PROSPECTUSES. UltraVers-ALL LIFE SM MEMBERS Variable Universal Life II MAY 2018

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1 UltraVers-ALL LIFE SM MEMBERS Variable Universal Life II PROSPECTUSES MAY 2018 This booklet is for policyowners of UltraVers-ALL Life SM and MEMBERS Variable Universal Life II, flexible premium variable universal life insurance policies issued by CMFG Life Insurance Company and supported by the CMFG Variable Life Insurance Account. This booklet contains CMFG Variable Life Insurance Account s and CMFG Life Insurance Company s audited financial statements and prospectuses for the following mutual funds in which the CMFG Variable Life Insurance Account invests: T. Rowe Price International Stock Portfolio, a series of T. Rowe Price International Series, Inc. Conservative Allocation Fund, Moderate Allocation Fund, Aggressive Allocation Fund, Core Bond Fund, High Income Fund, Diversified Income Fund, Large Cap Growth Fund, Large Cap Value Fund, Mid Cap Fund and International Stock Fund (Class I), each a series of the Ultra Series Fund. Vanguard Variable Insurance Fund Money Market Portfolio, a series of Vanguard Insurance Fund. Distributed by: CUNA Brokerage Services, Inc. Office of Supervisory Jurisdiction 2000 Heritage Way Waverly, IA Member FINRA & SIPC Telephone: (319) (800) Move confidently into the future TM

2 PROSPECTUS UltraVers-ALL LIFE SM does accept new premium for the T. Rowe Price International Stock subaccount and also allows transfers of money to the subaccount that invests in that fund. MEMBERS Variable Universal Life II does not accept new payments for the T. Rowe Price International Stock subaccount, and does not allow transfers of money to the subaccount that invests in that fund. The Conservative Allocation Fund, Moderate Allocation Fund, Aggressive Allocation Fund, High Income Fund and International Stock Fund are available as investment options for MEMBERS Variable Universal Life II. SM If you own an UltraVers-ALL LIFE or MEMBERS Variable Universal Life II, you will also receive a booklet that contains the prospectuses for other mutual funds in which the CMFG Variable Life Insurance Account invests. To reduce service expenses, CMFG Life Insurance Company may send only one copy of this booklet per household, regardless of the number of owners at the household. However, any owner may obtain additional copies of this booklet upon request to CMFG Life Insurance Company. If you have questions, please call CMFG Life Insurance Company at , Monday through Friday, 7:00 a.m. to 7:00 p.m., Central Time. As with all variable life insurance policies and mutual funds, the Securities and Exchange Commission ( SEC ) has not approved or disapproved of these securities, nor does the SEC guarantee the accuracy or adequacy of any prospectus. Any statement to the contrary is a criminal offense. Special Notes Now you can receive your prospectuses, annual and semi-annual reports by and eliminate the need for paper to be mailed to you. To sign up, call us at (800) To view information about your contract online, visit

3 Deloitte & Touche LLP 111 South Wacker Drive Chicago, IL USA Tel: Fax: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of CMFG Life Insurance Company and Policy Owners of CMFG Variable Life Insurance Account: Opinion on the Financial Statements and Financial Highlights We have audited the accompanying statement of assets and liabilities for each of the subaccounts listed in Appendix A of CMFG Variable Life Insurance Account (the Account ) as of December 31, 2017, and the related statements of operations, the statements of changes in net assets and the financial highlights for each of the periods presented in Appendix A. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of each of the subaccounts comprising the Account as of December 31, 2017, and the results of their operations, the changes in their net assets, and the financial highlights for each of the periods presented in Appendix A, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements and financial highlights are the responsibility of the Account's management. Our responsibility is to express an opinion on the Account's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Account in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Account is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Account s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the Account s fund managers. We believe that our audits provide a reasonable basis for our opinion. February 2, 2018 We have served as the auditor of CMFG Variable Life Insurance Account since 2004.

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5 CMFG Variable Life Insurance Account Statements of Assets and Liabilities As of December 31, 2017 Templeton MFS Oppenheimer T. Rowe Price Developing Strategic Global Strategic International Markets VIP Income Portfolio, Income Fund/VA, Stock Fund, Class 2, Initial Class, Non-Service Shares, Portfolio, Subaccount Subaccount Subaccount Subaccount Assets Investments in mutual funds at fair value $ 12,968 $ 239,725 $ 9,472 $ 6,659,570 Total assets 12, ,725 9,472 6,659,570 Liabilities Net assets $ 12,968 $ 239,725 $ 9,472 $ 6,659,570 Net assets Net assets: type 1 $ - $ 239,516 $ - $ 6,563,695 Net assets: type 2 12, ,472 95,875 Total net assets $ 12,968 $ 239,725 $ 9,472 $ 6,659,570 Number of shares outstanding 1,268 24,362 1, ,837 Net asset value per share $ $ 9.84 $ 5.13 $ Cost of mutual fund shares $ 9,307 $ 243,740 $ 10,104 $ 5,462,021 Assets Ultra Series Ultra Series Ultra Series Ultra Series Aggressive Core Bond Conservative Diversified Allocation Fund, Allocation Fund, Income Fund, Class I, Class I, Class I, Fund, Class I, Subaccount Subaccount Subaccount Subaccount Investments in mutual funds at fair value $ 1,147,838 $ 6,079,422 $ 179,132 $ 55,806,472 Total assets 1,147,838 6,079, ,132 55,806,472 Liabilities Net assets $ 1,147,838 $ 6,079,422 $ 179,132 $ 55,806,472 Net assets Net assets: type 1 $ - $ 4,001,539 $ - $ 47,775,862 Net assets: type 2 1,147,838 2,077, ,132 8,030,610 Total net assets $ 1,147,838 $ 6,079,422 $ 179,132 $ 55,806,472 Number of shares outstanding 113, ,955 17,526 2,855,252 Net asset value per share $ $ 9.76 $ $ Cost of mutual fund shares $ 1,112,581 $ 6,391,641 $ 181,211 $ 50,357,952 See accompanying notes to financial statements 1

6 CMFG Variable Life Insurance Account Statements of Assets and Liabilities (continued) As of December 31, 2017 Ultra Series Ultra Series Ultra Series Ultra Series High Income International Large Cap Large Cap Fund, Stock Fund, Growth Fund, Value Fund, Class I, Class I, Class I, Class I, Subaccount Subaccount Subaccount Subaccount Assets Investments in mutual funds at fair value $ 1,002,526 $ 2,721,579 $ 41,731,370 $ 77,973,086 Total assets 1,002,526 2,721,579 41,731,370 77,973,086 Liabilities Net assets $ 1,002,526 $ 2,721,579 $ 41,731,370 $ 77,973,086 Net assets Net assets: type 1 $ - $ - $ 32,838,323 $ 68,696,268 Net assets: type 2 1,002,526 2,721,579 8,893,047 9,276,818 Total net assets $ 1,002,526 $ 2,721,579 $ 41,731,370 $ 77,973,086 Number of shares outstanding 115, ,027 1,572,502 2,737,646 Net asset value per share $ 8.66 $ $ $ Cost of mutual fund shares $ 1,082,358 $ 2,553,683 $ 35,973,147 $ 74,209,388 Assets Ultra Series Ultra Series Vanguard Mid Cap Moderate VIF Money Fund, Allocation Market Class I, Fund, Class I, Portfolio, Subaccount Subaccount Subaccount Investments in mutual funds at fair value $ 21,147,288 $ 2,185,875 $ 2,163,990 Total assets 21,147,288 2,185,875 2,163,990 Liabilities Net assets $ 21,147,288 $ 2,185,875 $ 2,163,990 Net assets Net assets: type 1 $ 10,862,905 $ - $ 913,983 Net assets: type 2 10,284,383 2,185,875 1,250,007 Total net assets $ 21,147,288 $ 2,185,875 $ 2,163,990 Number of shares outstanding 1,114, ,528 2,163,990 Net asset value per share $ $ $ 1.00 Cost of mutual fund shares $ 18,075,249 $ 2,087,035 $ 2,163,990 See accompanying notes to financial statements 2

7 CMFG Variable Life Insurance Account Statements of Operations For the Period Ended December 31, 2017 Templeton MFS Oppenheimer T. Rowe Price Developing Strategic Global Strategic International Markets VIP Income Portfolio, Income Fund/VA, Stock Fund, Class 2, Initial Class, Non-Service Shares, Portfolio, Subaccount Subaccount Subaccount Subaccount Investment income (loss) Dividend Income $ 120 $ 11,289 $ 224 $ 69,583 Mortality and expense charges (note 3) (110) (2,195) (88) (56,470) Net investment income (loss) 10 9, ,113 Realized gain (loss) on sale of fund shares Net realized gain (loss) on sale of fund shares 324 (162) (68) 101,926 Realized gain distributions ,357 Net realized gain (loss) on investments 324 (162) (68) 358,283 Net change in unrealized appreciation (depreciation) on investments 3,616 3, ,086,461 Net increase (decrease) in net assets resulting from operations $ 3,950 $ 12,613 $ 507 $ 1,457,857 Ultra Series Ultra Series Ultra Series Ultra Series Aggressive Core Bond Conservative Diversified Allocation Fund, Allocation Fund, Income Fund, Class I, Class I, Class I, Fund, Class I, Subaccount Subaccount Subaccount Subaccount Investment income (loss) Dividend Income $ 19,257 $ 180,016 $ 3,765 $ 1,201,989 Mortality and expense charges (note 3) (10,153) (55,884) (2,467) (483,298) Net investment income (loss) 9, ,132 1, ,691 Realized gain (loss) on sale of fund shares Net realized gain (loss) on sale of fund shares 8,968 (19,669) ,892 Realized gain distributions 74,207-4,794 2,296,018 Net realized gain (loss) on investments 83,175 (19,669) 5,681 2,709,910 Net change in unrealized appreciation (depreciation) on investments 88,724 31,325 17,003 2,840,884 Net increase (decrease) in net assets resulting from operations $ 181,003 $ 135,788 $ 23,982 $ 6,269,485 See accompanying notes to financial statements 3

8 CMFG Variable Life Insurance Account Statements of Operations (continued) For the Period Ended December 31, 2017 Ultra Series Ultra Series Ultra Series Ultra Series High Income International Large Cap Large Cap Fund, Stock Fund, Growth Fund, Value Fund, Class I, Class I, Class I, Class I, Subaccount Subaccount Subaccount Subaccount Investment income (loss) Dividend Income $ 49,368 $ 32,833 $ 304,940 $ 1,757,353 Mortality and expense charges (note 3) (9,377) (22,894) (352,227) (660,855) Net investment income (loss) 39,991 9,939 (47,287) 1,096,498 Realized gain (loss) on sale of fund shares Net realized gain (loss) on sale of fund shares (4,987) (824) 622, ,782 Realized gain distributions - - 5,024,858 4,277,174 Net realized gain (loss) on investments (4,987) (824) 5,647,511 4,503,956 Net change in unrealized appreciation (depreciation) on investments 19, ,821 1,902,101 4,908,074 Net increase (decrease) in net assets resulting from operations $ 54,790 $ 490,936 $ 7,502,325 $ 10,508,528 Ultra Series Ultra Series Vanguard Mid Cap Moderate VIF Money Fund, Allocation Market Class I, Fund, Class I, Portfolio, Subaccount Subaccount Subaccount Investment income (loss) Dividend Income $ - $ 42,381 $ 19,048 Mortality and expense charges (note 3) (181,355) (18,462) (17,011) Net investment income (loss) (181,355) 23,919 2,037 Realized gain (loss) on sale of fund shares Net realized gain (loss) on sale of fund shares 323,734 14,091 - Realized gain distributions 2,000, ,067 - Net realized gain (loss) on investments 2,323, ,158 - Net change in unrealized appreciation (depreciation) on investments 640, ,440 - Net increase (decrease) in net assets resulting from operations $ 2,783,302 $ 265,517 $ 2,037 See accompanying notes to financial statements 4

9 CMFG Variable Life Insurance Account Statements of Changes in Net Assets For the Years Ended December 31, Templeton Developing Markets VIP Fund, Class 2, Subaccount MFS Strategic Income Portfolio, Initial Class, Subaccount Increase (decrease) in net assets from operations Net investment income (loss) $ 10 $ (4) $ 9,094 $ 5,424 Net realized gain (loss) on investments 324 (76) (162) (717) Net change in unrealized appreciation (depreciation) on investments 3,616 1,780 3,681 12,596 Net increase (decrease) in net assets resulting from operations 3,950 1,700 12,613 17,303 Contract transactions Payments received from contract owners Transfers between subaccounts (including fixed accounts), net (6) - (358) 17 Payment for contract benefits and terminations (606) (1,286) (1,480) (1,564) Contract charges and fees (798) (804) (14,755) (14,950) Net increase (decrease) in net assets from contract transactions (1,410) (2,090) (16,593) (16,497) Total increase (decrease) in net assets 2,540 (390) (3,980) 806 Net assets Beginning of period 10,428 10, , ,899 End of period $ 12,968 $ 10,428 $ 239,725 $ 243,705 Oppenheimer Global Strategic Income Fund/VA, Non-Service Shares, Subaccount T. Rowe Price International Stock Portfolio, Subaccount Increase (decrease) in net assets from operations Net investment income (loss) $ 136 $ 409 $ 13,113 $ 8,767 Net realized gain (loss) on investments (68) (204) 358, ,121 Net change in unrealized appreciation (depreciation) on investments ,086,461 (182,519) Net increase (decrease) in net assets resulting from operations ,457,857 72,369 Contract transactions Payments received from contract owners , ,088 Transfers between subaccounts (including fixed accounts), net (30) 20 (16,970) (93,626) Payment for contract benefits and terminations (289) (1,011) (403,217) (287,737) Contract charges and fees (439) (502) (380,206) (392,968) Net increase (decrease) in net assets from contract transactions (758) (1,493) (426,553) (392,243) Total increase (decrease) in net assets (251) (955) 1,031,304 (319,874) Net assets Beginning of period 9,723 10,678 5,628,266 5,948,140 End of period $ 9,472 $ 9,723 $ 6,659,570 $ 5,628,266 See accompanying notes to financial statements 5

10 CMFG Variable Life Insurance Account Statements of Changes in Net Assets (continued) For the Years Ended December 31, Ultra Series Ultra Series Aggressive Allocation Core Bond Fund, Fund, Class I, Subaccount Class I, Subaccount Increase (decrease) in net assets from operations Net investment income (loss) $ 9,104 $ 9,921 $ 124,132 $ 132,014 Net realized gain (loss) on investments 83,175 13,725 (19,669) (17,442) Net change in unrealized appreciation (depreciation) on investments 88,724 53,609 31,325 4,503 Net increase (decrease) in net assets resulting from operations 181,003 77, , ,075 Contract transactions Payments received from contract owners 74,140 80, , ,751 Transfers between subaccounts (including fixed accounts), net 5,227 1,749 76, ,888 Payment for contract benefits and terminations (126,819) (16,065) (386,006) (506,342) Contract charges and fees (48,198) (50,352) (372,687) (413,109) Net increase (decrease) in net assets from contract transactions (95,650) 16,158 (349,694) (405,812) Total increase (decrease) in net assets 85,353 93,413 (213,906) (286,737) Net assets Beginning of period 1,062, ,072 6,293,328 6,580,065 End of period $ 1,147,838 $ 1,062,485 $ 6,079,422 $ 6,293,328 Ultra Series Conservative Allocation Fund, Class I, Subaccount Ultra Series Diversified Income Fund, Class I, Subaccount Increase (decrease) in net assets from operations Net investment income (loss) $ 1,298 $ 2,453 $ 718,691 $ 798,410 Net realized gain (loss) on investments 5,681 (1,556) 2,709,910 4,304,104 Net change in unrealized appreciation (depreciation) on investments 17,003 18,104 2,840,884 (1,007,120) Net increase (decrease) in net assets resulting from operations 23,982 19,001 6,269,485 4,095,394 Contract transactions Payments received from contract owners 11,115 10,737 2,734,033 2,778,033 Transfers between subaccounts (including fixed accounts), net (79,700) (123,391) (162,499) (140,290) Payment for contract benefits and terminations (62,579) (834) (2,392,617) (3,215,633) Contract charges and fees (18,836) (21,322) (3,296,794) (3,422,275) Net increase (decrease) in net assets from contract transactions (150,000) (134,810) (3,117,877) (4,000,165) Total increase (decrease) in net assets (126,018) (115,809) 3,151,608 95,229 Net assets Beginning of period 305, ,959 52,654,864 52,559,635 End of period $ 179,132 $ 305,150 $ 55,806,472 $ 52,654,864 See accompanying notes to financial statements 6

