additional Purchase Payments and no prior
withdrawals, the amount of the withdrawal that is free of Surrender Charge at
the time of the withdrawal is equal to 10% x $100,000.00 which equals
$10,000.00. The gross withdrawal is $20,000.00, and Purchase Payments are
withdrawn before earnings, so the amount of the withdrawal subject to a
Surrender Charge is calculated as $20,000.00 - $10,000.00 which equals
$10,000.00.
Withdrawals are first taken from the Variable Subaccounts, and because
$10,000.00 is free of Surrender Charge, the Surrender Charge only applies to the
remaining $687.67. There is no Surrender Charge free withdrawal amount
remaining, so a Surrender Charge applies to the entire withdrawal from the Risk
Control Accounts.
(8)
It has been more than one year but less than two years since the Purchase
Payment was received so the applicable Surrender Charge percentage is 9.00%.
This is multiplied by the amount of the withdrawal subject to a Surrender Charge
to determine the Surrender Charge. For the Variable Subaccounts, the Surrender
Charge is calculated as $687.67 x 9.00% which equals $61.89. For the S&P 500
Secure Risk Control Account, the Surrender Charge is calculated as $5,384.54 x
9.00% which equals $484.61. For the S&P 500 Growth Risk Control Account, the
Surrender Charge is calculated as $3,927.79 x 9.00% which equals $353.50.
(9)
The net withdrawal is equal to the gross withdrawal plus the Market Value
Adjustment less the Surrender Charge. For the Variable Subaccounts, the net
withdrawal is calculated as $10,687.67 + $0.00 - $61.89 which equals $10,625.78.
For the S&P 500 Secure Risk Control Account, the net withdrawal is calculated as
$5,384.54 + -$84.82 - $484.61 which equals $4,815.11. For the S&P 500 Growth
Risk Control Account, the net withdrawal is calculated as $3,927.79 + -$56.55 -
$353.50 which equals $3,517.74. The total net withdrawal is the sum of the three
accounts, $18,958.63.
A-4
Next, we calculate the Accumulation Units, Accumulation Credits, and Contract
Value remaining after the withdrawal.
---------------------------------------------------------------------------------------
(10) (11)
UNITS / CONTRACT
ACCUMULATION CREDITS VALUE AFTER
ACCOUNT AFTER WITHDRAWAL WITHDRAWAL
---------------------------------------------------------------------------------------
VARIABLE SUBACCOUNTS 0.00 $0.00
S&P 500 SECURE RISK CONTROL ACCOUNT 5,438.47 $58,320.38
S&P 500 GROWTH RISK CONTROL ACCOUNT 3,572.59 $42,542.18
---------------------------------------------------------------------------------------
TOTAL $100,862.56
---------------------------------------------------------------------------------------
(10)
The number of Accumulation Units/Accumulation Credits remaining after the
withdrawal is equal to the number of Accumulation Units/Accumulation Credits
prior to the withdrawal minus the result of the gross withdrawal from the
account divided by the Accumulation Unit Value/Accumulation Credit Factor as of
the withdrawal date. For the Variable Subaccounts, this is calculated as
1,012.09 - ($10,687.67 / $10.560000) which equals 0.00. For the S&P 500 Secure
Risk Control Account, this is calculated as 5,940.59 - ($5,384.54 / $10.723675)
which equals 5,438.47. For the S&P 500 Growth Risk Control Account, this is
calculated as 3,902.44 - ($3,927.79 / $11.907938) which equals 3,572.59.
(11)
The Contract Value remaining after the withdrawal is equal the Accumulation Unit
Value/Accumulation Credit Factor as of the withdrawal date multiplied by the
number of Accumulation Units/Accumulation Credits after the withdrawal. For the
Variable Subaccounts, this is calculated as $10.560000 x 0.00 which equals
$0.00. For the S&P 500 Secure Risk Control Account, this is calculated as
$10.723675 x 5,438.47 which equals $58,320.38. For the S&P 500 Growth Risk
Control Account, this is calculated as $11.907938 x 3,572.59 which equals
$42,542.18. The total Contract Value after the withdrawal is the sum of the
three accounts, $100,862.56.
A-5
EXAMPLE 2: PARTIAL WITHDRAWAL WITH A POSITIVE MVA
Assume the following information as it relates to the Contract:
o The Contract was issued on 06/05/2015 with an initial deposit of
$100,000.00.
o The Series B contract is purchased; therefore, the Contract Fee is 1.65%.
o Money is allocated to the Variable Subaccounts and S&P 500 Risk Control
Accounts.
o There have been no additional Purchase Payments.
o A gross withdrawal of $20,000.00 is taken on 12/10/2016. No other
withdrawals have been previously taken.
Assume the following information as it relates to the Variable Subaccounts:
o As of the withdrawal date, there are 1,012.09 Variable Subaccount
Accumulation Units with an Accumulation Unit Value of $10.560000.
Assume the following information as it relates to the Risk Control Accounts:
o The Risk Control Account Start Date is 06/10/2015.
o The S&P 500 Secure Risk Control Account has a 0.00% Index Rate Floor and a
7.00% Index Rate Cap.
o The S&P 500 Growth Risk Control Account has a -10.00% Index Rate Floor and
a 17.00% Index Rate Cap.
o As of the withdrawal date, there are 5,940.59 S&P 500 Secure Risk Control
Account Accumulation Credits.
o As of the withdrawal date, there are 3,902.44 S&P 500 Growth Risk Control
Account Accumulation Credits.
o The Accumulation Credit Factor (P) at the start of the Risk Control
Account Year immediately preceding the withdrawal for the S&P 500 Secure
Risk Control Account is $10.100000.
o The Accumulation Credit Factor (P) at the start of the Risk Control
Account Year immediately preceding the withdrawal for the S&P 500 Growth
Risk Control Account is $10.250000.
o The S&P 500 Index value at the start of the Risk Control Account Year
immediately preceding the withdrawal is 1000.00.
o The S&P 500 Index value at the time of the withdrawal is 1200.00.
o On the Risk Control Account Start Date, the 5-year Constant Maturity
Treasury Rate (I) was 2.50% and the Bank of America/Merrill Lynch Index
(K) was 1.00%.
o At the time of the withdrawal the Constant Maturity Treasury Rate for the
remaining Index period (J) is 2.10% and the Bank of America/Merrill Lynch
Index (L) is 0.90%.
o At the time of the withdrawal there are 3.50 years remaining in the Risk
Control Account Period (N).
A-6
We take the following steps to determine the net partial withdrawal amount
(excluding taxes) payable to the Owner:
First, we calculate the Contract Value at the time of the withdrawal.
----------------------------------------------------------------------------------------------------
(1) (2) (3)
UNITS / UNIT VALUE / CONTRACT VALUE
ACCUMULATION ACCUMULATION AT TIME OF
ACCOUNT CREDITS CREDIT FACTOR WITHDRAWAL
----------------------------------------------------------------------------------------------------
VARIABLE SUBACCOUNTS 1,012.09 $10.560000 $10,687.67
S&P 500 SECURE RISK CONTROL ACCOUNT 5,940.59 $10.723675 $63,704.96
S&P 500 GROWTH RISK CONTROL ACCOUNT 3,902.44 $11.907938 $46,470.01
----------------------------------------------------------------------------------------------------
TOTAL $120,862.64
----------------------------------------------------------------------------------------------------
(1),(2),(3)
The current Variable Subaccounts Value is 1,012.09 x $10.560000 which equals
$10,687.67.
The return of the Index is equal to the Unadjusted Index Value divided by the
Initial Index Value minus 1. The return of the S&P 500 Index is calculated to be
20% (1,200.00 / 1,000.00 - 1). This is greater than the Index Rate Cap and above
the Index Rate Floor for both the S&P 500 Secure and Growth accounts. Therefore,
the Index Rate of Return is set at the Index Rate Cap level, 7.00% for the S&P
500 Secure Risk Control Account and 17% for the S&P 500 Growth Risk Control
Account. The Contract Fee is multiplied by 0.50 because the withdrawal is taken
0.50 years into the Risk Control Account Year, and this is then deducted from
the Index Rate of Return. The resulting return is added to 1 and multiplied by
the Accumulation Credit Factor at the start of the Risk Control Account Year.
For the S&P 500 Secure Risk Control Account, this results in an Accumulation
Credit Factor at the time of the withdrawal of $10.100000 x (1 + 7.00% - (1.65%
x 0.50)) which equals $10.723675. The current S&P 500 Secure Risk Control
Account Contract Value is then calculated as 5,940.59 x $10.723675 which equals
$63,704.96.
For the S&P 500 Growth Risk Control Account, this results in an Accumulation
Credit Factor at the time of the withdrawal of $10.250000 x (1 + 17.00% - (1.65%
x 0.50)) which equals $11.907938. The current S&P 500 Growth Risk Control
Account Contract Value is then calculated as 3,902.44 x $11.907938 which equals
$46,470.01.
A-7
Next, we calculate the gross withdrawal from each account.
-------------------------------------------------------------------------
(4)
GROSS
ACCOUNT WITHDRAWAL
-------------------------------------------------------------------------
VARIABLE SUBACCOUNTS $10,687.67
S&P 500 SECURE RISK CONTROL ACCOUNT $5,384.54
S&P 500 GROWTH RISK CONTROL ACCOUNT $3,927.79
-------------------------------------------------------------------------
TOTAL $20,000.00
-------------------------------------------------------------------------
(4)
Withdrawal of Risk Control Account Value is not permitted while there is
Variable Subaccount Value. Therefore, the withdrawal of $20,000.00 will first be
taken from the Variable Subaccounts. The Variable Subaccount Value of $10,687.67
is insufficient to cover the gross withdrawal, and there is no Holding Account
Value. Therefore, the remaining withdrawal of $9,312.33 will be taken Pro Rata
from the Risk Control Accounts.
The Pro Rata withdrawal from the S&P 500 Secure Risk Control Account is the
Contract Value in this account divided by the total S&P 500 Risk Control Account
Contract Value multiplied by the Risk Control Account withdrawal. This is
calculated as $63,704.96 / $110,174.97 x $9,312.33 which equals $5,384.54. The
Pro Rata withdrawal from the S&P 500 Growth Risk Control Account is calculated
the same way to be $46,470.01 / $110,174.97 x $9,312.33 which equals $3,927.79.
Next, we calculate the net withdrawal from each account.
----------------------------------------------------------------------------------------------------------------------------
(5) (6) (7) (8) (9)
WITHDRAWAL
WITHDRAWAL SUBJECT TO
SUBJECT TO SURRENDER SURRENDER NET
ACCOUNT MVA MVA CHARGE CHARGE WITHDRAWAL
----------------------------------------------------------------------------------------------------------------------------
VARIABLE SUBACCOUNTS $0.00 $0.00 $687.67 $61.89 $10,625.78
S&P 500 SECURE RISK CONTROL ACCOUNT $5,384.54 $86.69 $5,384.54 $484.61 $4,986.62
S&P 500 GROWTH RISK CONTROL ACCOUNT $3,927.79 $57.79 $3,927.79 $353.50 $3,632.08
----------------------------------------------------------------------------------------------------------------------------
TOTAL $9,312.33 $144.48 $10,000.00 $900.00 $19,244.48
----------------------------------------------------------------------------------------------------------------------------
(5)
100% of the withdrawal from a Risk Control Account is subject to the MVA. The
MVA does not apply to Variable Subaccounts.
(6)
The MVA equals (W/(C/P)) x (MVAF - 1), where W is the amount of withdrawal from
the Risk Control Account Value, C is the Current Accumulation Credit Factor for
the Risk Control Account, and P is Prior Accumulation Credit Factor for the Risk
Control Account. At the time of the withdrawal there are 3.50 years remaining in
the Risk Control Account Period (N). Therefore, MVAF = ((1 + I + K)/(1 + J +
L))^N = ((1 + 2.50% + 1.00%)/(1 + 2.10% + 0.90%))^3.50 = 1.017094.
A-8
For the S&P 500 Secure Risk Control Account, the MVA is ($5,384.54 / ($10.723675
/ $10.100000) x (1.017094 - 1) which equals $86.69. For the S&P 500 Growth Risk
Control Account, the MVA is ($3,927.79 / ($11.907938 / $10.250000) x (1.017094 -
1) which equals $57.79.
(7)
The amount of the withdrawal that is free of Surrender Charges is equal to 10%
of the Purchase Payments received that are within the Surrender Charge Period.
Because there have been no additional Purchase Payments and no prior
withdrawals, the amount of the withdrawal that is free of Surrender Charge at
the time of the withdrawal is equal to 10% x $100,000.00 which equals
$10,000.00. The gross withdrawal is $20,000.00, and Purchase Payments are
withdrawn before earnings, so the amount of the withdrawal subject to a
Surrender Charge is calculated as $20,000.00 - $10,000.00 which equals
$10,000.00.
Withdrawals are first taken from the Variable Subaccounts, and because
$10,000.00 is free of Surrender Charge, the Surrender Charge only applies to the
remaining $687.67. There is no Surrender Charge free withdrawal amount
remaining, so a Surrender Charge applies to the entire withdrawal from the Risk
Control Accounts.