11 CMFG Variable Life Insurance Account Statements of Changes in Net Assets (continued) For the Years Ended December 31, Ultra Series High Income Fund, Class I, Subaccount Ultra Series International Stock Fund, Class I, Subaccount Increase (decrease) in net assets from operations Net investment income (loss) $ 39,991 $ 43,234 $ 9,939 $ 20,529 Net realized gain (loss) on investments (4,987) (10,511) (824) (30,105) Net change in unrealized appreciation (depreciation) on investments 19,786 74, ,821 (83,697) Net increase (decrease) in net assets resulting from operations 54, , ,936 (93,273) Contract transactions Payments received from contract owners 37,464 38, , ,926 Transfers between subaccounts (including fixed accounts), net (14,545) (14,783) 3,115 79,898 Payment for contract benefits and terminations (64,634) (55,510) (119,150) (209,205) Contract charges and fees (40,689) (41,817) (104,349) (107,549) Net increase (decrease) in net assets from contract transactions (82,404) (73,336) (65,827) (80,930) Total increase (decrease) in net assets (27,614) 33, ,109 (174,203) Net assets Beginning of period 1,030, ,340 2,296,470 2,470,673 End of period $ 1,002,526 $ 1,030,140 $ 2,721,579 $ 2,296,470 Ultra Series Large Cap Growth Fund, Class I, Subaccount Ultra Series Large Cap Value Fund, Class I, Subaccount Increase (decrease) in net assets from operations Net investment income (loss) $ (47,287) $ (21,961) $ 1,096,498 $ 432,105 Net realized gain (loss) on investments 5,647,511 2,557,814 4,503,956 8,777,246 Net change in unrealized appreciation (depreciation) on investments 1,902,101 (864,442) 4,908,074 (1,347,817) Net increase (decrease) in net assets resulting from operations 7,502,325 1,671,411 10,508,528 7,861,534 Contract transactions Payments received from contract owners 1,858,321 1,879,410 3,623,071 3,657,668 Transfers between subaccounts (including fixed accounts), net (192,946) (465,126) (282,542) (640,378) Payment for contract benefits and terminations (1,758,483) (2,145,883) (4,012,932) (3,182,523) Contract charges and fees (1,898,979) (1,922,369) (3,900,221) (3,970,738) Net increase (decrease) in net assets from contract transactions (1,992,087) (2,653,968) (4,572,624) (4,135,971) Total increase (decrease) in net assets 5,510,238 (982,557) 5,935,904 3,725,563 Net assets Beginning of period 36,221,132 37,203,689 72,037,182 68,311,619 End of period $ 41,731,370 $ 36,221,132 $ 77,973,086 $ 72,037,182 See accompanying notes to financial statements 7

12 CMFG Variable Life Insurance Account Statements of Changes in Net Assets (continued) For the Years Ended December 31, Ultra Series Mid Cap Fund, Class I, Subaccount Ultra Series Moderate Allocation Fund, Class I, Subaccount Increase (decrease) in net assets from operations Net investment income (loss) $ (181,355) $ (163,289) $ 23,919 $ 20,193 Net realized gain (loss) on investments 2,323,916 2,050, ,158 50,332 Net change in unrealized appreciation (depreciation) on investments 640, , ,440 49,198 Net increase (decrease) in net assets resulting from operations 2,783,302 2,095, , ,723 Contract transactions Payments received from contract owners 983, , , ,385 Transfers between subaccounts (including fixed accounts), net (133,986) (214,782) 64,281 10,238 Payment for contract benefits and terminations (1,018,142) (1,043,369) (111,732) (47,335) Contract charges and fees (924,759) (933,576) (94,048) (97,957) Net increase (decrease) in net assets from contract transactions (1,093,438) (1,252,127) (29,715) (16,669) Total increase (decrease) in net assets 1,689, , , ,054 Net assets Beginning of period 19,457,424 18,614,041 1,950,073 1,847,019 End of period $ 21,147,288 $ 19,457,424 $ 2,185,875 $ 1,950,073 Vanguard VIF Money Market Portfolio, Subaccount* Increase (decrease) in net assets from operations Net investment income (loss) $ 2,037 $ (7,338) Net realized gain (loss) on investments - - Net change in unrealized appreciation (depreciation) on investments - - Net increase (decrease) in net assets resulting from operations 2,037 (7,338) Contract transactions Payments received from contract owners 228, ,251 Transfers between subaccounts (including fixed accounts), net 267,268 2,090,857 Payment for contract benefits and terminations (110,031) (84,017) Contract charges and fees (229,932) (207,744) Net increase (decrease) in net assets from contract transactions 155,944 2,013,347 Total increase (decrease) in net assets 157,981 2,006,009 Net assets Beginning of period 2,006,009 - End of period $ 2,163,990 $ 2,006,009 *The Subaccount commenced operations effective February 12, 2016 See accompanying notes to financial statements 8

13 CMFG Variable Life Insurance Account Notes to Financial Statements (1) Organization The CMFG Variable Life Insurance Account ( the Account ) was established as a separate account of CMFG Life Insurance Company ( The Company ). The Account is registered with the Securities and Exchange Commission ( SEC ) as a unit investment trust under the Investment Company Act of 1940 ( 1940 Act ) as amended. Such registration does not involve supervision of the management or investment practices or policies of the companies or their funds by the SEC. The Account was established to receive and invest net premiums paid by the contract owners to the Company under two flexible premium variable life insurance contract types issued by the Company: MEMBERS Variable Universal Life and UltraVers ALL-Life SM (type 1) and MEMBERS Variable Universal Life II (type 2) ( contracts ). The Account is divided into a number of subaccounts, each of which is treated as an individual accounting entity for financial reporting purposes. Each subaccount invests solely in a corresponding portfolio of one of the following funds, each an open-end management investment company registered with the SEC. Franklin Templeton Variable Insurance Products Trust Templeton Developing Markets VIP Fund (1) MFS Variable Insurance Trust II MFS Strategic Income Portfolio Oppenheimer Variable Account Funds Oppenheimer Global Strategic Income Fund/VA (1) T. Rowe Price International Series, Inc. T. Rowe Price International Stock Portfolio Ultra Series Fund Aggressive Allocation Fund (1) Core Bond Fund Conservative Allocation Fund (1) Diversified Income Fund High Income Fund (1) International Stock Fund (1) Large Cap Growth Fund Large Cap Value Fund Mid Cap Fund Moderate Allocation Fund (1) Vanguard Variable Insurance Fund Vanguard VIF Money Market Portfolio (1) This subaccount is only available in the MEMBERS Variable Universal Life II (type 2) product. The accompanying financial statements include only the contract owner assets, deposits, investment activity, and the contract transactions applicable to the variable portions of the contracts and exclude assets and activity for deposits for fixed dollar benefits, which are included in the general account of the Company. The net investment income and the realized and unrealized gains and losses from the assets for each subaccount are credited to or charged against that subaccount without regard to income, gains or losses from any other subaccount. (2) Significant Accounting Policies Basis of Presentation The Account is an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board ( FASB ) Accounting Standards Codification Topic 946, Financial Services- Investment Companies. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ( GAAP ) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. 9

14 CMFG Variable Life Insurance Account Notes to Financial Statements (2) Significant Accounting Policies (continued) Investment Valuation Investments are made in shares of a fund and are recorded at fair value, determined by the net asset value per share of the respective fund. Investment transactions in each fund are recorded on the trade date. Realized gains and losses on redemptions of the shares of the fund are determined using the average cost basis. Income from dividends and gains from realized gain distributions from each fund are recorded on the exdividend date and are reinvested in that fund. The difference between cost and fair value of investments owned on the day of measurement is recorded as unrealized appreciation or depreciation of investments. Federal Income Taxes The operations of the Account are included in the consolidated federal income tax return of CUNA Mutual Holding Company ( CMHC ), the Company s ultimate parent, and its subsidiaries. The Company is taxed as a life insurance company under the provisions of the Internal Revenue Code ( IRC ). The Account s activities are included in the Company s taxable income. Under current provisions of the IRC, the Company does not expect to incur federal income taxes on recorded earnings or the realized capital gains attributed to the Account to the extent these earnings are credited to the policies. Accordingly, no provision for income tax is currently recorded. If such taxes are incurred by the Company in the future, a tax provision may be recorded. Accounting Standards Updated Pending Adoption In January 2016, the FASB issued Accounting Standard Update ( ASU ) No , Recognition and Measurement of Financial Assets and Liabilities ( ASU ), effective in The new standard will require equity investments to be measured at fair value, with changes in fair value recognized in net income. Other provisions in ASU were not applicable to the Account. Because the Account currently records the change in fair value of equity investments in the statement of operations in accordance with guidance for investment companies, ASU will have no impact on its financial statements. (3) Fees and Charges Contract Charges In addition to charges for premium taxes, which reduce premiums prior to the allocation of net premiums to the subaccounts of the Account, the following charges may be deducted by the Company by redeeming an appropriate number of units for each contract and are included in contract charges and fees in the accompanying Statements of Changes in Net Assets of the applicable subaccount: Administrative Fee: The Company has primary responsibility for the administration of the Account and the contracts issued. As reimbursement for these expenses, the Company may assess each contract a monthly administrative fee which is processed through redemption of units. This fee on an annual basis is $0.45 per $1,000 of the amount specified in the contract for the first ten contract years. This fee is not assessed after ten contract years. Surrender Charges: For the type 1 product, the sales and administrative expenses are incurred when a contract is issued and are deferred (deferred charges) until the contract is surrendered. Such charges are not collected at all if the contract is held for nine years, or if the insured dies during the first ten years. For the type 2 product, in the event a contract owner surrenders a contract prior to nine years, the contract owner is assessed and the Company records a contractual surrender charge to compensate the Company for certain sales and administrative expenses. There are no surrender charges assessed after nine years. Contract Fee: The Company incurs first-year expenses upon issue of a contract, and assesses for each contract a monthly contract fee in the amount of $6 ($3 for issue ages 0-19 for the type 1 product only) to recover these expenses. Cost of Insurance and Additional Benefits Provided: The Company is responsible for providing the insurance benefits stated in the contract. The cost of insurance is determined each month based upon the applicable cost of insurance rates and the net amount at risk. The cost of insurance can vary from month to month since the determination of both the insurance rate and the net amount at risk depends upon a number of 10

15 CMFG Variable Life Insurance Account Notes to Financial Statements (3) Fees and Charges (continued) variables such as the death benefit option selected by the contract owner, the benefit amount specified in the contract, and the cash value, all as described in the Account s prospectus. Several riders are available on the contracts that provide additional benefits, including children s insurance, guaranteed insurability, accidental death benefit, other insured term rider, and disability waiver of deductions or premium which can also impact the cost of insurance. Account Charges Mortality and Expense Risk Charge: The Company deducts a daily mortality and expense risk charge from the assets of the Subaccount to compensate it for assuming certain mortality and expense risks at an annual rate of 0.90%. These charges are included in mortality and expense charges in the accompanying Statement of Operations of the applicable subaccount. (4) Fair Value 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 that prioritizes the inputs to valuation techniques used to measure fair value of assets and liabilities into three broad levels. The Account has categorized its financial instruments, based on the degree of subjectivity inherent in the valuation technique, as follows: Level 1: Inputs are directly observable and represent quoted prices for identical assets or liabilities in active markets the Account has the ability to access at the measurement date. 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 assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in markets that are not active and (iii) inputs other than quoted prices that are observable for the asset or liability, and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3: One or more significant inputs are unobservable and reflect the Account s estimates of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. The hierarchy requires the use of market observable information when available for assessing fair value. 11

16 CMFG Variable Life Insurance Account Notes to Financial Statements (4) Fair Value (continued) The following table summarizes the Account s assets that are measured at fair value as of December 31, All of the Account s assets consist of Level 2 mutual funds that have daily quoted net asset values at which the Account could transact. December 31, 2017 Assets, at Fair Value Templeton Developing Markets VIP Fund, Class 2, Subaccount $ 12,968 MFS Strategic Income Portfolio, Initial Class, Subaccount 239,725 Oppenheimer Global Strategic Income Fund/VA, Non-Service Shares, Subaccount 9,472 T. Rowe Price International Stock Portfolio, Subaccount 6,659,570 Ultra Series Aggressive Allocation Fund, Class I, Subaccount 1,147,838 Ultra Series Core Bond Fund, Class I, Subaccount 6,079,422 Ultra Series Conservative Allocation Fund, Class I, Subaccount 179,132 Ultra Series Diversified Income Fund, Class I, Subaccount 55,806,472 Ultra Series High Income Fund, Class I, Subaccount 1,002,526 Ultra Series International Stock Fund, Class I, Subaccount 2,721,579 Ultra Series Large Cap Growth Fund, Class I, Subaccount 41,731,370 Ultra Series Large Cap Value Fund, Class I, Subaccount 77,973,086 Ultra Series Mid Cap Fund, Class I, Subaccount 21,147,288 Ultra Series Moderate Allocation Fund, Class I, Subaccount 2,185,875 Vanguard VIF Money Market Portfolio, Subaccount 2,163,990 The following table summarizes the Account s assets that are measured at fair value as of December 31, All of the Account s assets consist of Level 2 mutual funds that have daily quoted net asset values at which the Account could transact. December 31, 2016 Assets, at Fair Value Templeton Developing Markets VIP Fund, Class 2, Subaccount $ 10,428 MFS Strategic Income Portfolio, Initial Class, Subaccount 243,705 Oppenheimer Global Strategic Income Fund/VA, Non-Service Shares, Subaccount 9,723 T. Rowe Price International Stock Portfolio, Subaccount 5,628,266 Ultra Series Aggressive Allocation Fund, Class I, Subaccount 1,062,485 Ultra Series Core Bond Fund, Class I, Subaccount 6,293,328 Ultra Series Conservative Allocation Fund, Class I, Subaccount 305,150 Ultra Series Diversified Income Fund, Class I, Subaccount 52,654,864 Ultra Series High Income Fund, Class I, Subaccount 1,030,140 Ultra Series International Stock Fund, Class I, Subaccount 2,296,470 Ultra Series Large Cap Growth Fund, Class I, Subaccount 36,221,132 Ultra Series Large Cap Value Fund, Class I, Subaccount 72,037,182 Ultra Series Mid Cap Fund, Class I, Subaccount 19,457,424 Ultra Series Moderate Allocation Fund, Class I, Subaccount 1,950,073 Vanguard VIF Money Market Portfolio, Subaccount 2,006,009 Total Total There were no Level 3 investments in the Account, therefore, Level 3 roll-forward tables have not been provided. There were no transfers between levels during the years ended December 31, 2017 and