(8)
It has been more than one year but less than two years since the Purchase
Payment was received so the applicable Surrender Charge percentage is 9.00%.
This is multiplied by the amount of the withdrawal subject to a Surrender Charge
to determine the Surrender Charge. For the Variable Subaccounts, the Surrender
Charge is calculated as $687.67 x 9.00% which equals $61.89. For the S&P 500
Secure Risk Control Account, the Surrender Charge is calculated as $5,384.54 x
9.00% which equals $484.61. For the S&P 500 Growth Risk Control Account, the
Surrender Charge is calculated as $3,927.79 x 9.00% which equals $353.50.
(9)
The net withdrawal is equal to the gross withdrawal plus the Market Value
Adjustment less the Surrender Charge. For the Variable Subaccounts, the net
withdrawal is calculated as $10,687.67 + $0.00 - $61.89 which equals $10,625.78.
For the S&P 500 Secure Risk Control Account, the net withdrawal is calculated as
$5,384.54 + $86.69 - $484.61 which equals $4,986.62. For the S&P 500 Growth Risk
Control Account, the net withdrawal is calculated as $3,927.79 + $57.79 -
$353.50 which equals $3,632.08. The total net withdrawal is the sum of the three
accounts, $19,244.48.
A-9
Next, we calculate the Accumulation Units, Accumulation Credits, and Contract
Value remaining after the withdrawal.
----------------------------------------------------------------------------------------
(10) (11)
UNITS / CONTRACT
ACCUMULATION CREDITS VALUE AFTER
ACCOUNT AFTER WITHDRAWAL WITHDRAWAL
----------------------------------------------------------------------------------------
VARIABLE SUBACCOUNTS 0.00 $0.00
S&P 500 SECURE RISK CONTROL ACCOUNT 5,438.47 $58,320.38
S&P 500 GROWTH RISK CONTROL ACCOUNT 3,572.59 $42,542.18
----------------------------------------------------------------------------------------
TOTAL $100,862.56
----------------------------------------------------------------------------------------
(10)
The number of Accumulation Units/Accumulation Credits remaining after the
withdrawal is equal to the number of Accumulation Units/Accumulation Credits
prior to the withdrawal minus the result of the gross withdrawal from the
account divided by the Accumulation Unit Value/Accumulation Credit Factor as of
the withdrawal date. For the Variable Subaccounts, this is calculated as
1,012.09 - ($10,687.67 / $10.560000) which equals 0.00. For the S&P 500 Secure
Risk Control Account, this is calculated as 5,940.59 - ($5,384.54 / $10.723675)
which equals 5,438.47. For the S&P 500 Growth Risk Control Account, this is
calculated as 3,902.44 - ($3,927.79 / $11.907938) which equals 3,572.59.
(11)
The Contract Value remaining after the withdrawal is equal the Accumulation Unit
Value/Accumulation Credit Factor as of the withdrawal date multiplied by the
number of Accumulation Units/Accumulation Credits after the withdrawal. For the
Variable Subaccounts, this is calculated as $10.560000 x 0.00 which equals
$0.00. For the S&P 500 Secure Risk Control Account, this is calculated as
$10.723675 x 5,438.47 which equals $58,320.38. For the S&P 500 Growth Risk
Control Account, this is calculated as $11.907938 x 3,572.59 which equals
$42,542.18. The total Contract Value after the withdrawal is the sum of the
three accounts, $100,862.56.
A-10
EXAMPLE 3: FULL SURRENDER OF CONTRACT WITH A NEGATIVE MVA
Assume the following information as it relates to the Contract:
o The Contract was issued on 06/05/2015 with an initial deposit of
$100,000.00.
o The Series B Contract is purchase; therefore, the Contract Fee is 1.65%.
o Money is allocated to the Variable Subaccounts and S&P 500 Risk Control
Accounts.
o There have been no additional Purchase Payments.
o A full surrender is taken on 12/10/2016. No other withdrawals have been
previously taken.
Assume the following information as it relates to the Variable Subaccounts:
o As of the withdrawal date, there are 1,012.09 Variable Subaccount
Accumulation Units with an Accumulation Unit Value of $10.560000.
Assume the following information as it relates to the Risk Control Accounts:
o The Risk Control Account Start Date is 06/10/2015.
o The S&P 500 Secure Risk Control Account has a 0.00% Index Rate Floor and a
7.00% Index Rate Cap.
o The S&P 500 Growth Risk Control Account has a -10.00% Index Rate Floor and
a 17.00% Index Rate Cap.
o As of the withdrawal date, there are 5,940.59 S&P 500 Secure Risk Control
Account Accumulation Credits.
o As of the withdrawal date, there are 3,902.44 S&P 500 Growth Risk Control
Account Accumulation Credits.
o The Accumulation Credit Factor (P) at the start of the Risk Control
Account Year immediately preceding the withdrawal for the S&P 500 Secure
Risk Control Account is $10.100000.
o The Accumulation Credit Factor (P) at the start of the Risk Control
Account Year immediately preceding the withdrawal for the S&P 500 Growth
Risk Control Account is $10.250000.
o The S&P 500 Index value at the start of the Risk Control Account Year
immediately preceding the withdrawal is 1000.00.
o The S&P 500 Index value at the time of the withdrawal is 1200.00.
o On the Risk Control Account Start Date, the 5-year Constant Maturity
Treasury Rate (I) was 2.50% and the Bank of America/Merrill Lynch Index
(K) was 1.00%.
o At the time of the withdrawal the Constant Maturity Treasury Rate for the
remaining Index period (J) is 2.90% and the Bank of America/Merrill Lynch
Index (L) is 1.10%.
o At the time of the withdrawal there are 3.50 years remaining in the Risk
Control Account Period (N).
A-11
We take the following steps to determine the Surrender Value (excluding taxes)
payable to the Owner:
First, we calculate the Contract Value at the time of the withdrawal.
-----------------------------------------------------------------------------------------------------------
(1) (2) (3)
UNITS / UNIT VALUE / CONTRACT VALUE
ACCUMULATION ACCUMULATION AT TIME OF
ACCOUNT CREDITS CREDIT FACTOR WITHDRAWAL
-----------------------------------------------------------------------------------------------------------
VARIABLE SUBACCOUNTS 1,012.09 $10.560000 $10,687.67
S&P 500 SECURE RISK CONTROL ACCOUNT 5,940.59 $10.723675 $63,704.96
S&P 500 GROWTH RISK CONTROL ACCOUNT 3,902.44 $11.907938 $46,470.01
-----------------------------------------------------------------------------------------------------------
TOTAL $120,862.64
-----------------------------------------------------------------------------------------------------------
(1),(2),(3)
The current Variable Subaccounts Value is 1,012.09 x $10.560000 which equals
$10,687.67.
The return of the Index is equal to the Unadjusted Index Value divided by the
Initial Index Value minus 1. The return of the S&P 500 Index is calculated to be
20% (1,200.00 / 1,000.00 - 1). This is greater than the Index Rate Cap and above
the Index Rate Floor for both the S&P 500 Secure and Growth accounts. Therefore,
the Index Rate of Return is set at the Index Rate Cap level, 7.00% for the S&P
500 Secure Risk Control Account and 17% for the S&P 500 Growth Risk Control
Account. The Contract Fee is multiplied by 0.50 because the withdrawal is taken
0.50 years into the Risk Control Account Year, and this is then deducted from
the Index Rate of Return. The resulting return is added to 1 and multiplied by
the Accumulation Credit Factor at the start of the Risk Control Account Year.
For the S&P 500 Secure Risk Control Account, this results in an Accumulation
Credit Factor at the time of the withdrawal of $10.100000 x (1 + 7.00% - (1.65%
x 0.50)) which equals $10.723675. The current S&P 500 Secure Risk Control
Account Contract Value is then calculated as 5,940.59 x $10.723675 which equals
$63,704.96.
For the S&P 500 Growth Risk Control Account, this results in an Accumulation
Credit Factor at the time of the withdrawal of $10.250000 x (1 + 17.00% - (1.65%
x 0.50)) which equals $11.907938. The current S&P 500 Growth Risk Control
Account Contract Value is then calculated as 3,902.44 x $11.907938 which equals
$46,470.01.
A-12
Next, we calculate the gross withdrawal from each account.
-----------------------------------------------------------------------------
(4)
GROSS
ACCOUNT WITHDRAWAL
-----------------------------------------------------------------------------
VARIABLE SUBACCOUNTS $10,687.67
S&P 500 SECURE RISK CONTROL ACCOUNT $63,704.96
S&P 500 GROWTH RISK CONTROL ACCOUNT $46,470.01
-----------------------------------------------------------------------------
TOTAL $120,862.64
-----------------------------------------------------------------------------
(4)
Withdrawal of Risk Control Account Value is not permitted while there is
Variable Subaccount Value. Therefore, the surrender is assumed to come from the
Variable Subaccounts first and then from the Risk Control Accounts. Because this
is a full surrender, the entire Contract Value will be withdrawn from each
account.
Next, we calculate the net withdrawal from each account.
-------------------------------------------------------------------------------------------------------------------------------
(5) (6) (7) (8) (9)
WITHDRAWAL WITHDRAWAL SUBJECT
SUBJECT TO TO SURRENDER SURRENDER NET
ACCOUNT MVA MVA CHARGE CHARGE WITHDRAWAL
-------------------------------------------------------------------------------------------------------------------------------
VARIABLE SUBACCOUNTS $0.00 $0.00 $687.67 $61.89 $10,625.78
S&P 500 SECURE RISK CONTROL ACCOUNT $63,704.96 ($1,003.56) $51,641.84 $4,647.77 $58,053.63
S&P 500 GROWTH RISK CONTROL ACCOUNT $46,470.01 ($669.04) $37,670.49 $3,390.34 $42,410.63
-------------------------------------------------------------------------------------------------------------------------------
TOTAL $110,174.97 ($1,672.60) $90,000.00 $8,100.00 $111,090.04
-------------------------------------------------------------------------------------------------------------------------------
(5)
100% of the withdrawal from a Risk Control Account is subject to the MVA. The
MVA does not apply to Variable Subaccounts.
(6)
The MVA equals (W/(C/P)) x (MVAF - 1), where W is the amount of withdrawal from
the Risk Control Account Value, C is the Current Accumulation Credit Factor for
the Risk Control Account, and P is Prior Accumulation Credit Factor for the Risk
Control Account. At the time of the withdrawal there are 3.50 years remaining in
the Risk Control Account Period (N). Therefore, MVAF = ((1 + I + K)/(1 + J +
L))^N = ((1 + 2.50% + 1.00%)/(1 + 2.90% + 1.10%))^3.50 = 0.983274.
For the S&P 500 Secure Risk Control Account, the MVA is ($63,704.96 /
($10.723675 / $10.100000) x (0.983274 - 1) which equals -$1,003.56. For the S&P
500 Growth Risk Control Account, the MVA is ($46,470.01 / ($11.907938 /
$10.250000) x (0.983274 - 1) which equals -$669.04.
A-13
(7)
The amount of the withdrawal that is free of Surrender Charges is equal to 10%
of the Purchase Payments received that are within the Surrender Charge Period.
Because there have been no additional Purchase Payments and no prior
withdrawals, the amount of the withdrawal that is free of Surrender Charge at
the time of the withdrawal is equal to 10% x $100,000.00 which equals
$10,000.00. The Purchase Payment within the Surrender Charge Period is
$100,000.00, so the amount of the withdrawal subject to a Surrender Charge is
calculated as $100,000.00 - $10,000.00 which equals $90,000.00.
Withdrawals are first taken from the Variable Subaccounts, and because
$10,000.00 is free of Surrender Charge, the Surrender Charge only applies to the
remaining $687.67. There is no Surrender Charge free withdrawal amount
remaining, so a Surrender Charge applies to the Pro Rata withdrawal of the
remaining Purchase payments subject to a Surrender Charge from the Risk Control
Accounts. The remaining purchase Payments subject to a Surrender Charge is equal
to the withdrawal subject to a Surrender Charge less the withdrawal from the
Variable Subaccount subject to a surrender Charge, calculated as $90,000 -
$687.67 which equals $89,312.33.
The Pro Rata withdrawal from the S&P 500 Secure Risk Control Account that is
subject to a Surrender Charge is equal to the withdrawal from the S&P 500 Secure
Risk Control Account divided by the total withdrawal from the S&P 500 Risk
Control Account multiplied by the remaining Purchase Payments subject to a
Surrender Charge. This is calculated as $63,704.96 / $110,174.97 x $89,312.33 =
$51,641.84.
The Pro Rata withdrawal from the S&P 500 Growth Risk Control Account that is
subject to a Surrender Charge is equal to the withdrawal from the S&P 500 Growth
Risk Control Account divided by the total withdrawal from the S&P 500 Risk
Control Account multiplied by the remaining Purchase Payments subject to a
Surrender Charge. This is calculated as $46,470.01 / $110,174.97 x $89,312.33 =
$37,670.49.