17 (5) Purchases and Sales of Investments CMFG Variable Life Insurance Account Notes to Financial Statements The cost of purchases and proceeds from sales of investments in the various subaccounts for the year ended December 31, 2017 are as follows: Year Ended December 31, 2017 Purchases Sales Templeton Developing Markets VIP Fund, Class 2, Subaccount $ 121 $ 1,520 MFS Strategic Income Portfolio, Initial Class, Subaccount 11,348 18,847 Oppenheimer Global Strategic Income Fund/VA, Non-Service Shares, Subaccount T. Rowe Price International Stock Portfolio, Subaccount 519, ,154 Ultra Series Aggressive Allocation Fund, Class I, Subaccount 152, ,825 Ultra Series Core Bond Fund, Class I, Subaccount 347, ,350 Ultra Series Conservative Allocation Fund, Class I, Subaccount 14, ,288 Ultra Series Diversified Income Fund, Class I, Subaccount 4,088,036 4,191,203 Ultra Series High Income Fund, Class I, Subaccount 68, ,078 Ultra Series International Stock Fund, Class I, Subaccount 152, ,733 Ultra Series Large Cap Growth Fund, Class I, Subaccount 6,233,631 3,248,146 Ultra Series Large Cap Value Fund, Class I, Subaccount 6,841,814 6,040,766 Ultra Series Mid Cap Fund, Class I, Subaccount 2,577,077 1,851,687 Ultra Series Moderate Allocation Fund, Class I, Subaccount 307, ,345 Vanguard VIF Money Market Portfolio, Subaccount 651, ,841 The cost of purchases and proceeds from sales of investments in the various subaccounts for the year ended December 31, 2016 are as follows: Year Ended December 31, 2016 Purchases Sales Templeton Developing Markets VIP Fund, Class 2, Subaccount $ 93 $ 2,187 MFS Strategic Income Portfolio, Initial Class, Subaccount 7,671 18,744 Oppenheimer Global Strategic Income Fund/VA, Non-Service Shares, Subaccount 541 1,625 T. Rowe Price International Stock Portfolio, Subaccount 419, ,311 Ultra Series Aggressive Allocation Fund, Class I, Subaccount 96,887 52,988 Ultra Series Core Bond Fund, Class I, Subaccount 546, ,617 Ultra Series Conservative Allocation Fund, Class I, Subaccount 33, ,636 Ultra Series Diversified Income Fund, Class I, Subaccount 5,856,188 5,332,084 Ultra Series High Income Fund, Class I, Subaccount 67,761 97,863 Ultra Series International Stock Fund, Class I, Subaccount 176, ,199 Ultra Series Large Cap Growth Fund, Class I, Subaccount 3,064,886 3,665,071 Ultra Series Large Cap Value Fund, Class I, Subaccount 10,450,475 5,566,654 Ultra Series Mid Cap Fund, Class I, Subaccount 2,336,754 1,976,847 Ultra Series Moderate Allocation Fund, Class I, Subaccount 154, ,850 Ultra Series Money Market Fund, Class I, Subaccount 399,467 2,320,978 Ultra Series Small Cap Fund, Class I, Subaccount 3, ,293 Vanguard VIF Money Market Portfolio, Subaccount 2,367, ,257 13

18 (6) Changes in Units Outstanding CMFG Variable Life Insurance Account Notes to Financial Statements The changes in units outstanding for year ended December 31, 2017 and 2016 were as follows: Templeton MFS Developing Strategic Markets VIP Income Portfolio, Fund, Class 2, Initial Class, Subaccount Subaccount Type 1 ^ Type 2 Type 1 Type 2 Units outstanding at December 31, , Units issued Units redeemed - (122) (679) (2) Units outstanding at December 31, , Units issued Units redeemed - (63) (627) (1) Units outstanding at December 31, ,987 9 Oppenheimer Global Strategic Income Fund/VA, Non-Service Shares, Subaccount T. Rowe Price International Stock Portfolio, Subaccount Type 1 ^ Type 2 Type 1 Type 2 Units outstanding at December 31, , ,996 10,448 Units issued , Units redeemed - (353) (42,489) (3,756) Units outstanding at December 31, , ,131 6,704 Units issued ,762 1 Units redeemed - (155) (40,540) (610) Units outstanding at December 31, , ,353 6,095 Ultra Series Aggressive Allocation Fund, Class I, Subaccount Ultra Series Core Bond Fund, Class I, Subaccount Type 1 ^ Type 2 Type 1 Type 2 Units outstanding at December 31, ,296 90, ,506 Units issued - 11,231 10, ,648 Units redeemed - (9,822) (14,864) (119,800) Units outstanding at December 31, ,705 85, ,354 Units issued - 9,611 5, ,465 Units redeemed - (16,766) (11,066) (114,866) Units outstanding at December 31, ,550 80, ,953 ^ This Subaccount is not available in this product type. 14

19 (6) Changes in Units Outstanding (continued) CMFG Variable Life Insurance Account Notes to Financial Statements Ultra Series Ultra Series Conservative Diversified Allocation Fund, Income Class I, Fund, Class I, Subaccount Subaccount Type 1 ^ Type 2 Type 1 Type 2 Units outstanding at December 31, , , ,996 Units issued - 4,020 36, ,743 Units redeemed - (14,442) (74,074) (132,332) Units outstanding at December 31, , , ,407 Units issued - 2,534 28,979 94,487 Units redeemed - (13,439) (56,611) (110,701) Units outstanding at December 31, , , ,193 Ultra Series High Income Fund, Class I, Subaccount Ultra Series International Stock Fund, Class I, Subaccount Type 1 ^ Type 2 Type 1 ^ Type 2 Units outstanding at December 31, , ,806 Units issued - 43, ,014 Units redeemed - (47,568) - (115,608) Units outstanding at December 31, , ,212 Units issued - 41, ,562 Units redeemed - (45,278) - (111,082) Units outstanding at December 31, ,936-99,692 Ultra Series Large Cap Growth Fund, Class I, Subaccount Ultra Series Large Cap Value Fund, Class I, Subaccount Type 1 Type 2 Type 1 Type 2 Units outstanding at December 31, , , , ,373 Units issued 43, ,076 32, ,520 Units redeemed (86,275) (199,368) (59,891) (263,264) Units outstanding at December 31, , , , ,629 Units issued 37, ,985 27, ,141 Units redeemed (64,787) (177,340) (55,530) (235,832) Units outstanding at December 31, , , , ,938 ^ This Subaccount is not available in this product type. 15

20 (6) Changes in Units Outstanding (continued) CMFG Variable Life Insurance Account Notes to Financial Statements Ultra Series Ultra Series Mid Cap Moderate Fund, Allocation Class I, Fund, Class I, Subaccount Subaccount Type 1 Type 2 Type 1 ^ Type 2 Units outstanding at December 31, , , ,520 Units issued 23, ,547-25,745 Units redeemed (42,376) (150,864) - (26,920) Units outstanding at December 31, , , ,345 Units issued 22, ,901-27,796 Units redeemed (36,736) (133,055) - (29,869) Units outstanding at December 31, , , ,272 Vanguard VIF Money Market Portfolio, Subaccount* Type 1 Type 2 Units outstanding at December 31, Units issued 123, ,498 Units redeemed (27,161) (47,086) Units outstanding at December 31, , ,412 Units issued 19,004 86,933 Units redeemed (23,793) (66,344) Units outstanding at December 31, , ,001 ^ This Subaccount is not available in this product type. * The Subaccount commenced operations effective February 12,

21 CMFG Variable Life Insurance Account Notes to Financial Statements (7) Financial Highlights The table below provides financial highlights for each subaccount for the year ended December 31, 2017 and for the four preceeding years ended December 31. In certain instances, fewer years are presented because the subaccount was not available for the entire five-year period. Templeton Developing Markets VIP Fund, Class 2, Subaccount Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Unit value - Beginning of period - $ $ $ $ $21.44 Unit value - End of period - $ $ $ $ $21.04 Net assets at end of period (000's) - $ 13 - $10 - $11 - $17 - $22 Units outstanding at end of period (000's) Total return (1) % % % % % Investment income ratio (2) % % % % % Expense ratio (3) % % % % % MFS Strategic Income Portfolio, Initial Class, Subaccount (a) Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Unit value - Beginning of period $ $ $23.60 $19.84 $ $ $ $ $ - $ - Unit value - End of period $ $ $25.32 $21.20 $ $ $ $ $ $ Net assets at end of period (000's) $ 240 $ - $243 $0 $ 243 $ Units outstanding at end of period (000's) Total return (1) 5.25% 9.54% 7.29% 6.85% -2.76% -2.98% 2.32% 2.35% 2.33% 2.41% Investment income ratio (2) 4.62% 4.62% 3.10% 3.10% 5.77% 5.77% 3.20% 3.20% 8.40% 8.40% Expense ratio (3) 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% Oppenheimer Global Strategic Income Fund/VA, Non-Service Shares, Subaccount Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Unit value - Beginning of period - $ $ $ $ $ 4.45 Unit value - End of period - $ $ $ $ $ 4.39 Net assets at end of period (000's) - $ 9 - $ 10 $ - $ 11 $ - $ 13 - $ 14 Units outstanding at end of period (000's) Total return (1) % % % % % Investment income ratio (2) % % % % % Expense ratio (3) % % % % % Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Unit value - Beginning of period $ $ $ $ $ $ $ $ $ $ Unit value - End of period $ $ $ $ $ $ $ $ $ $ Net assets at end of period (000's) $ 6,564 $ 96 $ 5,545 $ 83 $ 5,820 $ 128 $ 6,421 $ 153 $ 6,881 $ 171 Units outstanding at end of period (000's) Total return (1) 26.69% 26.65% 1.23% 1.22% -1.70% -1.68% -2.00% -2.12% 12.99% 12.93% Investment income ratio (2) 1.10% 1.10% 1.05% 1.05% 0.91% 0.91% 1.04% 1.04% 0.85% 0.85% Expense ratio (3) 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% ^ This Subaccount is not available in this product type. T. Rowe Price International Stock Portfolio, Subaccount

22 CMFG Variable Life Insurance Account Notes to Financial Statements (7) Financial Highlights (continued) Ultra Series Aggressive Allocation Fund, Class I, Subaccount Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Unit value - Beginning of period - $ $ $ $ $ 8.89 Unit value - End of period - $ $ $ $ $ Net assets at end of period (000's) - $ 1,148 - $ 1,062 - $ $ 1,088 - $ 1,076 Units outstanding at end of period (000's) Total return (1) % % % % % Investment income ratio (2) % % % % % Expense ratio (3) % % % % % Ultra Series Core Bond Fund, Class I, Subaccount Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Unit value - Beginning of period $ $ $ $ $ $ $ $ $ $ Unit value - End of period $ $ $ $ $ $ $ $ $ $ Net assets at end of period (000's) $ 4,002 $ 2,078 $ 4,165 $ 2,128 $ 4,313 $ 2,267 $ 4,843 $ 2,536 $ 4,886 $ 3,022 Units outstanding at end of period (000's) Total return (1) 2.20% 2.17% 1.78% 1.74% -1.10% -1.09% 4.14% 4.12% -3.11% -2.96% Investment income ratio (2) 2.89% 2.89% 2.92% 2.92% 3.02% 3.02% 3.10% 3.10% 3.14% 3.14% Expense ratio (3) 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% Ultra Series Conservative Allocation Fund, Class I, Subaccount Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Unit value - Beginning of period - $ $ $ $ $ Unit value - End of period - $ $ $ $ $ Net assets at end of period (000's) - $ $ $ $ $ 704 Units outstanding at end of period (000's) Total return (1) % % % % % Investment income ratio (2) % % % % % Expense ratio (3) % % % % % Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Unit value - Beginning of period $ $ $ $ $ $ $ $ $ $ Unit value - End of period $ $ $ $ $ $ $ $ $ $ Net assets at end of period (000's) $ 47,776 $ 8,031 $ 45,186 $ 7,469 $ 45,202 $ 7,358 $ 49,090 $ 8,034 $ 49,604 $ 8,251 Units outstanding at end of period (000's) Total return (1) 12.30% 12.29% 8.02% 8.02% -0.80% -0.88% 6.13% 5.98% 15.06% 15.04% Investment income ratio (2) 2.23% 2.23% 2.41% 2.41% 2.48% 2.48% 2.36% 2.36% 2.26% 2.26% Expense ratio (3) 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% ^ This Subaccount is not available in this product type. Ultra Series Diversified Income Fund, Class I, Subaccount

23 CMFG Variable Life Insurance Account Notes to Financial Statements (7) Financial Highlights (continued) Ultra Series High Income Fund, Class I, Subaccount Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Unit value - Beginning of period - $ $ $ $ $ Unit value - End of period - $ $ $ $ $ Net assets at end of period (000's) - $ 1,003 - $ 1,030 - $ $ 1,100 - $ 1,380 Units outstanding at end of period (000's) Total return (1) % % % % % Investment income ratio (2) % % % % % Expense ratio (3) % % % % % Ultra Series International Stock Fund, Class I, Subaccount Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Unit value - Beginning of period - $ $ $ $ $ Unit value - End of period - $ $ $ $ $ Net assets at end of period (000's) - $ 2,722 - $ 2,296 - $ 2,471 - $ 2,675 - $ 3,110 Units outstanding at end of period (000's) Total return (1) % % % % % Investment income ratio (2) % % % % % Expense ratio (3) % % % % % Ultra Series Large Cap Growth Fund, Class I, Subaccount Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Unit value - Beginning of period $ $ $ $ $ $ $ $ $ $ Unit value - End of period $ $ $ $ $ $ $ $ $ $ Net assets at end of period (000's) $ 32,838 $ 8,893 $ 28,500 $ 7,721 $ 29,322 $ 7,881 $ 30,054 $ 8,260 $ 28,816 $ 8,243 Units outstanding at end of period (000's) Total return (1) 21.23% 21.21% 4.81% 4.86% 2.35% 2.30% 11.14% 11.20% 29.30% 29.31% Investment income ratio (2) 0.78% 0.78% 0.84% 0.84% 1.13% 1.13% 0.67% 0.67% 0.63% 0.63% Expense ratio (3) 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Unit value - Beginning of period $ $ $ $ $ $ $ $ $ $ Unit value - End of period $ $ $ $ $ $ $ $ $ $ Net assets at end of period (000's) $ 68,696 $ 9,277 $ 63,538 $ 8,499 $ 60,169 $ 8,143 $ 66,821 $ 9,164 $ 64,286 $ 9,266 Units outstanding at end of period (000's) Total return (1) 15.18% 15.15% 12.01% 11.98% -3.54% -3.56% 11.42% 11.34% 28.92% 28.85% Investment income ratio (2) 2.39% 2.39% 1.53% 1.53% 1.22% 1.22% 1.32% 1.32% 1.56% 1.56% Expense ratio (3) 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% ^ This Subaccount is not available in this product type. Ultra Series Large Cap Value Fund, Class I, Subaccount

24 CMFG Variable Life Insurance Account Notes to Financial Statements (7) Financial Highlights (continued) Ultra Series Mid Cap Fund, Class I, Subaccount Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Unit value - Beginning of period $ $ $ $ $ $ $ $ $ $ Unit value - End of period $ $ $ $ $ $ $ $ $ $ Net assets at end of period (000's) $ 10,863 $ 10,284 $ 9,923 $ 9,534 $ 9,407 $ 9,207 $ 9,964 $ 9,954 $ 9,744 $ 10,024 Units outstanding at end of period (000's) Total return (1) 14.68% 14.72% 11.82% 11.85% 0.18% 0.09% 8.90% 8.82% 28.12% 28.08% Investment income ratio (2) 0.00% 0.00% 0.02% 0.02% 0.07% 0.07% 0.04% 0.04% 0.01% 0.01% Expense ratio (3) 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% Ultra Series Moderate Allocation Fund, Class I, Subaccount Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Type 1 ^ Type 2 Unit value - Beginning of period - $ $ $ $ $ Unit value - End of period - $ $ $ $ $ Net assets at end of period (000's) - $ 2,186 - $ 1,950 - $ 1,847 - $2,037 - $ 2,475 Units outstanding at end of period (000's) Total return (1) % % % % % Investment income ratio (2) % % % % % Expense ratio (3) % % % % % 2017 Vanguard VIF Money Market Portfolio, Subaccount 2016(b) Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Type 1 Type 2 Unit value - Beginning of period $ $ $ $ Unit value - End of period $ $ $ $ Net assets at end of period (000's) $ 914 $ 1,250 $ 962 $ 1, Units outstanding at end of period (000's) Total return (1) 0.00% 0.00% 0.00% 0.00% Investment income ratio (2) 1.00% 1.00% 0.43% 0.43% Expense ratio (3) 0.90% 0.90% 90.00% 90.00% ^ This Subaccount is not available in this product type. (1) The Total Return represents the total return for the periods indicated, including changes in the value of the underlying fund and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. The total return is calculated for each period shown and, accordingly, is not annualized for periods less than one year. (2) The Investment Income Ratio represents dividends received by the subaccount, excluding capital gains distributions, divided by the daily average net assets for the period indicated. The recognition of investment income is determined by the timing of the declaration of dividends by the underlying fund in which the subaccount invests. (3) The Expense Ratio represents the annualized contract expenses of the respective contract of the subaccount, consisting of mortality and expense risk charges. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded. (a) For the period of August 16, 2013 to December 31, (b) For the period of February 15, 2016 to December 31, 2016 with a beginning unit value of $ Total return is based on the beginning unit value. The Subaccount commenced operations effective February 12, (8) Subsequent Events The Account evaluated subsequent events through the date the financial statements were issued. During this period, there were no significant subsequent events that required adjustment to or disclosure in the accompanying financial statements. 20

25 CMFG Life Insurance Company and Subsidiary Consolidated Statutory Basis Financial Statements for CMFG Life Insurance Company and Subsidiary as of December 31, 2017 and 2016 and for each of the Three Years Ended December 31, 2017, 2016 and 2015, Supplemental Schedules as of and for each of the Years Ended December 31, 2017 and 2016 and Independent Auditors Report

26 Table of Contents Independent Auditors Report... 1 Consolidated Statutory Basis Statements of Admitted Assets, Liabilities and Capital and Surplus... 3 Consolidated Statutory Basis Statements of Operations... 5 Consolidated Statutory Basis Statements of Changes in Capital and Surplus... 6 Consolidated Statutory Basis Statements of Cash Flows... 7 Notes to the Consolidated Statutory Basis Financial Statements Note 1 General... 9 Note 2 Summary of Significant Accounting Policies... 9 Note 3 Investments, Bond and Notes Note 3 Investments, Investment in Common Stock, Affiliated Note 3 Investments, Common and Preferred Stocks, Unaffiliated Note 3 Investments, Real Estate Note 3 Investments, Mortgage Loans Note 3 Investments, Derivative Financial Instruments Note 3 Investments, Limited Partnerships Note 3 Investments, Low Income Housing Tax Credit Investments Note 3 Investments, Cash, Cash Equivalents, and Short-term Investments Note 3 Investments, Net Investment Income Note 3 Investments, Net Realized Capital Gains Note 3 Investments, Other-Than-Temporary Investment Impairments Note 3 Investments, Net Unrealized Capital Gains Note 3 Investments, Investment Credit Risk Note 3 Investments, Self-Occupancy Rent Note 3 Investments, Assets Designated/Securities on Deposit Note 3 Investments, Securities Lending Note 4 Fair Value Note 5 Income Tax Note 6 Related Party Transactions Note 7 Reinsurance Note 8 Liability for Claim Reserves Note 9 Annuity Reserves and Deposit Liabilities Note 10 Statutory Financial Data and Dividend Restrictions Note 11 Notes and Interest Payable Note 12 Surplus Notes Note 13 Commitments and Contingencies Note 14 Benefit Plans Note 15 Unassigned Surplus Note 16 Premiums Deferred and Uncollected Note 17 Separate Accounts Note 18 Reconciliation to 2017 Annual Statement Note 19 Subsequent Events Consolidating Statements CMFG Life Insurance Company Schedule of Selected Financial Data MEMBERS Life Insurance Company Schedule of Selected Financial Data CMFG Life Insurance Company Summary Investment Schedule MEMBERS Life Insurance Company Summary Investment Schedule CMFG Life Insurance Company Supplemental Investment Risks Interrogatories MEMBERS Life Insurance Company Supplemental Investment Risks Interrogatories

27 INDEPENDENT AUDITORS REPORT To the Audit Committee and Stockholder of CMFG Life Insurance Company Waverly, Iowa We have audited the accompanying consolidated statutory basis financial statements of CMFG Life Insurance Company and Subsidiary (collectively, the Company ), which comprise the consolidated statutory basis statements of admitted assets, liabilities, and capital and surplus as of December 31, 2017 and 2016, and the related consolidated statutory basis statements of operations, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes to the consolidated statutory basis financial statements. Management s Responsibility for the Consolidated Statutory Basis Financial Statements Management is responsible for the preparation and fair presentation of these consolidated statutory basis financial statements in accordance with the accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated statutory basis financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated statutory basis financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated statutory basis financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated statutory basis financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the consolidated statutory basis financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated statutory basis financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America As described in Note 2 to the consolidated statutory basis financial statements, the consolidated statutory basis financial statements are prepared by the Company using the accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division, which is a basis of accounting other than accounting principles generally accepted in the United States of America, to meet the requirements of the Iowa Department of Commerce, Insurance Division.

28 The effects on the consolidated statutory basis financial statements of the variances between the statutory basis of accounting described in Note 2 to the consolidated statutory basis financial statements and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. Adverse Opinion on Accounting Principles Generally Accepted in the United States of America In our opinion, because of the significance of the matter described in the Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America paragraph, the consolidated statutory basis financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of CMFG Life Insurance Company and Subsidiary as of December 31, 2017 and 2016, or the results of their operations or their cash flows for each of the three years in the period ended December 31, Opinion on Statutory Basis of Accounting In our opinion, the consolidated statutory basis financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities, and capital and surplus of CMFG Life Insurance Company and Subsidiary as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in accordance with the accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division as described in Note 2 to the consolidated statutory basis financial statements. Report on Supplemental Schedules Our audits were conducted for the purpose of forming an opinion on the consolidated statutory basis financial statements as a whole. The consolidating statutory basis statements of admitted assets, liabilities and capital and surplus as of December 31, 2017 and 2016 and the consolidating statutory basis statements of operations, changes in capital and surplus, and cash flows (collectively consolidating information ) for the years then ended are presented for the purpose of additional analysis of the consolidated statutory basis financial statements rather than to present the statutory basis financial statements of admitted assets, liabilities and capital and surplus, operations, changes in capital and surplus, and cash flows of the individual companies and are not a required part of the consolidated statutory basis financial statements. The supplemental schedules of selected financial data, supplemental summary investment schedules, and supplemental schedules of investment risks interrogatories as of and for the year ended December 31, 2017 are presented for purposes of additional analysis and are not a required part of the 2017 consolidated statutory basis financial statements. The consolidating information and schedules are the responsibility of the Company s management and were derived from and relate directly to the underlying accounting and other records used to prepare the consolidated statutory basis financial statements. Such consolidating information and schedules have been subjected to the auditing procedures applied in our audits of the 2017 and 2016 consolidated statutory basis financial statements and certain additional procedures, including comparing and reconciling such consolidating information and schedules directly to the underlying accounting and other records used to prepare the consolidated statutory basis financial statements or to the consolidated statutory basis financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, such consolidating information and schedules are fairly stated in all material respects in relation to the 2017 consolidated statutory basis financial statements as a whole. March 9, 2018

29 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidated Statutory Basis Statements of Admitted Assets, Liabilities and Capital and Surplus December 31, 2017 and 2016 ($ in 000s) Admitted Assets Cash and invested assets Bonds and notes $ 8,113,307 $ 7,777,181 Common stocks - affiliated 1,020,967 1,014,956 Common stocks - unaffiliated 57,746 48,753 Preferred stocks - unaffiliated 5,119 15,869 Mortgage loans 1,745,006 1,534,869 Real estate occupied by the Company, at cost less accumulated depreciation 65,920 71,319 Real estate held for production of income, at cost less accumulated depreciation - 7,302 Real estate held for sale, at cost less accumulated depreciation 6,699 - Contract loans 103, ,700 Derivatives 29,771 33,170 Other invested assets 820, ,253 Receivable for securities sold 1,682 3,073 Securities lending assets 258,054 - Cash, cash equivalents and short-term investments 101, ,814 Total cash and invested assets 12,330,168 11,510,259 Premiums in the course of collection 238, ,889 Accrued investment income 85,707 85,522 Federal income taxes recoverable 41,614 - Net deferred tax asset 79, ,542 Amounts due from reinsurers 1,484 1,086 Electronic data processing equipment - at cost, less accumulated depreciation 1,875 2,537 Receivables from affiliates 64,102 54,901 Other assets 13,633 9,361 Separate account assets 5,284,329 4,500,112 Total admitted assets $ 18,141,171 $ 16,582,209 See accompanying notes to consolidated statutory basis financial statements. 3

30 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidated Statutory Basis Statements of Admitted Assets, Liabilities and Capital and Surplus, continued December 31, 2017 and 2016 ($ in 000s, except per share data) Liabilities and Capital and Surplus Liabilities Policy reserves Life insurance and annuity contracts $ 7,516,366 $ 7,378,372 Accident and health contracts 840, ,913 Liability for deposit-type contracts 550, ,977 Policy and contract claims 104,619 97,983 Dividends payable to policyholders 24,731 24,796 Advance premium and experience refunds 88,861 87,990 Reinsurance payable Interest maintenance reserve 34,833 48,487 Liability for employee retirement plans 212, ,910 Amount held for others 6,365 6,885 Payable to affiliates 45,431 42,283 Commissions, expenses, taxes, licenses, and fees accrued 179, ,477 Notes and interest payable 345, ,091 Asset valuation reserve 380, ,198 Derivatives 20,289 19,197 Payable for securities purchased 3,141 12,832 Federal income taxes payable - 3,705 Other liabilities 152,463 72,334 Payable for securities lending 258,054 - Transfers to separate accounts (14,419) (23,924) Separate account liabilities 5,284,329 4,500,112 Total liabilities 16,034,004 14,579,539 Capital and surplus Capital Common stock, $1 par value, 7,500,000 shares authorized, issued and outstanding 7,500 7,500 Paid-in capital 62,837 62,837 Surplus notes 85,000 85,000 Unassigned surplus 1,951,830 1,847,333 Total capital and surplus 2,107,167 2,002,670 Total liabilities and capital and surplus $ 18,141,171 $ 16,582,209 See accompanying notes to consolidated statutory basis financial statements. 4

31 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidated Statutory Basis Statements of Operations Years Ended December 31, 2017, 2016 and 2015 ($ in 000s) Income Premiums and other considerations Life and annuity contracts $ 2,558,647 $ 2,573,136 $ 2,574,154 Accident and health contracts 571, , ,832 Supplementary contracts 21,201 26,399 38,642 Net investment income 485, , ,999 Reinsurance commissions 1,299 1,292 1,596 Separate accounts net gain from operations 19, Commission and fee income 68,806 59,073 63,043 Other income 41,658 43,915 28,944 Total income 3,767,795 3,724,066 3,754,210 Benefits and expenses Death and annuity benefits 484, , ,641 Disability and accident and health benefits 227, , ,151 Interest on deposit-type contracts 13,287 10,942 11,077 Other benefits to policyholders and beneficiaries 1,535 2,233 2,192 Surrender benefits 1,564,882 1,433,573 1,812,052 Payments on supplementary contracts with life contingencies, interest and adjustments on policy or deposit-type contract funds, and group conversions 34,873 34,250 35,735 Increase in policy reserves-life and annuity contracts and accident and health insurance 148, , ,431 General insurance expenses 784, , ,874 Insurance taxes, licenses, fees, and commissions 81,237 85,308 84,840 Net transfers to (from) separate accounts 207, ,630 (200,194) Total benefits and expenses 3,548,581 3,506,572 3,468,799 Income before dividends to policyholders, federal income tax expense (benefit) and net realized capital gains 219, , ,411 Dividends to policyholders 25,536 25,392 24,479 Income before federal income tax expense (benefit) and net realized capital gains 193, , ,932 Federal income tax expense (benefit) (32,804) 20,458 42,717 Income before net realized capital gains 226, , ,215 Net realized capital gains, excluding gains transferred to IMR, net of tax expense ( $46,286; $23,100; $27,446) excluding taxes transferred to IMR ( $1,266; ($6,014); ($306)) 2,734 24,577 39,109 Net income $ 229,216 $ 196,221 $ 257,324 See accompanying notes to consolidated statutory basis financial statements. 5

32 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidated Statutory Basis Statements of Changes in Capital and Surplus Years Ended December 31, 2017, 2016 and 2015 ($ in 000s) Capital and surplus at beginning of year $ 2,002,670 $ 1,858,445 $ 1,632,876 Additions (deductions) Net income 229, , ,324 Change in unrealized capital gains, net of tax ( $18,489; ($9,278); ($10,863)) 43,622 (9,611) 12,733 Change in unrealized foreign exchange capital gain (loss), net of tax ( $480; $4,177; ($1,502)) 509 (3,920) (2,789) Change in net deferred income tax (93,423) (18,094) 1,112 Change in nonadmitted assets (11,941) 4,072 (19,067) Change in asset valuation reserve (9,803) (25,849) (25,612) Change in employee retirement plans, net of tax ( $1,545; $1,834; $774) (3,177) 3,406 1,437 Dividends to stockholders (31,500) (2,000) - Other changes in surplus of separate accounts due to correction of prior year reserve calculation (Note 17) (19,006) - - Other Net additions 104, , ,569 Capital and surplus at end of year $ 2,107,1670 $ 2,002,670 $ 1,858,445 See accompanying notes to consolidated statutory basis financial statements. 6

33 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidated Statutory Basis Statements of Cash Flows Years Ended December 31, 2017, 2016 and 2015 ($ in 000s) Cash from operating activities Premiums and other considerations $ 3,129,937 $ 3,139,567 $ 2,902,180 Net investment income received 491, , ,922 Reinsurance commissions 1,299 1,292 6,933 Other income 98,327 92,580 74,992 Policy and contract benefits and dividends paid (2,333,908) (2,177,614) (2,527,287) Operating expenses paid (836,218) (825,808) (720,634) Federal income taxes paid (58,780) (37,708) (48,490) Net transfers (to) from separate accounts (198,020) - (157,771) 194,093 Net cash provided by operating activities 293, , ,709 Cash from investing activities Proceeds from investments sold, matured or repaid Bonds and notes 997,168 1,144, ,058 Stocks 62,749 55,041 62,092 Mortgage loans 168, , ,722 Real estate 2,725-6,650 Other invested assets 350, ,171 64,286 Miscellaneous proceeds 8,815 11,274 48,467 Total investment proceeds 1,590,529 1,604,674 1,025,275 Cost of investments acquired Bonds and notes 1,236,846 1,523,896 1,129,039 Stocks 77,608 64,404 40,128 Mortgage loans 378, , ,055 Real estate 2,973 6,129 5,735 Other invested assets 279, , ,529 Miscellaneous applications 18,806 20,340 11,817 Total investments acquired 1,994,101 2,061,825 1,558,303 Net increase (decrease) in contract loans 680 (197) (197) Net cash used in investing activities (404,252) (456,954) (532,831) Cash from financing and miscellaneous activities Borrowed (repaid) funds, net (49,084) 33, ,723 Net deposits on deposit-type contracts 182,422 (18,070) (36,223) Dividends to stockholders (31,500) (2,000) - Other cash provided (used) 1, (20,015) Net cash provided by financing and miscellaneous activities 103,362 13, ,485 See accompanying notes to consolidated statutory basis financial statements. 7

34 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidated Statutory Basis Statements of Cash Flows, continued Years Ended December 31, 2017, 2016 and 2015 ($ in 000s) Net change in cash, cash equivalents and short-term investments (7,111) 33,759 (5,637) Cash, cash equivalents and short-term investments at the beginning of year 108,814 75,055 80,692 Cash, cash equivalents and short-term investments at the end of year $ 101,703 $ 108,814 $ 75,055 Supplemental disclosure of non-cash transactions Non-cash exchanges of debt securities, disposals - taxable $ (7,110) $ (10,736) $ - Non-cash exchanges of debt securities, acquisitions - taxable 6,811 10,719 - Non-cash exchanges of debt securities, disposals - tax free (26,836) - - Non-cash exchanges of debt securities, acquisitions - tax free 26, Interest capitalization ,164 Transfer of bonds to affiliate - (986) - Purchase of bonds from affiliate - 1,036 - Transfer of investment in MCA Fund III for equity interest of MCA Funds Holding - 173,347 - Transfer of investment in MCA Fund II for equity interest of MCA Fund II Holding 335, Receipt of debt securities for exchange of equity interest in MCA Fund II Holding 72, See accompanying notes to consolidated statutory basis financial statements. 8