(8)
It has been more than one year but less than two years since the Purchase
Payment was received so the applicable Surrender Charge percentage is 9.00%.
This is multiplied by the amount of the withdrawal subject to a Surrender Charge
to determine the Surrender Charge. For the Variable Subaccounts, the Surrender
Charge is calculated as $687.67 x 9.00% which equals $61.89. For the S&P 500
Secure Risk Control Account, the Surrender Charge is calculated as $51,641.84 x
9.00% which equals $4,647.77. For the S&P 500 Growth Risk Control Account, the
Surrender Charge is calculated as $37,670.49 x 9.00% which equals $3,390.34.
(9)
The net withdrawal is equal to the gross withdrawal plus the Market Value
Adjustment less the Surrender Charge. For the Variable Subaccounts, the net
withdrawal is calculated as $10,687.67 + $0.00 - $61.89 which equals $10,625.78.
For the S&P 500 Secure Risk Control Account, the net withdrawal is calculated as
$63,704.96 + -$1,003.56 - $4,647.77 which equals $58,053.63. For the S&P 500
Growth Risk Control Account, the net withdrawal is calculated as $46,470.01 +
-$669.04 - $3,390.34 which equals $42,410.63. The total net withdrawal is the
sum of the three accounts, $111,090.04.
A-14
Next, we calculate the Accumulation Units, Accumulation Credits, and Contract
Value remaining after the withdrawal.
-------------------------------------------------------------------------------------------
(10) (11)
UNITS / CONTRACT
ACCUMULATION CREDITS VALUE AFTER
ACCOUNT AFTER WITHDRAWAL WITHDRAWAL
-------------------------------------------------------------------------------------------
VARIABLE SUBACCOUNTS 0.00 $0.00
S&P 500 SECURE RISK CONTROL ACCOUNT 0.00 $0.00
S&P 500 GROWTH RISK CONTROL ACCOUNT 0.00 $0.00
-------------------------------------------------------------------------------------------
TOTAL $0.00
-------------------------------------------------------------------------------------------
(10)
The number of Accumulation Units/Accumulation Credits remaining after the
withdrawal is equal to the number of Accumulation Units/Accumulation Credits
prior to the withdrawal minus the result of the gross withdrawal from the
account divided by the Accumulation Unit Value/Accumulation Credit Factor as of
the withdrawal date. For the Variable Subaccounts, this is calculated as
1,012.09 - ($10,687.67 / $10.560000) which equals 0.00. For the S&P 500 Secure
Risk Control Account, this is calculated as 5,940.59 - ($63,704.96 / $10.723675)
which equals 0.00. For the S&P 500 Growth Risk Control Account, this is
calculated as 3,902.44 - ($46,470.01 / $11.907938) which equals 0.00.
(11)
Following the surrender of the Contract, there is no Contract Value remaining
because there are no Accumulation Units or Accumulation Credits remaining.
A-15
MEMBERS Life Insurance Company
2000 Heritage Way
Waverly, IA 50677
1-800-798-5500
Dealer Prospectus Delivery Obligations
All dealers that effect transactions in these securities are required to deliver
a Prospectus.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The expenses for the issuance and distribution of the securities offered by this
Registration Statement, other than any underwriting discounts and commissions,
are as follows:
[To be updated by amendment.]
Securities and Exchange Commission Registration Fees $ 290,500
Printing and engraving $
Accounting fees and expenses $
Legal fees and expenses $
Miscellaneous $
TOTAL EXPENSES =================
$ 290,500
------------------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 490.202 of the Iowa Business Corporation Act (the "IBCA"), provides that
a corporation's articles of incorporation may contain a provision eliminating or
limiting the personal liability of a director to the corporation or its
shareholders for monetary damages for any action taken, or failure to take
action, as a director, except liability for (1) the amount of a financial
benefit received by a director to which the director is not entitled, (2) an
intentional infliction of harm on MEMBERS Life Insurance Company (the
"Registrant," "we," "our," or "us") or the shareholders, (3) a violation of
Section 490.833 of the IBCA or (4) an intentional violation of criminal law.
Further, Section 490.851 of the IBCA provides that a corporation may indemnify
its directors who may be party to a proceeding against liability incurred in the
proceeding by reason of such person serving in the capacity of director, if such
person has acted in good faith and in a manner reasonably believed by the
individual to be in the best interests of the corporation, if the director was
acting in an official capacity, and in all other cases that the individual's
conduct was at least not opposed to the best interests of the corporation, and
in any criminal proceeding if such person had no reasonable cause to believe the
individual's conduct was unlawful or the director engaged in conduct for which
broader indemnification has been made permissible or obligatory under a
provision of the articles of incorporation. The indemnity provisions under
Section 490.851 do not apply (i) in the case of actions brought by or in the
right of the corporation except for reasonable expenses incurred in connection
with the proceeding if it is determined that the director has met the relevant
standard of conduct set forth above or (ii) in connection with any proceedings
with respect to conduct for which the director was adjudged liable on the basis
that the director received a financial benefit to which the director was not
entitled, whether or not involving action in the director's official capacity.
In addition, Section 490.852 of the IBCA provides mandatory indemnification of
reasonable expenses incurred by a director who is wholly successful in defending
any action in which the director was a party because the director is or was a
director of the corporation. A director who is a party to a proceeding because
the person is a director may also apply for court-ordered indemnification and
advance of expenses under Section 490.854 of the IBCA.
Section 490.853 of the IBCA provides that a corporation may, before final
disposition of a proceeding, advance funds to pay for or reimburse the
reasonable expenses incurred by a director who is a party to a proceeding
because such person is a director if the director delivers the following to the
corporation: (1) a written affirmation that the director has met the standard of
conduct described above or that the proceeding involved conduct for which
liability has been eliminated under the corporation's articles of incorporation
and (2) the director's written undertaking to repay any funds advanced if the
director is not entitled to mandatory indemnification under Section 490.852 of
the IBCA and it is ultimately determined that the director has not met the
standard of conduct described above.
II-1
Under Section 490.856 of the IBCA, a corporation may indemnify and advance
expenses to an officer of the corporation who is a party to a proceeding because
such person is an officer, to the same extent as a director. In addition, if the
person is an officer but not a director, further indemnification may be provided
by the corporation's articles of incorporation or bylaws, a resolution of the
board of directors or by contract, except liability for (1) a proceeding by or
in the right of the corporation other than for reasonable expenses incurred in
connection with the proceeding and (2) conduct that constitutes receipt by the
officer of a financial benefit to which the officer is not entitled, an
intentional infliction of harm on the corporation or the shareholders or an
intentional violation of criminal law. Such indemnification is also available to
an officer who is also a director if the basis on which the officer is made a
party to a proceeding is an act taken or a failure to take action solely as an
officer.