35 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Note 1: General Nature of Business The accompanying consolidated statutory basis financial statements include the accounts of CMFG Life Insurance Company ( CMFG Life ) and its indirect wholly-owned subsidiary MEMBERS Life Insurance Company ( MEMBERS Life ) (collectively the Company ). MEMBERS Life is a wholly-owned subsidiary of CUNA Mutual Investment Corporation ( CMIC ). CMIC is a wholly-owned subsidiary of CMFG Life. CMFG Life and MEMBERS Life are stock life insurance companies organized under the laws of Iowa for the principal purpose of serving the insurance needs of credit unions and their members. Their primary products include group credit life and group credit disability, retirement plan administration, group life and disability products and life, health and annuity policies. The Company s ultimate parent is CUNA Mutual Holding Company ( CMHC ), a mutual insurance holding company organized under the laws of Iowa. The Company markets its products for credit union members through face-to-face and direct response distribution systems, while group products are sold primarily by salaried representatives. The Company s subsidiaries and affiliates are engaged in the business of property and casualty insurance, retail investment brokerage, private mortgage insurance and other businesses designed for credit unions and their members. MEMBERS Life sells single premium deferred annuity and flexible premium deferred variable annuity contracts to credit union members through face-to-face distribution channels. It also services existing blocks of individual and group life policies. MEMBERS Life has reinsurance agreements with CMFG Life under which it cedes 100% of its business to CMFG Life. These agreements have been eliminated in the consolidated results. The Company is authorized to sell life, health and annuity policies in all 50 states and the District of Columbia and most of its revenue and that of its affiliated companies is generated in the United States. It also conducts business in foreign countries through branch offices or subsidiaries. None of these foreign operations and no individual state in the United States represent more than 8%, 8% and 10% of the Company s premiums for the years ended December 31, 2017, 2016, and 2015, respectively. The Company s group and individual annuity premiums represented 57%, 59% and 60% of total premiums for the years ended December 31, 2017, 2016, and 2015, respectively. The Company s credit life and credit disability premiums represented 16% of total premiums for the years ended December 31, 2017, 2016, and 2015, respectively. The accompanying consolidated statutory basis financial statements reflect various transactions and balances with the Company s affiliates. See Note 6 for a description of the more significant transactions. While the Company believes that these transactions were at reasonable terms, the results of operations of the Company may have differed had these transactions been consummated with unrelated parties. Note 2: Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated statutory basis financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Iowa Department of Commerce, Insurance Division ( Insurance Department ), which differ in some respects from accounting principles generally accepted in the United States of America ( GAAP ). All intercompany accounts and transactions have been eliminated. Prescribed statutory accounting practices are practices incorporated directly or by reference in state laws, regulations and general administrative rules and are applicable to all insurance enterprises domiciled in a particular state. The Insurance Department has identified the Accounting Practices and Procedures Manual ( APPM ), as promulgated by the National Association of Insurance Commissioners ( NAIC ), as a source of prescribed statutory accounting practices for insurers domiciled in Iowa. Permitted statutory accounting practices 9

36 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) encompass all accounting practices not prescribed by the NAIC and are approved by the insurance department of the insurer s state of domicile. Prescribed Statutory Accounting Practice CMFG Life requested and received written approval from the Insurance Department to use the following prescribed statutory accounting practice, as required by Statutory Accounting Principles ( SAP ) prescribed by the Insurance Department, which differs from practices in the APPM: CMFG Life holds debt securities in its separate account for its single premium deferred annuity and its flexible premium deferred variable annuity. Insurance entities are required to report assets allocated to the separate account at fair value. As a result of the prescribed practice, CMFG Life reports debt securities allocated to the separate account for its single premium deferred annuity and its flexible premium deferred variable annuity at amortized cost, or at the lower of amortized cost or fair value, based on the security s NAIC designation. CMFG Life also reports mortgage loans allocated to the separate account at amortized cost. Net income is not affected by this prescribed practice. A reconciliation of the Company s capital and surplus as calculated by the accounting practices promulgated in the APPM and prescribed by the Insurance Department is shown below as of December 31: Capital and Surplus As determined using APPM $ 2,117,883 $ 1,997,478 Prescribed practice Carrying value of separate account assets (10,716) 5,192 Total effect of prescribed practice (10,716) 5,192 As reported $ 2,107,167 $ 2,002,670 GAAP/Statutory Accounting Differences The following summary identifies the significant differences between the accounting practices prescribed or permitted by the Insurance Department and GAAP: Acquisition costs, such as commissions, premium taxes, and other costs relating to acquiring new and renewal business are expensed as incurred, while under GAAP, acquisition expenses directly related to the successful acquisition of new and renewal business are deferred and amortized over the periods benefited. Nonadmitted assets (principally a portion of deferred taxes, prepaid expenses, furniture, equipment, asset for contingent future payments and certain receivables) are excluded from the consolidated statutory basis statements of admitted assets, liabilities and capital and surplus through a direct charge to unassigned surplus. Under GAAP, nonadmitted assets are presented in the balance sheet, net of any valuation allowance. Investments in bonds and notes are generally carried at amortized cost, while under GAAP, they are carried at either amortized cost or fair value based on their classification according to the Company s ability and intent to hold or trade the securities. The change in carrying value of limited partnerships is reported directly in unassigned surplus, while under GAAP the change is reflected in net investment income. Affiliated common stocks are carried based on the Company s ownership percentage of the affiliate s net equity. Investments in insurance subsidiaries and those affiliates that derive more than 20% of their revenue from 10

37 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) affiliated companies are accounted for based on the net equity of the subsidiary or affiliate determined on a statutory basis. Investments in all others are carried based on the company s ownership of the net equity of the subsidiary or affiliate determined under GAAP. The financial statements of affiliates must be audited or they are nonadmitted. Equity in the earnings and other equity activity of affiliates is reflected in the consolidated statement of changes in capital and surplus as changes in unrealized capital gains (losses). Under GAAP, majority-owned subsidiaries are consolidated and equity in the earnings of unconsolidated affiliates is reported in the statement of income. Dividend income from affiliates is recorded in investment income. Under GAAP, dividends reduce the investment in affiliate. For statutory accounting, after an other-than-temporary impairment of bonds, other than loan-backed securities, is recorded, the fair value of the other-than-temporarily impaired bond becomes its new cost basis. For GAAP, the bond s new cost basis is the net present value of expected cash flows or its fair value if the Company does not intend to hold the security until it has recovered. Policy reserves are established based on mortality and interest assumptions prescribed or permitted by state statutes, without consideration for withdrawals, which may differ from reserves established for GAAP using assumptions with respect to mortality, interest, expense, and withdrawals that are based on company experience and expectations. All leases are classified as operating leases for statutory reporting, whereas, under GAAP, leases that meet certain criteria are designated as capital leases. Capital leases are recorded as an asset, subject to depreciation, with a corresponding liability initially equal to the present value of the lease payments. Under both GAAP and statutory accounting, deferred federal income taxes are provided for unrealized capital gains or losses on investments and the temporary differences between the reporting and tax bases of assets and liabilities; however, there are limits as to the amount of deferred tax assets that may be reported as admitted assets under statutory accounting. Further, the change in deferred taxes is recognized as an adjustment to unassigned surplus under statutory accounting. For GAAP, changes in deferred taxes related to revenue and expense items are recorded in the consolidated statement of comprehensive income. A federal income tax provision is required on a current basis only for the statutory basis statement of operations. The asset valuation reserve ( AVR ), a statutory only reserve established by formula for the purpose of stabilizing the surplus of the Company against fluctuations in the fair value of certain invested assets, is recorded as a liability by a direct charge to unassigned surplus for statutory reporting. Such a reserve is not recorded under GAAP. For statutory reporting, the interest maintenance reserve ( IMR ) defers recognition of interest rate-related gains and losses resulting from the disposal of investment securities and amortizes them into income over the remaining contractual maturities of those securities; under GAAP, such gains and losses are recognized in income immediately. For statutory reporting, the amortization of low income housing tax credit investments ( LIHTC ) is reported in net investment income, whereas for GAAP reporting, the amortization is reported in income tax expense. Under both GAAP and statutory accounting employers establish a prepaid asset or liability, as applicable, for the difference between the benefit obligation and the fair value of benefit plan assets. Gains or losses and prior service costs or credits are recognized as a component of comprehensive income for GAAP; on a statutory basis these items are reflected in the Company s surplus. Amounts due from reinsurers for their share of ceded reserves are netted against the reserves rather than shown as assets as under GAAP. 11

38 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Under GAAP, the ineffectiveness of a fair value hedge or cash flow hedge, if any, is recorded as realized capital gains and losses. On a statutory basis, derivatives which follow hedge accounting are reported in a manner consistent with the hedged item. Under GAAP, the change in fair value of a non-hedge derivative is recorded as realized capital gains and losses. On a statutory basis, derivatives used in a hedging transaction which do not meet the criteria for hedge accounting are accounted for at fair value and the changes in fair value are recorded as unrealized gains or unrealized losses. Embedded derivatives in certain annuity contracts are not bifurcated from the host contract for statutory accounting, whereas under GAAP accounting the embedded derivatives are bifurcated from the host contract and accounted for and reported separately at fair value. The changes in fair value of derivative investment contracts are recorded in unassigned surplus as a change in unrealized capital gains and losses, while under GAAP they are recorded in the statement of operations unless the contracts meet certain hedge accounting criteria. Deposits, surrenders, and benefits on certain annuity or deposit administration contracts, including those recorded in the separate accounts, are recorded in the consolidated statement of operations, while such deposits and benefits are credited or charged directly to the policyholder account balances under GAAP. As a result, under GAAP, revenues on these types of contracts are composed of contract charges and fees, which are recognized when assessed against the account balance. Under GAAP, amounts collected are credited directly to policyholder account balances, and the benefits and claims on these contracts that are charged to expense only include benefits incurred in the period in excess of related policyholder account balances. Single premium deferred annuities and flexible premium deferred variable annuities are reported as a separate account product for statutory reporting. For GAAP, only the variable annuity component of the flexible premium deferred variable annuity is reported as a separate account product, with the other related assets and liabilities reported in the general account because criteria for separate account reporting are not met. The criteria are that funds must be invested at the direction of the contract holder and investment results must be passed through to the contract holder. The provision for policyholder dividends is based on the board of directors determination and declaration of an equitable current dividend plus a provision for such dividend expected to be paid in the following year; under GAAP, dividends are provided for ratably over the premium-paying period in accordance with dividend scales that are based on experience of the participating policies. Under statutory accounting practices, the Company is required to include in investment income and general insurance expense an amount representing rental income for occupancy of its own buildings. Such income and expense are not recorded under GAAP. Comprehensive income and its components are not presented in the consolidated statutory basis financial statements, whereas under GAAP, comprehensive income is presented and changes in comprehensive income are reflected in accumulated other comprehensive income, a component of stockholder s equity. Surplus notes meeting regulatory requirements are reported as part of statutory capital and surplus, but under GAAP as a liability. The consolidated statutory basis statements of cash flows are presented in the required statutory format. Under GAAP, the indirect method for the statement of cash flows requires a reconciliation of net income to net cash provided by operating activities. 12

39 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Use of Estimates The preparation of the consolidated statutory basis financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated statutory basis 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, determination of other-than-temporary impairments, deferred tax asset valuation reserves, asset for contingent future payments, reinsurance balances, policy and claim reserves, and pension and postretirement obligations are most affected by the use of estimates and assumptions. Investments Investments are valued as prescribed by the NAIC. Bonds and notes: Bonds and notes with an NAIC designation of 1 through 5 are generally stated at amortized cost. Bonds and notes with an NAIC designation 6 are stated at the lower of amortized cost or fair value. Loanbacked and structured securities may be carried at the lower of amortized cost or fair value if they receive an initial rating of 6 under the multiple-designation methodology. Prepayment assumptions for loan-backed bonds and structured securities are obtained from historical industry prepayment averages, industry survey values or internal estimates to determine the effective yield. Changes in the anticipated prepayments are incorporated when determining statement values. Changes in estimated cash flows from the previous assumptions are accounted for using the prospective method. Common stocks affiliated: Affiliated common stocks are accounted for on the equity method using the Company s ownership percentage and the affiliate s net equity. Domestic insurance subsidiaries are carried using their statutory net equity. Foreign insurers and those non-insurance affiliates engaged in certain insurancerelated activities and whose revenue from affiliated companies is more than 20% of their total revenue apply prescribed adjustments to the GAAP net equity to calculate the statutory equity. The adjustments primarily are to treat certain assets as nonadmitted. Other affiliates are valued using their GAAP equity. The financial statements of the affiliate must be audited or its carrying value is reduced to zero. If net gains by the affiliates are distributed to the Company in the form of dividends, net investment income is recognized in the amount of the dividend and the previously unrealized net gains are reversed. Certain affiliates are owned by CMIC. The valuation of these affiliates, excluding MEMBERS Life, is reflected in the Company s carrying value of CMIC. Changes in carrying amounts are reported directly in unassigned surplus. Common stocks - unaffiliated: Investments in unaffiliated common stocks are stated at fair value. Preferred stocks - unaffiliated: Preferred stocks are carried at amortized cost or the lower of amortized cost or NAIC fair value depending on the assigned credit rating and whether the preferred stock has mandatory sinking fund provisions. Mortgage loans: Mortgage loans are carried at their amortized cost, net of impairments. A mortgage loan is considered impaired and a valuation allowance is established when it becomes probable, based on current information and events, that the Company will be unable to collect the total amounts due according to the contractual terms of the mortgage agreement. Impairments are recorded in realized capital losses and are determined based upon the carrying value of the recorded investment in the mortgage loan and the estimated fair value of the underlying collateral. Real estate occupied by the Company and real estate held for production of income: Real estate occupied by the Company and real estate held for the production of income are carried at cost net of accumulated depreciation. Real estate is depreciated using the straight-line method over the useful lives of the assets, ranging from five to fifty years. Depreciation expense is included in investment expense. Impaired real estate is written down to 13

40 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) estimated fair value with the impairment loss being included in realized capital losses. Real estate is deemed to be impaired when the carrying value exceeds the sum of the undiscounted cash flows expected to result from the investment. Real estate held-for-sale: Certain real estate was classified as held-for-sale at December 31, 2017 and depreciation was suspended as a result. There was no real estate classified as held-for-sale at December 31, Contract loans: Contract loans are reported at their unpaid principal balances. Valuation allowances are not established for contract loans, as they are fully collateralized by the cash surrender value of the underlying insurance policies. Any unpaid principal or interest on the loan is deducted from the cash surrender value or the death benefit prior to settlement of the insurance policy. Other invested assets: Other invested assets include limited partnerships and limited liability companies (collectively, limited partnerships ), investments in surplus notes carried at amortized cost, LIHTC and intercompany loans carried at unpaid principal balance. Limited partnerships primarily represent interests in affiliates, which invest in unaffiliated limited partnerships and are accounted for using the equity method of accounting with changes in carrying amounts recorded directly to unassigned surplus. Accordingly, the Company s investments in these limited partnerships are carried at cost plus or minus the Company s equity in the undistributed earnings or losses as reported by the partnerships. Due to the timing of the availability of financial statements from the partnerships general partners, limited partnerships are generally recorded on a three-month lag, as adjusted for contributions and distributions. LIHTC are investments in partnerships that generate and realize low income housing tax credits. LIHTC are carried at amortized cost, unless considered impaired, and are accounted for using the proportional amortization method. Under the proportional amortization method, the excess of the carrying value of the investment over its estimated residual value is amortized into net investment income during the period in which tax benefits are recognized. Securities lending: The Company participates in a securities lending program, whereby certain securities are loaned for a short period of time from the Company s portfolio to qualifying third parties. Terms of the agreement are for borrowers of these securities to provide collateral of at least 102% of the fair value of the loaned securities; the Company is permitted by contract to sell or repledge this collateral. Acceptable collateral may be in the form of cash or U.S. government securities as outlined in the securities lending agreement. The fair value of the loaned securities is monitored daily and additional collateral is obtained if the fair value of the collateral falls below 102% of the market value of the loaned securities. While the Company is exposed to credit risk in the event of default of third party counterparties or changes in collateral values, the risk is minimal due to the contractual nature of these arrangements, which requires the Company to obtain collateral with a fair value that exceeds the value of the securities lent to the borrower. The loaned securities remain an asset of the Company; however, the Company records a liability for the amount of collateral held, representing its obligation to return the collateral related to the loaned securities. Collateral on deposit is also included in the consolidated statutory basis statements of admitted assets, liabilities and capital and surplus. The Company typically invests cash collateral in short-term securities. See Note 3 for further details on the Company s securities lending program. Net investment income: Investment income is recognized on an accrual basis and dividends are recorded as earned at the ex-dividend date. Investment income reflects amortization of premiums and accretion of discounts on an effective-yield basis using expected cash flows. Prepayment penalties on mortgage loans are recorded as investment income. Mortgage loan origination fees are included in income in the period received. Limited partnership income is recorded and classified in accordance with general partner instructions. Generally, interest 14