Our Amended and Restated Articles of Incorporation provide that our directors
will not be liable to us or our shareholders for money damages for any action
taken, or any failure to take any action, as a director, except liability for
(1) the amount of a financial benefit received by a director to which the
director is not entitled, (2) an intentional infliction of harm on the
Registrant or the shareholders, (3) a violation of Section 490.833 of the IBCA
or (4) an intentional violation of criminal law.
Our Amended and Restated Articles of Incorporation also provide that we
indemnify each of our directors or officers for any action taken, or any failure
to take any action, as a director or officer except liability for (1) the amount
of a financial benefit received by a director to which the director is not
entitled, (2) an intentional infliction of harm on the Registrant or the
shareholders, (3) a violation of Section 490.833 of the IBCA or (4) an
intentional violation of criminal law. Additionally, the Registrant is required
to exercise all of its permissive powers as often as necessary to indemnify and
advance expenses to its directors and officers to the fullest extent permitted
by law.
Our Bylaws also provide indemnification to our directors on the same terms as
the indemnification provided in our Amended and Restated Articles of
Incorporation. Our Bylaws also provide for advances of expenses to our directors
and officers. The indemnification provisions of our Bylaws are not exclusive of
any other right which any person seeking indemnification may have or acquire
under any statute, our Amended and Restated of Incorporation or any agreement,
vote of stockholders or disinterested directors or otherwise.
Section 490.857 of the IBCA provides that a corporation may purchase and
maintain insurance on behalf of a person who is a director or officer of a
corporation, or who, while a director or officer of a corporation, serves at the
corporation's request as a director, officer, partner, trustee, employee or
agent of another domestic or foreign corporation, partnership, joint venture,
trust, employee benefit plan or other entity, against liability asserted against
or incurred by that person in that capacity or arising from that person's status
as a director or officer, whether or not the corporation would have the power to
indemnify or advance expenses to that person against the same liability under
the IBCA. As permitted by and in accordance with Section 490.857 of the IBCA, we
maintain insurance coverage for our officers and directors as well as insurance
coverage to reimburse us for potential costs for indemnification of directors
and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS.
-------------------------------------------------------------------------------------------------------------------------
EXHIBIT ITEM FILED
NUMBER DESCRIPTION INCORPORATED BY REFERENCE TO HEREWITH
-------------------------------------------------------------------------------------------------------------------------
(C)
1(i) Distribution Agreement dated as of [o], *
2015 between MEMBERS Life Insurance
Company ("MLIC") and CUNA
Brokerage Services, Inc. ("CBSI")
-------------------------------------------------------------------------------------------------------------------------
1(ii) Servicing Agreement dated as of [o], *
2015 between MLIC and CUNA
Brokerage Services, Inc. ("CBSI")
-------------------------------------------------------------------------------------------------------------------------
1(iii) Form of Selling and Services Agreement *
-------------------------------------------------------------------------------------------------------------------------
3(i) Articles of Incorporation of MLIC Incorporated herein by reference to the
initial filing of the MLIC Registration
Statement on Form S-1, filed February
6, 2013 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
II-2
-------------------------------------------------------------------------------------------------------------------------
EXHIBIT ITEM FILED
NUMBER DESCRIPTION INCORPORATED BY REFERENCE TO HEREWITH
-------------------------------------------------------------------------------------------------------------------------
3(ii) Bylaws of MLIC Incorporated herein by reference to the
initial filing of the MLIC Registration
Statement on Form S-1, filed February
6, 2013 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
4(i) Form of MEMBERS(R) Horizons Flexible Incorporated herein by reference to the
Premium Deferred Variable Annuity initial filing of the MLIC Registration
Contract (Form No. 2015-VA-B) Statement on Form N-4, filed September 25,
2015 (File Nos. 333-207120)
-------------------------------------------------------------------------------------------------------------------------
4(ii) Form of MEMBERS(R) Horizons Flexible Incorporated herein by reference to the
Premium Deferred Variable Annuity initial filing of the MLIC Registration
Contract (Form No. 2015-VA-C) Statement on Form N-4, filed September 25,
2015 (File Nos. 333-207120)
-------------------------------------------------------------------------------------------------------------------------
4(iii) Form of MEMBERS(R) Horizons Flexible Incorporated herein by reference to the
Premium Deferred Variable Annuity Data initial filing of the MLIC Registration
Page (Form No. 2015-VADP-B) Statement on Form N-4, filed September 25,
2015 (File Nos. 333-207120)
-------------------------------------------------------------------------------------------------------------------------
4(iv) Form of MEMBERS(R) Horizons Flexible Incorporated herein by reference to the
Premium Deferred Variable Annuity Data initial filing of the MLIC Registration
Page (Form No. 2015-VADP-C) Statement on Form N-4, filed September 25,
2015 (File Nos. 333-207120)
-------------------------------------------------------------------------------------------------------------------------
4(v)(a) Form of Individual Retirement Annuity Incorporated herein by reference to the
Endorsement initial filing of the MLIC Registration
Statement on Form N-4, filed September 25,
2015 (File Nos. 333-207120)
-------------------------------------------------------------------------------------------------------------------------
4(v)(b) Form of Roth Individual Retirement Incorporated herein by reference to the
Annuity Endorsement initial filing of the MLIC Registration
Statement on Form N-4, filed September 25,
2015 (File Nos. 333-207120)
-------------------------------------------------------------------------------------------------------------------------
4(vi) Form of MEMBERS(R) Horizons Flexible Incorporated herein by reference to the
Premium Deferred Variable Annuity initial filing of the MLIC Registration
Application Statement on Form N-4, filed September 25,
2015 (File Nos. 333-207120)
-------------------------------------------------------------------------------------------------------------------------
5 Legal Opinion *
-------------------------------------------------------------------------------------------------------------------------
10(i)(a) Coinsurance Agreement dated as of Incorporated herein by reference to the
October 31, 2012 filing of Pre-Effective Amendment
No. 1 to the MLIC Registration
Statement on Form S-1, filed June 12,
2013 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
10(i)(b) Coinsurance Agreement dated as of Incorporated herein by reference to the
January 1, 2013 filing of Pre-Effective Amendment
No. 1 to the MLIC Registration
Statement on Form S-1, filed June 12,
2013 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
10(i)(c) First Amendment to Coinsurance Incorporated herein by reference to the
Agreement dated as of January 1, 2014 filing of Post-Effective Amendment
No. 1 to the MLIC Registration
Statement on Form S-1, filed April 4,
2014 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
10(ii)(a) Cost Sharing Agreement Incorporated herein by reference to the
filing of Pre-Effective Amendment
No. 1 to the MLIC Registration