41 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) and dividend distributions from underlying investments in limited partnerships are classified as investment income. Net realized capital gains: Realized gains and losses on the sale of investments are determined based upon the specific identification method and are recorded on the trade date. Capital gain and loss distributions from underlying investments in limited partnerships are classified as realized gains and losses. Net unrealized capital gains: Unrealized capital gains and losses are included in unassigned surplus, net of deferred federal income taxes. NAIC 5* securities: Investments with an NAIC 5* rating signify the NAIC designation was assigned in reliance on the Company s certification that documentation necessary to permit a full credit analysis of the security does not exist and that the issuer of the security is current in all principal and interest payments. The number of 5* securities, by investment type, and the statement value and fair value for those securities is shown in the following tables. December 31, 2017 Number of 5* Aggregate Statement Aggregate Securities Value Fair Value Bonds and notes 6 $ 15,138 $ 16,908 Preferred stocks ,000 Total 7 $ 16,038 $ 17,908 December 31, 2016 Number of 5* Aggregate Statement Aggregate Securities Value Fair Value Bonds and notes 7 $ 23,535 $ 24,167 Preferred stocks 2 1,119 1,205 Total 9 $ 24,654 $ 25,372 Cash, Cash Equivalents and Short-term Investments Cash and short-term investments include unrestricted deposits in financial institutions, money market mutual funds, and investments with maturities at the date of purchase of one year or less. Cash equivalents include investments with maturities at the date of purchase of 90 days or less. Short-term investments, other than money market mutual funds, are reported at amortized cost. Money market mutual funds are valued based on the closing price as of December 31. Repurchase agreement transactions are also included in cash, cash equivalents and short-term investments. Under these agreements, the Company transfers cash or short-term securities to approved counterparties and receives U.S. Treasury or investment grade securities pledged as collateral. The terms of the agreement are for counterparties to provide collateral of at least 102% of the fair value of the loaned securities, depending on the type of security pledged as collateral. The Company s exposure to credit risk related to the repurchase agreements is limited, due to the nature of the collateral received. The Company has counterparty exposure on these trades in the event of a counterparty default to the extent the collateral security s value is below the amount of cash or securities the Company delivered to acquire the collateral. The short-term nature of the transactions reduces that exposure. 15

42 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Electronic Data Processing Equipment, Software, Furniture and Equipment, Leasehold Improvements Equipment and computer software are carried at cost net of accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets. The useful life of equipment and software is generally three to seven years. The useful life of capitalized internally developed software ranges from three to five years. The following table is a summary of equipment and software. Assets not meeting the definition of admitted assets are nonadmitted Electronic data processing equipment-admitted Electronic data processing equipment $ 21,359 $ 23,404 Accumulated depreciation (19,484) (20,867) Net electronic data processing equipment-admitted 1,875 2,537 Equipment, leasehold improvements and software-nonadmitted Furniture and equipment 42,721 24,212 Leasehold improvements 1,285 1,285 Internally developed software 126, ,512 Purchased software 35,023 35,242 Total equipment, leasehold improvements and software-nonadmitted 205, ,251 Accumulated depreciation-nonadmitted (117,830) (114,969) Net equipment, leasehold improvements and software-nonadmitted 87,580 59,282 Net equipment, leasehold improvements and software $ 89,455 $ 61,819 Depreciation expense totaled $11,091, $8,824, and $7,965, in 2017, 2016, and 2015, respectively. In 2017 and 2016, the Company recognized an impairment loss of $1,546 and $1,537 related to internally developed software, which is included in general insurance expenses within the consolidated statutory basis statements of operations for the year ended December 31, There were no impairments in Claim Reserves Liabilities established for unpaid benefits for life and accident and health insurance contracts represent the estimated amounts required to cover the ultimate cost of settling reported and incurred but unreported losses. These estimates are adjusted in the aggregate for ultimate loss expectations based on historical experience patterns and current economic trends. Any change in the probable ultimate liabilities, which might arise from new information emerging, is reflected in the consolidated statutory basis statements of operations in the period the change is determined to be necessary. Such adjustments could possibly be material. Incurred but not reported reserves are recorded as the difference between paid losses to-date and the ultimate loss selections for each accident year. Expected development on reported credit disability claims are calculated using continuance tables, which provide the probability that a claim, at a given age, will have additional payments. These tables are calculated using actual historic company experience. Expected development is combined with paid losses for use in actuarial techniques using reported losses. Actuarial techniques for unpaid claims and claim adjustment expenses primarily include paid and reported development techniques, their corresponding Bornhuetter-Ferguson methods (a combination of the expected loss ratio and paid development or reported development method), and prior ultimate loss selections. Expected loss 16

43 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) ratio inputs for an accident year are generally based on the most recent quarterly financial forecast, which considers historic loss experience and current trends. Reserves for adjusting expenses are set as a percentage of the unpaid loss estimate, based on internal studies. Within any one line of business, the methods that are given more influence vary based primarily on the maturity of the accident year, the mix of business and the particular internal and external influences impacting the claims experience or the methods. Gross reserves for unpaid claims and claim adjustment expenses of $273,022 and $291,336 on certain claims, principally those resulting from a disability, are discounted at rates between 0.68% and 0.99% and 0.63% and 0.99% as of December 31, 2017 and 2016, respectively. The aggregate discount deducted from gross reserves was $3,456 and $3,981 as of December 31, 2017 and 2016, respectively. Interest accretion, a result of unwinding the prior year discount, of $2,048, $2,134 and $2,458 was recorded in disability and accident and health benefits within the consolidated statutory basis statements of operations for the years ended December 31, 2017, 2016 and 2015, respectively. Policy Reserves Credit life and disability reserves: Credit disability policy reserves are computed primarily using the mean rule and rule of anticipation methods, which reflect statutory requirements and industry standards. Credit life policy reserves are calculated as the higher of a mortality reserve based on the Company s experience or an unearned premium reserve using the rule of anticipation method, compared on an aggregate basis. Group long-term disability reserves: Group long-term disability reserves are calculated using the 1987 Commissioners Group Disability Table at a 4.0% to 6.0% interest rate, which varies by issue date. For 2008 and prior accident years, the whole life interest index is used. For accident years 2009 and subsequent years, the single premium immediate annuity interest index, less 100 basis points, is used. Life reserves: Traditional life insurance reserves are computed on either the net level reserve basis or the modified reserve basis dependent on product type and issue date. Depending upon the issue year, either the 1941, 1958, 1980 or 2001 Commissioners Standard Ordinary mortality table is used. Interest assumptions range primarily from 2.25% to 6.0%. The Company waives deduction of deferred fractional premiums upon death of the insured and returns the portion of the final premium beyond the date of death. Surrender values are not promised in excess of legally computed reserves. Extra premiums are charged for substandard lives, plus the gross premium for a rated age. Mean reserves are determined by computing the regular mean reserve for the plan at the rated age and holding, plus one-half of the extra premium charge for the year. The Company had $2,063,274, $2,282,659, and $2,433,577 at December 31, 2017, 2016, and 2015, respectively, of insurance in force for which the gross premiums are less than the net premiums according to the standard valuation law set by Iowa regulations. The Company included additional premium deficiency reserves of $13,617 and $15,026 at December 31, 2017 and 2016, respectively, in policy reserves on the consolidated statement of admitted assets, liabilities and capital and surplus for these policies. The Company anticipates investment income as a factor in the premium deficiency reserve calculation. Tabular interest, tabular less actual reserves released, tabular cost and tabular interest on funds not involving life contingencies have all been determined by formulas prescribed by the Insurance Department. Group pension annuity reserves: Policyholder reserves related to group pension annuity contracts are computed using the Commissioner s Reserve Valuation Method ( CRVM ) during the contract accumulation period and the present value of future payments for contracts that have annuitized. Current interest rates credited during the 17

44 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) contract accumulation period range from 1.0% to 3.0% in 2017, 2016 and The future minimum guaranteed interest credited rates during the life of the contracts range from 0.0% to 3.0% in 2017, 2016 and For contracts that have annuitized, interest rates that are used in determining the present value of future payments range from 3.5% to 7.5% in 2017, 2016, and Reserves for the group pensions immediate annuities are in excess of the minimum reserve standards as defined in the standard valuation law, NAIC Appendix A-820. Individual annuity reserves: Policyholder reserves related to individual annuity contracts are computed using the Commissioner's Annuity Reserve Valuation Method ( CARVM ), along with Actuarial Guideline ( AG ) 33 for fixed annuities, AG 35 for equity indexed annuities and AG 43 for variable annuities, during the contract accumulation period and the present value of future payments for contracts that have annuitized. Policyholder reserves related to single premium deferred annuity and flexible premium deferred variable annuity contracts are computed using CARVM, along with AG 43, 33 and 35 for policies greater than ten days after issue; for the first ten days, the reserve is equal to the return of premium. A reserve floor for all deferred annuities is set equal to the cash surrender value. Current interest rates credited during the contract accumulation period range from 1.0% to 5.25% in 2017, 2016 and The future minimum guaranteed interest credited rates during the life of the contracts range from 1.0% to 4.5% in 2017, 2016, and For contracts that have annuitized, interest rates that are used in determining the present value of future payments range from 3.5% to 7.5% in 2017, 2016, and In 2017, the Company determined that it had not calculated reserves for annuitization benefits in accordance with Actuarial Guideline 33 for these products. Management has concluded the accounting error is immaterial; therefore, it was corrected in the consolidated statutory basis statements of changes in capital and surplus as a reduction in surplus from separate accounts in the amount of $19,009. Long-term care reserves: Long-term care ( LTC ) reserves consist of active life reserves and disabled life reserves. LTC active life reserves are computed on the 1-year full preliminary term basis. Disabled life reserves are computed as the present value of expected claim payments. Mortality assumptions depend on the issue year; the Adjusted 1980 Commissioners Standard Ordinary, 1983 Group Annuity Mortality and 1994 Group Annuity Mortality tables are used. Morbidity assumptions are based on historical claims experience and industry and consultant experience studies. Lapse rate assumptions are based on issue year, and are the maximum allowed termination rates for LTC policies specified in Valuation Manual section VM-25. Valuation interest rates are the dynamic whole life interest rate based on the issue year and ranges from 3.5% to 5.0%. For disabled life reserves, the disablement date is considered to be the issue date for the purpose of determining the mortality tables and interest rates. The Company carried additional reserves for LTC products based on asset adequacy testing of $20,000 as of December 31, The Company fully reversed the $20,000 of additional reserves in 2017 and carried no additional reserves as of December 31, Liability for Deposit-Type Contracts The Company recognizes a liability for policyholder deposits that are not subject to policyholder mortality or longevity risk at the stated account value. The account value equals the sum of the original deposit plus accumulated interest, less any withdrawals and expense charges. Such deposits primarily represent annuity contracts without life contingencies and amounts left on deposit with the Company by beneficiaries or policy owners. Funding agreements: The Company recognizes a liability for policyholder deposits that are not subject to policyholder mortality or longevity risk at the stated account value. The account value equals the sum of the original deposit plus accumulated interest, less any withdrawals and expense charges. Such deposits primarily represent annuity contracts without life contingencies, left on deposit with the Company by the Federal Home Loan Bank of Des Moines ( FHLB ). 18

45 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Provision for Participating Policyholder Dividends Policyholder dividends are paid on certain policies, primarily individual life insurance. Dividends are approved by the board of directors, based on experience of the participating policies, and recorded on an accrual basis. Dividends are paid on policies representing 50% and 52% of the individual life direct and assumed reserves of $1,861,488 and $1,757,613 as of December 31, 2017 and 2016, respectively. Revenue Recognition Credit life and disability coverages are offered on either a single premium or monthly premium basis and revenue is earned in relation to anticipated benefits to policyholders. Term life, whole life, universal life, variable universal life, accidental death and dismemberment and LTC insurance premiums are recognized as premium income when due. Annuity deposits are credited to revenue when received. Health insurance premiums are recognized as income on a monthly pro rata basis over the time period to which the premiums relate. Consideration received on deposit-type contracts, which do not contain any life contingencies, are recorded directly to the related reserve liability. The Company has entered into retrospective rating agreements for certain credit life and credit disability contracts. Premium for contracts subject to these agreements was $355,435 in 2017, $334,274 in 2016, and $323,927 in 2015, representing 11%, 11%, and 10% of net premiums for 2017, 2016, and 2015, respectively. Retrospective premiums are accrued in premium individually for each qualifying policy based on premium and claim experience. Accrued retrospective premium receivables are treated as nonadmitted because they have no fixed due date. Credit Union Reimbursements The Company reimburses credit unions for certain expenses that arise due to the production of new and renewal business, primarily credit insurance and life and accident and health products sold by direct mail. These expenses are administrative expenses incurred directly by the credit unions. The Company incurred and expensed $224,390, $215,139, and $202,128 for the years ended December 31, 2017, 2016, and 2015, respectively. Income Tax Deferred income taxes are recognized, subject to an admissibility test for deferred tax assets, and represent the future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases. Gross deferred tax assets are reduced by a statutory valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. See Note 5 for the components of the admissibility test used to calculate the admitted deferred tax assets. Recorded deferred tax amounts are adjusted to reflect changes in income tax rates and other tax law provisions as they are enacted. The net change in deferred taxes is recorded directly to unassigned surplus. The Company is subject to tax-related audits. The Company accounts for any federal and foreign tax contingent liabilities in accordance with Statement of Statutory Accounting Principles ( SSAP ) No. 5R, Liabilities, Contingencies and Impairments of Assets as modified by SSAP No. 101, Income Taxes, and any state and other tax contingent liabilities in accordance with SSAP No. 5R. As a result of the comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"), which was enacted by the U.S. federal government on December 22, 2017, the Company remeasured its deferred tax assets and liabilities. The impact of the remeasurement and further discussion on the Tax Act are disclosed in the Tax Reform section of Note 5, Income Tax. 19

46 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Derivative Financial Instruments The Company uses derivative instruments, such as swaps, options, and futures to manage exposure to various currency and market risks. Most derivatives are recorded at estimated fair value with changes in fair value recorded as unrealized capital gains and losses in unassigned surplus. Swaps used to hedge the interest rate and foreign currency exposure of bonds are recorded at amortized cost. When such derivatives are sold or otherwise disposed of, the Company records a realized capital gain or loss. The Company may designate certain derivatives as fair value hedges or cash flow hedges. At inception of the hedge, the Company formally documents the hedging relationship, risk management objective and strategy. In addition, the documentation includes a description of the hedging instrument, hedged transaction, nature of the risk being hedged and methodologies for assessing effectiveness and measuring ineffectiveness. Quarterly, the Company performs procedures to assess the effectiveness of the hedging relationship and the change in fair value associated with any ineffectiveness is recorded in net realized investment gains and losses. 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 issued and the terms of the reinsurance contracts. Premiums and benefits ceded to other companies have been reported as reductions of premium income and benefits in the accompanying consolidated statutory basis statements of operations. Policy and claim reserves are reported net of unbilled reinsurance recoverables. The Company has evaluated its reinsurance contracts and determined that all significant contracts transfer the underlying economic risk of loss. If the Company determines it is probable that a reinsurance amount will not be collectible, the amounts are designated as doubtful accounts and an allowance is established for the estimated uncollectible amount. The allowance for uncollectible accounts is estimated based on a combination of write-off history, aging analysis, and any specific, known doubtful accounts. Amounts are written off when they are deemed uncollectible. Separate Accounts The Company issues variable annuities, variable life insurance policies, single premium deferred annuities and flexible premium deferred variable annuities, the assets and liabilities of which are legally segregated and reflected in the accompanying consolidated statutory basis statements of admitted assets, liabilities and capital and surplus as assets and liabilities of the separate accounts. Variable annuity and variable life insurance contract holders bear the investment risk that the separate accounts funds may not meet their stated investment objectives. Some policies contain contract provisions wherein the Company guarantees either a minimum return or account value upon death, partial withdrawal or at a specified contract anniversary date. The liabilities for these guarantees are included in policy reserves for life insurance and annuity contracts in the consolidated statutory basis statements of admitted assets, liabilities and capital and surplus. Separate account assets for the variable annuity, variable universal life, and the variable annuity component of the flexible premium deferred variable annuity are stated at fair value. Debt securities within the single premium deferred and flexible premium deferred variable annuity separate account assets are stated at amortized cost, or at the lower of amortized cost or fair value, based on the security s NAIC designation. The Company also reports mortgage loans held in the separate account, at amortized cost. See Note 2 Summary of Significant Accounting Policies, Prescribed Statutory Accounting Practice for details on this treatment. Separate account liabilities are accounted for in a manner similar to other policy reserves. In the event that the asset values of certain contract holder s accounts are projected to be below the value guaranteed by the Company, a liability is established through a charge to income. Separate account premium deposits, benefit expenses and contract fee income for investment management and policy administration are reflected by the Company in the accompanying consolidated statutory basis statements of operations. Investment income and realized and unrealized capital gains and losses of the separate account assets, with the exception of assets related to single premium deferred annuities and the risk control accounts of the flexible premium deferred variable annuities, accrue directly to the 20