Statement on Form S-1, filed June 12,
2013 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
II-3
-------------------------------------------------------------------------------------------------------------------------
EXHIBIT ITEM FILED
NUMBER DESCRIPTION INCORPORATED BY REFERENCE TO HEREWITH
-------------------------------------------------------------------------------------------------------------------------
10(ii)(b) Expense Sharing Agreement dated as of Incorporated herein by reference to the
December 31, 2013 filing of Post-Effective Amendment
No. 1 to the MLIC Registration
Statement on Form S-1, filed April 4,
2014 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
10(ii)(c) Amended and Restated Expense Sharing Incorporated herein by reference to the
Agreement dated as of January 1, 2015 filing of the MLIC Registration
Statement on Form S-1, filed March
25, 2015 (File No. 333-202984)
-------------------------------------------------------------------------------------------------------------------------
10(iii)(a) Investment Advisory Agreement Incorporated herein by reference to the
filing of Pre-Effective Amendment
No. 1 to the MLIC Registration
Statement on Form S-1, filed June 12,
2013 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
10(iii)(b) Amendment to Investment Advisory Incorporated herein by reference to the
Agreement dated January 15, 2014 filing of Post-Effective Amendment
No. 1 to the MLIC Registration
Statement on Form S-1, filed April 4,
2014 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
10(iii)(c) Amended and Restated Investment Incorporated herein by reference to the
Advisory Agreement dated January 1, filing of the MLIC Registration
2015 Statement on Form S-1, filed March
25, 2015 (File No. 333-202984)
-------------------------------------------------------------------------------------------------------------------------
10(iv)(a) Procurement and Disbursement and Incorporated herein by reference to the
Billing and Collection Services filing of Pre-Effective Amendment
Agreement No. 1 to the MLIC Registration
Statement on Form S-1, filed June 12,
2013 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
10(iv)(b) Amendment to Procurement and Incorporated herein by reference to the
Disbursement and Billing and Collection filing of Post-Effective Amendment
Services Agreement No. 1 to the MLIC Registration
Statement on Form S-1, filed April 4,
2014 (File No. 333-186477)
-------------------------------------------------------------------------------------------------------------------------
10(iv)(c) CUNA Mutual Group Cost Sharing, Incorporated herein by reference to the
Procurement, Disbursement, Billing and filing of the MLIC Registration
Collection Agreement dated as of January Statement on Form S-1, filed March
1, 2015 25, 2015 (File No. 333-202984)
-------------------------------------------------------------------------------------------------------------------------
10(v)(a) Participation Agreement between *
BlackRock Variable Series Funds, Inc.
and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(b) Participation Agreement between Columbia *
Threadneedle and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(c) Participation Agreement between DFA *
Investment Dimensions Group Inc. and
MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(d) Participation Agreement between Dreyfus *
Variable Investment Fund and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(e) Participation Agreement between Franklin *
Templeton Variable Insurance Products
Trust and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(f) Participation Agreement between Goldman *
Sachs Variable Insurance Trust and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(g) Participation Agreement between AIM *
-------------------------------------------------------------------------------------------------------------------------
II-4
-------------------------------------------------------------------------------------------------------------------------
EXHIBIT ITEM FILED
NUMBER DESCRIPTION INCORPORATED BY REFERENCE TO HEREWITH
-------------------------------------------------------------------------------------------------------------------------
Variable Insurance Funds(Invesco Variable
Insurance Funds) and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(h) Participation Agreement between Lazard *
Retirement Series, Inc. and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(i) Participation Agreement between MFS *
Variable Insurance Trust and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(j) Participation Agreement between Morgan *
Stanley and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(k) Participation Agreement between *
Oppenheimer Variable Account Funds
and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(l) Participation Agreement between PIMCO *
Variable Insurance Trust and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(m) Participation Agreement between *
Northern Lights Variable Trust and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(n) Participation Agreement between T Rowe *
Price Equity Series, Inc. and MLIC
-------------------------------------------------------------------------------------------------------------------------
10(v)(o) Participation Agreement between *
Vanguard Variable Insurance Fund and
MLIC
-------------------------------------------------------------------------------------------------------------------------
23(i) Consent of Legal Counsel See Exhibit 5 *
-------------------------------------------------------------------------------------------------------------------------
23(ii) Consent of Independent Registered Public *
Accounting Firm
-------------------------------------------------------------------------------------------------------------------------
24 Powers of Attorney X
-------------------------------------------------------------------------------------------------------------------------
101 Interactive Date Files X
-------------------------------------------------------------------------------------------------------------------------
*To be filed by Amendment.
ITEM 17. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining liability under the Securities Act of
1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of
a Registration Statement relating to an offering, other than Registration
II-5
Statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the Registration
Statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a Registration Statement or prospectus that
is part of the Registration Statement or made in a document incorporated or
deemed incorporated by reference into the Registration Statement or prospectus
that is part of the Registration Statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement
that was made in the Registration Statement or prospectus that was part of the
Registration Statement or made in any such document immediately prior to such
date of first use.
(5) That, for the purpose of determining liability of the Registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities, the undersigned Registrant undertakes that in a primary offering of
securities of the undersigned Registrant pursuant to this Registration
Statement, regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned Registrant will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned Registrant
relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned Registrant or used or referred to by the
undersigned Registrant;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
Registrant or its securities provided by or on behalf of the
undersigned Registrant; and
(iv) Any other communication that is an offer in the offering made by the
undersigned Registrant to the purchaser.
(B) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, MEMBERS Life
Insurance Company has duly caused this Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City of Madison, and
State of Wisconsin as of this 1st day of October, 2015.
MEMBERS Life Insurance Company
By: /s/ Robert N. Trunzo
------------------------------------
Robert N. Trunzo, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and as of
the dates indicated:
NAME TITLE DATE
---- ----- ----
/s/ Robert N. Trunzo
----------------------------------------- President and Director October 1, 2015
Robert N. Trunzo (Principal Executive
Officer)
/s/ Brian J. Borakove
----------------------------------------- Treasurer (Principal October 1, 2015
Brian J. Borakove Financial & Accounting
Officer)
/s/ M. Jeffrey Bosco*
----------------------------------------- Director October 1, 2015
M. Jeffrey Bosco
/s/ Christopher J. Copeland*
----------------------------------------- Director October 1, 2015
Christopher J. Copeland
/s/ Thomas J. Merfeld*
----------------------------------------- Director October 1, 2015
Thomas J. Merfeld
/s/ James M. Power*
----------------------------------------- Director October 1, 2015
James M. Power
*By: /s/ Ross D. Hansen
------------------
Ross D. Hansen
*Pursuant to Power of Attorney (see Exhibit 24 to this Registration
Statement)
II-7
MLIC FORM S-1
MEMBERS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
CHRISTOPHER J. COPELAND
DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mike Anderson or Ross D. Hansen, each of
them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
re-substitution, for him and on his behalf and in his name, place and stead, in
any and all capacities, to sign, execute and file this registration statement
under the Securities Act of 1933, as amended, and any or all amendments
(including, without limitation, post-effective amendments) to this registration
statement, with all exhibits and any and all documents required to be filed with
respect thereto, with the Securities and Exchange Commission or any other
regulatory authority, granting unto such attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
appropriate or necessary to be done in order to effectuate the same, as fully to
all intents and purposes as he himself might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
---------------------------------------------------------------------------------
PRODUCT NAME 1933 ACT FILE NUMBER
---------------------------------------------------------------------------------
MEMBERS Flexible Premium Deferred 333-
Variable Annuity
---------------------------------------------------------------------------------
IN WITNESS WHEREOF, this 25 day of September, 2015
/s/Christopher J. Copeland
--------------------------
Christopher J. Copeland
MLIC FORM S-1
MEMBERS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
THOMAS J. MERFELD
DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mike Anderson or Ross D. Hansen, each of
them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
re-substitution, for him and on his behalf and in his name, place and stead, in
any and all capacities, to sign, execute and file this registration statement
under the Securities Act of 1933, as amended, and any or all amendments
(including, without limitation, post-effective amendments) to this registration
statement, with all exhibits and any and all documents required to be filed with
respect thereto, with the Securities and Exchange Commission or any other
regulatory authority, granting unto such attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
appropriate or necessary to be done in order to effectuate the same, as fully to
all intents and purposes as he himself might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
---------------------------------------------------------------------------------
PRODUCT NAME 1933 ACT FILE NUMBER
---------------------------------------------------------------------------------
MEMBERS Flexible Premium Deferred 333-
Variable Annuity
---------------------------------------------------------------------------------
IN WITNESS WHEREOF, this 25 day of September, 2015
/s/Thomas J. Merfeld
--------------------
Thomas J. Merfeld
MLIC FORM S-1
MEMBERS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
JAMES M. POWER
DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mike Anderson or Ross D. Hansen, each of
them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
re-substitution, for him and on his behalf and in his name, place and stead, in
any and all capacities, to sign, execute and file this registration statement
under the Securities Act of 1933, as amended, and any or all amendments
(including, without limitation, post-effective amendments) to this registration
statement, with all exhibits and any and all documents required to be filed with
respect thereto, with the Securities and Exchange Commission or any other
regulatory authority, granting unto such attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
appropriate or necessary to be done in order to effectuate the same, as fully to
all intents and purposes as he himself might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
---------------------------------------------------------------------------------
PRODUCT NAME 1933 ACT FILE NUMBER
---------------------------------------------------------------------------------
MEMBERS Flexible Premium Deferred 333-
Variable Annuity
---------------------------------------------------------------------------------
IN WITNESS WHEREOF, this 25 day of September, 2015
/s/James M. Power
-----------------
James M. Power
MLIC FORM S-1
MEMBERS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
M. JEFFREY BOSCO
DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mike Anderson or Ross D. Hansen, each of
them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
re-substitution, for him and on his behalf and in his name, place and stead, in
any and all capacities, to sign, execute and file this registration statement
under the Securities Act of 1933, as amended, and any or all amendments
(including, without limitation, post-effective amendments) to this registration
statement, with all exhibits and any and all documents required to be filed with
respect thereto, with the Securities and Exchange Commission or any other
regulatory authority, granting unto such attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
appropriate or necessary to be done in order to effectuate the same, as fully to
all intents and purposes as he himself might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
---------------------------------------------------------------------------------
PRODUCT NAME 1933 ACT FILE NUMBER
---------------------------------------------------------------------------------
MEMBERS Flexible Premium Deferred 333-
Variable Annuity
---------------------------------------------------------------------------------
IN WITNESS WHEREOF, this 25 day of September, 2015
/s/M. Jeffrey Bosco
-------------------
M. Jeffrey Bosco
MLIC FORM S-1
MEMBERS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
BRIAN J. BORAKOVE
TREASURER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mike Anderson or Ross D. Hansen, each of
them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
re-substitution, for him and on his behalf and in his name, place and stead, in
any and all capacities, to sign, execute and file this registration statement
under the Securities Act of 1933, as amended, and any or all amendments
(including, without limitation, post-effective amendments) to this registration
statement, with all exhibits and any and all documents required to be filed with
respect thereto, with the Securities and Exchange Commission or any other
regulatory authority, granting unto such attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
appropriate or necessary to be done in order to effectuate the same, as fully to
all intents and purposes as he himself might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
---------------------------------------------------------------------------------
PRODUCT NAME 1933 ACT FILE NUMBER
---------------------------------------------------------------------------------
MEMBERS Flexible Premium Deferred 333-
Variable Annuity
---------------------------------------------------------------------------------
IN WITNESS WHEREOF, this 25 day of September, 2015
/s/Brian J. Borakove
--------------------
Brian J. Borakove
MLIC FORM S-1
MEMBERS LIFE INSURANCE COMPANY
POWER OF ATTORNEY
ROBERT N. TRUNZO
PRESIDENT/DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mike Anderson or Ross D. Hansen, each of
them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
re-substitution, for him and on his behalf and in his name, place and stead, in
any and all capacities, to sign, execute and file this registration statement
under the Securities Act of 1933, as amended, and any or all amendments
(including, without limitation, post-effective amendments) to this registration
statement, with all exhibits and any and all documents required to be filed with
respect thereto, with the Securities and Exchange Commission or any other
regulatory authority, granting unto such attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
appropriate or necessary to be done in order to effectuate the same, as fully to
all intents and purposes as he himself might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
---------------------------------------------------------------------------------
PRODUCT NAME 1933 ACT FILE NUMBER
---------------------------------------------------------------------------------
MEMBERS Flexible Premium Deferred 333-
Variable Annuity
---------------------------------------------------------------------------------
IN WITNESS WHEREOF, this 25 day of September, 2015
/s/Robert N. Trunzo
-------------------
Robert N. Trunzo
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