47 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) contract holders and, therefore, are not included in the Company s consolidated statutory basis statements of operations. Variable annuity and variable universal life contract holders are able to invest in investment funds managed for their benefit. Approximately 27% and 31% of the separate account assets are invested in unit investment trusts that are registered with the Securities and Exchange Commission as of December 31, 2017 and 2016, respectively. The Company invests the single premium deferred annuity and flexible premium deferred variable premiums for the benefit of the contract holder. The single premium deferred and flexible premium deferred variable annuities 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 Growth Account floor 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 contract year during the selected index term based on the allocation between risk control accounts and the performance of an external index during that contract year. At the end of the initial index term only the Secure Account will be available as an option to the policyholder. Foreign Exchange The Company s consolidated statutory basis financial statements are impacted by foreign currency exchange rates related to foreign-based subsidiaries and branch operations and investment holdings denominated in foreign currencies. Revenues and expenses of foreign branch operations are translated into U.S. dollars at a weighted average exchange rate for the period. Gains and losses due to translating such foreign branch operations to U.S. dollars are recorded as unrealized capital gains or losses. Assets and liabilities are translated at the exchange rate existing on the balance sheet date. Changes in asset and liability values due to fluctuations in foreign currency exchange rates are recorded as unrealized capital gains and losses until the asset is sold or exchanged or the liability is settled. Upon settlement, previously recorded unrealized foreign exchange gains and losses are reversed and the foreign exchange gain or loss for the entire holding period is recorded as a realized gain or loss. Statutory Valuation Reserves The IMR is maintained for the purpose of stabilizing the surplus of the Company against gains and losses on sales of investments that are primarily attributable to changing interest rates. The interest rate-related gains and losses are deferred and amortized into income over the remaining lives of the securities sold. If the IMR is calculated to be a net asset, it is nonadmitted. The AVR is a formulaic reserve for fluctuations in the values of invested assets, primarily bonds and notes, common stocks and limited partnerships. Changes in the AVR are charged or credited directly to unassigned surplus. Commission and Fee Income The Company acts as an investment advisor and administrator of employee benefit plans. Revenues for advisory services are largely based upon contractual rates applied to the market value of the customer s portfolio and are recognized on a pro rata basis. Fees received for employee benefit plan recordkeeping and reporting services are recognized as revenue when the service is performed. Administrative fees paid in advance are deferred and recognized over the period of service. Benefit Plans The Company s employees participate in qualified defined benefit pension plans sponsored by CUNA Mutual Financial Group, Inc. ( CMFG ), the Company s parent. The Company records an expense for its contribution and 21

48 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) the administration of the plan by the parent. This expense is recorded in general insurance expenses on the consolidated statutory basis statements of operations. The Company recognizes costs for its non-qualified defined benefit pension and postretirement benefit plans on an accrual basis as employees perform services to earn the benefits. Net periodic benefit cost is determined using management estimates and actuarial assumptions to derive service cost and interest cost. Net periodic benefit cost also includes the applicable amortization of any prior service cost (credit) arising from changes in prior years benefit costs due to plan amendments, as well as the applicable amortization of actuarial gains or losses arising from experience different than assumed or changes in actuarial assumptions. To the extent that actuarial gains or losses and prior service costs and credits have not been included in net periodic benefit costs and create a prepaid asset, the asset is nonadmitted. The Company provides life and contributory medical insurance benefits for some retirees. Retirees become eligible to participate based upon age and years of service. Periodic net benefit expense is based on the cost of incremental benefits for employee service during the period, interest on the projected benefit obligation and actual return on plan assets and amortization of actuarial gains and losses. Calculations of the accrued liability for postretirement medical benefits reflect a reduction for subsidies expected from the federal government pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of Postretirement medical benefits are generally funded on a pay-as-you-go basis. Recently Adopted Accounting Standards Effective January 1, 2017, the NAIC adopted changes to Statement of Statutory Accounting Principles (SSAP) No. 26, Bonds ( SSAP 26 ) and SSAP No. 43R, Loan-backed and Structured Securities. The new guidance defines how prepayment penalties should be allocated between investment income and realized capital gains and losses and adds related disclosures. In addition, the guidance removes Securities Valuations Office designated bond exchange-traded funds, and Securities Valuations Office identified bond mutual funds from the definition of a bond, and provides separate accounting guidance when using a systematic value for these instruments. The guidance also adds the definition of a security, and includes definitions for non-bond, fixed-income instruments. Finally, guidance was updated to include bank loans issued directly by the reporting entity in the scope of SSAP 26. The new guidance did not have a material impact on the Company s consolidated statutory basis financial statements. SSAP No. 55, Unpaid Claims, Losses and Loss Adjustment Expenses, was modified to require companies to disclose significant changes in methods and assumptions used in calculating loss and loss adjustment expense reserves. The Company has included the disclosures required by SSAP No. 55 in its notes to consolidated statutory basis financial statements. Effective January 1, 2017, the NAIC adopted changes to SSAP No. 86, Derivatives. The guidance clarifies liability recognition for the cost to acquire derivatives with a deferred or financing premium, and also provides disclosures and specific reporting for these premiums. The new guidance did not have a material impact on the Company s consolidated statutory basis financial statements. Effective in January 1, 2017, the NAIC adopted revisions to SSAP No. 35R, Guaranty Fund and Other Assessments ( SSAP 35R ). The guidance allows entities to consider expected renewals of in-force short duration health insurance contracts in determining the assets recognized from accrued guaranty fund liability assessments on long-duration contracts. SSAP 35R was also amended to require discounting of guaranty fund assessments and related premium tax recoverables for long-term care insolvencies. The guidance was adopted by the Company on January 1, 2017 and did not have a material impact on the Company s consolidated statutory basis financial statements. Effective in January 1, 2017, the NAIC adopted revisions to SSAP No. 41R, Surplus Notes. The guidance requires investments in surplus notes with a NAIC designation of 1 or 2 to be valued at amortized cost. All other 22

49 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) surplus notes are required to be valued at the lower of amortized cost or fair value. The new guidance did not have a material impact on the Company s consolidated statutory basis financial statements because the Company s surplus notes all have a NAIC designation of 1 or 2 and are valued at amortized cost. Effective December 31, 2017, the NAIC adopted revisions to SSAP No. 2, Cash, Cash Equivalents, Drafts, and Short-Term Investments. The new guidance changed the classification of investments in money market mutual funds from short-term investments to cash equivalents. Money market mutual funds must now be measured at fair value but entities may use a reported net asset value as a practical expedient. In addition, changes in fair value are reported as unrealized gains and losses. The new guidance did not have a material impact on the Company s consolidated statutory basis financial statements. Effective December 31, 2017, the NAIC adopted Interpretation 18-01, Updated Tax Estimates under the Tax Cuts and Jobs Act ( INT ), related to the tax law passed in December See discussion of the Tax Act in Note 5. INT provides a limited exception to the requirements in SSAP No. 9, Subsequent Events. SSAP No. 9 requires that if new information becomes available regarding estimates used to prepare the statutory basis financial statements ( Annual Statement ) filed with regulatory authorities, then that new information, if it results in a material adjustment to the Annual Statement, should be reflected in audited statutory basis financial statements and an amended Annual Statement should be filed. INT provides that material adjustments to the 2017 Annual Statement required as a result of updated estimates of the impact of the Tax Act should be included in the statutory basis statement of operations in the period when the information necessary to update the estimates becomes available. Consequently, the 2017 Annual Statement and consolidated statutory basis financial statements would not be amended for such a change in estimate. Accounting Standards Pending Adoption Effective January 1, 2017, the NAIC has adopted amendments to prescribe new statutory principles-based reserve valuation standards. The amendments affect new business only and have a three-year phase in period for implementation. The Company s life product mix either does not include impacted products (universal life with secondary guarantees and indexed universal life) or will not have product features materially impacted after the phase in period (fully underwritten level term life). Accordingly, the Company does not expect the guidance to have a material impact on the consolidated statutory basis financial statements. The Company plans to adopt the new standard effective January 1, 2020, as permitted by the guidance. An amendment to SSAP No. 26 removes SVO-identified exchange traded funds ("ETFs") and SVO-identified bond mutual funds from the definition of a bond and provides separate accounting guidance for these instruments when making an optional election to use systematic value, as defined therein, to determine their carrying value. If the election is not made, SVO-identified investments are held at fair value. Companies must make the election for existing SVO-identified investments as of December 31, 2017, but use of the systematic value method begins January 1, The Company has elected the systematic value method for its SVO-identified ETF with a carrying value of $4,941 as of December 31, 2017, which will not have a material impact on the 2018 consolidated statutory basis financial statements. 23

50 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Note 3: Investments Bonds and Notes The statement value, which generally represents amortized cost, gross unrealized gains and losses, and fair value of investments in bonds and notes at December 31, 2017 and 2016 are as follows: December 31, 2017 Statement Gross Unrealized Value Gains Losses Fair Value U.S. government and agencies $ 164,930 $ 521 $ (2,257) $ 163,194 States, territories and possessions 32,319 5,268-37,587 Political subdivisions of states territories and possessions 284,208 46,429 (588) 330,049 Special revenue and special assessment obligations 31,237 5,340 (373) 36,204 Industrial and miscellaneous 5,980, ,730 (43,891) 6,227,738 Mortgage-backed securities Residential mortgage 542,123 21,776 (3,216) 560,683 Commercial mortgage 501,622 15,152 (1,059) 515,715 Non-mortgage asset-backed securities Collateralized loan and debt obligations 3, ,807 Other structured securities 465,828 6,325 (674) 471,479 Other - affiliated 106, ,760 Total bonds and notes $ 8,113,307 $ 391,967 $ (52,058) $ 8,453,216 December 31, 2016 Statement Gross Unrealized Value Gains Losses Fair Value U.S. government and agencies $ 163,889 $ 180 $ (10,498) $ 153,571 States, territories and possessions 29,177 4,412-33,589 Political subdivisions of states territories and possessions 257,445 32,667 (3,046) 287,066 Special revenue and special assessment obligations 32,269 4,321 (782) 35,808 Industrial and miscellaneous 5,870, ,114 (79,617) 6,041,193 Mortgage-backed securities Residential mortgage 495,887 24,078 (4,788) 515,177 Commercial mortgage 410,882 17,608 (660) 427,830 Non-mortgage asset-backed securities Collateralized loan and debt obligations 14,159 1,965 (12) 16,112 Other structured securities 432,469 4,741 (2,274) 434,936 Other - affiliated 70, ,308 Total bonds and notes $ 7,777,181 $ 340,086 $ (101,677) $ 8,015,590 24

51 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The statement value and fair value of bonds and notes at December 31, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Because of the potential for prepayment on mortgage-backed and non-mortgage, asset-backed securities, such securities have not been displayed in the table below by contractual maturity. Statement Value Fair Value Due in one year or less $ 276,739 $ 279,952 Due after one year through five years 1,884,118 1,970,875 Due after five years through ten years 2,018,892 2,063,476 Due after ten years 2,313,844 2,480,469 Mortgage-backed securities 1,043,745 1,076,398 Non-mortgage asset-backed securities 575, ,046 Total bonds and notes $ 8,113,307 $ 8,453,216 Investment in Common Stock, Affiliated The Company owns common stock in various subsidiaries and affiliates. The most significant of these investments is a 100% equity interest in CMIC, which is primarily a holding company and has a statutory carrying value of $1,018,169 and $1,012,269 at December 31, 2017 and 2016, respectively. CMIC s largest investments include 100% of CUMIS Insurance Society, Inc. ( CUMIS ), an Iowa property and casualty insurer, and 100% of CUMIS Vermont, Inc. ( CUMIS VT ), a Vermont insurer. The following table shows the value of affiliated common stock investments at December 31, 2017: Gross Investment Nonadmitted Statement in Affiliate Amount Value CUNA Mutual Investment Corporation $ 1,018,169 $ - $ 1,018,169 MEMBERS Trust Company 2,798-2,798 CUNA Mutual Global Holdings, Inc. 30,260 30,260 - TruStage Insurance Agency, LLC 1,592 1,592 - CUNA Mutual AdvantEdge Analytics, LLC 20,750 20,750 - CUNA Mutual Management Services, LLC Total $ 1,073,619 $ 52,652 $ 1,020,967 In 2017, the Company made filings with the NAIC for the statement values of affiliates owned as of December 31, In all cases, the NAIC accepted the submitted statement value. The Company is in the process of submitting NAIC filings for the 2017 statement values shown in the table above. 25

52 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Significant activity in affiliated common stocks for the years ended December 31, 2017 and 2016 was as follows: Capital contributions to subsidiaries - cash $ 45,000 $ 11,000 Dividends paid by subsidiaries - cash 51,000 20,000 Common and Preferred Stocks, Unaffiliated The cost, gross unrealized gains and losses and fair value of unaffiliated common stocks at December 31 are as follows: Gross Unrealized Common Stocks Cost Gains Losses Fair Value December 31, 2017 $ 52,332 $ 5,596 $ (182) $ 57,746 December 31, ,703 7,132 (82) 48,753 The statement value, gross unrealized gains and losses and fair value of preferred stocks at December 31 are as follows: Statement Gross Unrealized Preferred Stocks Value Gains Losses Fair Value December 31, 2017 $ 5,119 $ 340 $ - $ 5,459 December 31, ,869 1,098-16,967 26

53 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Real Estate Real estate investments consisted of the following at December 31: Real estate occupied by the Company $ 186,744 $ 185,306 Accumulated depreciation (120,824) (113,987) Net real estate occupied by the Company $ 65,920 $ 71,319 Real estate held for the production of income $ - $ 13,074 Accumulated depreciation - (5,772) Net real estate held for the production of income $ - $ 7,302 Real estate held-for-sale $ 11,836 $ - Accumulated depreciation (5,137) - Net real estate held for sale $ 6,699 $ - Depreciation expense on real estate investments held for the production of income, which is netted against rental income and included in net investment income, totaled $335, $613, and $1,016 for the years ended December 31, 2017, 2016, and 2015, respectively. Depreciation expense on real estate investments occupied by the Company, which is netted against rental income and included in net investment income, totaled $3,806, $7,655, and $9,308 for the years ended December 31, 2017, 2016, and 2015, respectively. There were no impairments recognized on real estate in 2017, 2016 and Mortgage Loans The Company s mortgage loan portfolio consists mainly of commercial mortgage loans. All outstanding commercial mortgage loans are collateralized by completed properties. At December 31, 2017, the commercial mortgage loan portfolio had an average remaining life of 6.5 years, with all principal due prior to The Company limits its concentrations of credit risk by diversifying its mortgage loan portfolio so that loans made in any one major metropolitan area are not greater than 20% of the aggregate mortgage loan portfolio balance. No loan to a single borrower represented more than 2.3% of the aggregate mortgage loan portfolio balance. The following table provides the current and past due amounts of the mortgage loan portfolio at December 31: Current $ 1,744,992 $ 1,534, days past due Total carrying value $ 1,745,006 $ 1,534,869 There were no impaired loans and the Company has no interest accrued on loans greater than 90 days past due as of December 31, 2017 and

54 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The Company s mortgage loans are located throughout the United States. The following table identifies states with greater than 5% of the commercial mortgage portfolio at December 31: California 19.3 % 21.3 % Texas Wisconsin Illinois New York Ohio Florida The types of properties collateralizing the commercial mortgage loans at December 31 are as follows: Retail 30.0 % 33.7 % Multi-family Industrial Office Other Total % % The Company has no commitments as of December 31, 2017 or 2016 to lend additional funds to mortgagors whose existing mortgage terms have been restructured in a troubled debt restructuring. There were no mortgage loan restructures in 2017 or Valuation allowances are maintained at a level that is adequate to absorb estimated probable credit losses of each specific loan. Management performs a periodic evaluation of the adequacy of the allowance for losses based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower s ability to repay (including timing of future payments), the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. Trends in market vacancy and rental rates are incorporated into the analysis of monitored loans and may contribute to the establishment of (or an increase or decrease in) an allowance for credit losses. In addition, a review of each loan in our commercial mortgage loan portfolio is performed on a quarterly basis to identify emerging risks. A valuation allowance is established or adjusted for specific loans as warranted based on this analysis. The Company s process for determining past due or delinquency status begins when a payment date is missed. The Company places loans on nonaccrual status when it is probable that income is uncollectible. Income received after a loan is put on nonaccrual status is recognized on a cash basis. As of December 31, 2017 and 2016, there were no mortgage loans in nonaccrual status and no valuation allowance was established for mortgage loans. Mortgage loans deemed uncollectible are written off against the allowance for losses. The allowance is also adjusted for any subsequent recoveries. The Company measures and assesses the credit quality of mortgage loans by using loan to value and debt service coverage ratios. The loan to value ratio compares the principal amount of the loan to the fair value of the underlying property collateralizing the loan and is commonly expressed as a percentage. Loan to value ratios greater than 100% indicate that the principal amount is greater than the collateral value. Therefore, all else being equal, a lower loan to value ratio generally indicates a higher quality loan. The debt service coverage ratio compares a property s net operating income to its debt service payments. Debt service coverage ratios of less 28

55 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) than 1.0 indicate that property operations do not generate enough income to cover its current debt payments. Therefore, a higher debt service coverage ratio generally indicates a higher quality loan. The loan to value and debt service coverage ratios are updated regularly. Loan to value and debt service coverage ratios were as follows at December 31, 2017: Loan to Value Principal Amount Average Debt Service Coverage Ratio Less than 65% $ 1,552, % to 74% 151, % to 100% 41, Greater than 100% 14 - Total $ 1,745, Loan to value and debt service coverage ratios were as follows at December 31, 2016: Loan to Value Principal Amount Average Debt Service Coverage Ratio Less than 65% $ 1,314, % to 74% 193, % to 100% 26, Greater than 100% 18 - Total $ 1,534, Derivative Financial Instruments Consistent with its risk management strategy, the Company utilizes derivative financial instruments to help maximize risk-adjusted investment returns; reduce interest rate risks of long term assets; manage exposure to various credit, currency and market risks; and manage exposure to various equity and fixed income market sectors. Financial instruments used for such purposes include foreign currency futures, cross currency swaps, interest rate swaps, and options. Derivative instruments used in hedging transactions that meet the criteria of a highly effective hedge are valued and reported in a manner that is consistent with the hedged asset or liability. For those derivatives that qualify for hedge accounting, the change in the carrying value or cash flow of the derivative is recorded consistently with how the changes in the carrying value or cash flow of the hedged asset, liability, firm commitment or forecasted transaction are recorded. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value and the changes in the fair value are recorded as unrealized gains or losses. Futures Contracts: Futures contracts ( futures ) are a commitment to purchase or deliver securities or currency in the future at a predetermined price or yield, and are usually settled net in cash. When a futures contract is entered into, a margin account is established with the broker based on the requirements of the futures exchange. The Company utilizes short positions in foreign currency futures to manage the foreign currency fair value risk exposure to investments denominated in foreign currencies. Foreign currency futures designated as hedging the 29

56 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) foreign currency risk of foreign currency denominated long-term bonds and common stock are classified as foreign currency fair value hedges. Foreign currency futures that are not designated to specific foreign currency risk are not accounted for using hedge accounting. All changes in the fair value of undesignated foreign currency futures are recorded in net realized investment gains. Cross Currency Swaps: Cross currency swaps represent the Company s agreement with other parties to exchange, at specified intervals, the difference between functional currency (U.S. Dollar) fixed or floating rate interest amounts and foreign currency fixed or floating rate interest amounts calculated by reference to agreed upon notional principal amounts. Generally, exchanges of functional currency (U.S. Dollar) and foreign currency notional amounts are made at the initiation and maturity of the contract. The Company uses cross currency swaps to eliminate the variability in functional currency equivalent cash flows of foreign currency denominated debt instruments. The cross currency swaps are carried at amortized cost. Interest payments paid/received on the cross currency swaps are recorded in net investment income. When the cross currency swaps are closed, gains (losses) are recognized as a component of realized capital gains (losses). The Company is hedging its exposure to the variability in future cash flows for a maximum of 25 years on forecasted transactions excluding those transactions related to the payment of variable interest on existing instruments. Interest Rate Hedges: The Company uses interest rate swaps to reduce market risks from changes in interest rates. Under interest rate swaps the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. The swap contracts are entered into pursuant to master agreements that normally provide for a single net payment to be made by one counterparty at each due date. The net receipt/payment is recorded as an increase/decrease to investment income. Certain interest rate swaps have been designated as fair value hedges, and certain interest rate swaps of forecasted transactions have been designated as cash flow hedges. The swap contracts are carried at amortized cost to match the book adjusted carrying value methodology prescribed for the currently held bonds or forecasted bond purchases that they are hedging. Interest payments paid/received on the interest rate swaps are recorded in net investment income. If a swap contract is closed prior to the swap end date, the gain or loss adjusts the basis of the hedged item and is recognized in income in a manner that is consistent with the hedged item. For bonds currently held, gains (losses) are recognized as a component of realized capital gains (losses). For hedges of forecasted transactions, deferred gains or losses are recognized in unrealized gains or losses. For interest rate swaps that have been designated as cash flow hedges of forecasted transactions, if a forecasted transaction is determined to no longer be probable, hedge accounting will cease immediately. During 2017 and 2016, there were no cash flow hedges discontinued as a result of no longer being probable that the original forecasted transactions would occur by the end of the originally specified time period or within two months of that date. The maximum length of time over which the Company is hedging the exposure to the variability in future cash flows for forecasted transactions is 36 years. Interest rate swaps that cannot be designated to specific interest rate risk are not accounted for using hedge accounting. These derivatives are accounted for at fair value with the changes in fair value recorded in surplus as an unrealized gain and loss. Equity-Indexed, Single Premium Deferred Annuity and Flexible Premium Deferred Variable Annuity Options: The Company issues equity-indexed annuity, single premium deferred annuity and flexible premium deferred variable annuity contracts that credit interest on a portion of the contract based on certain indices, primarily the Standard & Poor s 500 Composite Price Index ( S&P 500 ). A portion of the premium from each customer is invested in primarily investment grade bonds. A portion of the premium is used to purchase over-the-counter put and call 30

57 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) options to hedge the change in interest credited to the customer as a direct result of the change in the related indices. The options are carried at fair value with changes in fair value recorded in unrealized capital gains (losses). When the options are closed, gains (losses) are recognized as a component of realized capital gains (losses). Credit Risk: The Company is exposed to credit losses in the event of nonperformance by the counterparties to its swap, option and currency forward agreements. The Company monitors the credit standing of the counterparties and has entered into cash collateral agreements based on the credit rating of the counterparty. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the contracts given their high credit ratings. The futures contracts are traded on a regulated exchange and have low counterparty risk. At December 31, 2017, the Company had exposure, net of collateral, of $462 in the event of nonperformance by all counterparties. The largest exposure with any one counterparty was $1,137 at December 31, The following table provides a summary of the statement value, notional amount and fair value of derivative financial instruments held at December 31, 2017 and Statement Value Statement Value Notional Fair Value Fair Value December 31, 2017 Assets Liabilities Value Assets Liabilities Futures contracts $ - $ 260 $ 10,872 $ - $ 260 Cross currency swaps - 2,099 52, ,058 Interest rate swap assets ,000 5,399 - Purchased options contracts 29, ,266 29,771 - Written options contracts - 17, ,882-17,930 Total derivative financial instruments $ 29,771 $ 20,289 $ 740,875 $ 35,290 $ 21,248 Statement Value Statement Value Notional Fair Value Fair Value December 31, 2016 Assets Liabilities Value Assets Liabilities Futures contracts $ 221 $ - $ 10,537 $ 221 $ - Cross currency swaps ,013 1, Interest rate swap assets ,000 5,608 - Interest rate swap liabilities ,000-22,896 Purchased options contracts 32, ,701 32,458 - Written options contracts - 19, ,033-19,183 Total derivative financial instruments $ 33,170 $ 19,197 $ 986,284 $ 39,748 $ 42,275 31

58 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The following table provides the financial statement classification and impact of derivatives used in qualifying and non-qualifying hedge relationships for the years ended December 31: Realized Capital Gain (Loss) 2017 Unrealized Capital Gain (Loss) Total Foreign currency risk hedges $ (378) $ (959) $ (1,337) Interest and credit risk hedges (20,094) - (20,094) Equity risk hedges 9, ,557 Total $ (11,355) $ (519) $ (11,874) Realized Capital Gain (Loss) 2016 Unrealized Capital Gain (Loss) Total Foreign currency risk hedges $ 2,150 $ 552 $ 2,702 Interest and credit risk hedges (5,280) 10 (5,270) Equity risk hedges (2,724) 6,783 4,059 Total $ (5,854) $ 7,345 $ 1,491 Limited Partnerships The statement values of the Company s unaffiliated limited partnerships by type were as follows at December 31: Energy $ 557 $ 845 Mezzanine 5,179 5,147 Private equity 2,949 3,751 Total limited partnerships $ 8,685 $ 9,743 The Company made additional investments in unaffiliated limited partnerships in 2017, 2016, and 2015 of $42, $46, and $3,141, respectively. The Company owns certain limited liability company (LLC) entities: MCA Fund I Holding LLC ( MCA Holding ), MCA Fund II Holding Company LLC ( MCA Fund II Holding ) and MCA Funds Holding Company LLC ( MCA Funds Holding ). These entities hold investments in unaffiliated limited partnerships. On October 31, 2016, CMFG Life transferred its 100% investment in MCA Fund III LP ( MCA Fund III ) to MCA Funds Holding in exchange for a 100% equity interest in MCA Funds Holding. The exchange was valued at 32

59 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) $173,347, which solely included unaffiliated limited partnership investments. MCA Funds Holding also has an investment in MCA Fund IV LP ( MCA Fund IV ). The financial statements of MCA Funds Holding were not audited at December 31, 2017, and therefore the Company utilized the look-through approach for the valuation of MCA Funds Holding for that year. The Company limited the value of its investment in MCA Funds Holding to the value contained in the 2017 audited financial statements of the underlying limited partnerships owned by MCA Funds Holding and its subsidiaries. The carrying value of MCA Funds Holding, which is reflected in other invested assets within the Company s consolidated statutory basis statements of admitted assets, liabilities and capital and surplus, was $440,873 and $222,412 at December 31, 2017 and 2016, respectively. All liabilities, commitments and contingencies of MCA Funds Holding are reflected in the Company s carrying value of MCA Funds Holding. The look-through approach was not utilized in 2016, as the limited partnership investments of MCA Funds Holding were audited at December 31, 2016 via the audit of the financial statements for MCA Fund III. On June 28, 2017, CMFG Life transferred its 90% investment in MCA Fund II to MCA Fund II Holding Company LLC ( MCA Fund II Holding ) in exchange for a 90% equity interest in MCA Fund II Holding. The exchange was valued at $335,222, which solely included unaffiliated limited partnership investments. The Company made additional investments in its affiliated limited partnerships during the years ended December 31, 2017 and 2016, as follows: MCA Fund I $ 2,480 $ 6,977 MCA Fund II 32,859 66,645 MCA Fund III 145, ,720 MCA Fund IV 73,661 - Total additional investments made $ 254,490 $ 213,342 The Company s investment in affiliated limited partnerships at December 31 are shown in the table below: MCA Holding $ 127,458 $ 139,350 MCA Fund II Holding 159,988 - MCA Funds Holding 440, ,412 MCA Fund II - 332,059 Total investment in affiliated limited partnerships $ 728,319 $ 693,821 33

60 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The value of the limited partnerships reflected in the Company s investment in the following affiliated limited partnerships are shown in the table below: MCA Holding $ 185,198 $ 241,674 MCA Fund II Holding 310,800 - MCA Funds Holding 438, ,064 MCA Fund II - 331,863 Total carrying value of affiliated limited partnerships $ 934,979 $ 794,601 The Company s maximum exposure to loss associated with affiliated limited partnerships are shown in the table below: MCA Holding $ 155,810 $ 172,881 MCA Fund II Holding 255,129 - MCA Funds Holding 1,124, ,680 MCA Fund II - 460,100 Total maximum exposure to loss of affiliated limited partnerships $ 1,535,267 $ 1,424,661 The Company calculates the maximum exposure to loss as the amount invested in the debt or equity of the fund plus other commitments and guarantees to the fund. As described in Note 13, the Company makes commitments to limited partnerships in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to these investees during the years ended December 31, 2017 and MCA Fund I, MCA Fund II and MCA Fund III terminate on January 1, 2034, unless extended. MCA Fund IV terminates on January 1, 2037, unless extended. CMFG Life, MCA Fund I, MCA Fund II, MCA Fund III and MCA Fund IV invest in energy, mezzanine, private equity, and real estate limited partnerships. Energy limited partnerships invest in companies that primarily engage in the exploration, production, transportation and service industries in the oil, natural gas, metals and mining industries. Mezzanine limited partnerships invest in debt or debt like instruments but may also include an equity component. Mezzanine limited partnerships tend to generate steady interest payments. Private equity limited partnerships make direct investments in companies with the intent of improving the financial results over a period of time to allow for positive returns upon a liquidity event. Real estate limited partnerships are private equity funds that primarily invest in commercial, hospitality, office, and multi-family real estate. Low Income Housing Tax Credit Property Investments The number of remaining years of unexpired tax credit related to LIHTC ranged from 10 to 12 years as of December 31, The Company expects to hold these investments for 16 to 19 years. The amount of LIHTC and other tax benefits recognized during 2017 was $710; the amount was recognized as a component of federal income tax expense in the consolidated statutory basis statements of operations for the year ended December 31,

61 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Cash, Cash Equivalents and Short-term Investments The details of cash, cash equivalents and short-term investments as of December 31, are as follows: Money market mutual funds $ 42,491 $ 79,782 Cash 59,212 29,032 Total cash, cash equivalents and short-term investments $ 101,703 $ 108,814 Net Investment Income Sources of net investment income for the years ended December 31 are summarized as follows: Bonds and notes $ 367,481 $ 370,836 $ 357,217 Preferred stocks - unaffiliated 475 1,009 2,126 Common stocks - unaffiliated 1, Common stocks - affiliated 51,000 20, ,000 Mortgage loans 77,980 82,937 73,154 Real estate 18,875 18,559 18,746 Contract loans 7,002 6,755 6,959 Other invested assets 7, Cash, cash equivalents and short-term investments Derivative financial instruments (1,201) (1,005) (236) Other 1, ,021 Gross investment income 533, , ,334 Less investment expenses 47,608 46,980 47,335 Net investment income $ 485,676 $ 453,968 $ 512,999 Investment expenses include interest, salaries, brokerage fees, securities custodial fees, and real estate expenses, including depreciation. Due and accrued investment income over 90 days past due is excluded from the balance sheet as a nonadmitted asset. There was no accrued investment income excluded at December 31, 2017 or 2016 on this basis. 35

62 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Net Realized Capital Gains Net realized capital gains (losses) for the years ended December 31 are summarized as follows: Bonds and notes: Gross gains from sales $ 91 $ 20,069 $ 4,767 Gross losses from sales (4,289) (3,800) (3,379) Other 23,811 (3,344) (2,248) Other-than-temporary impairment losses (653) (7,833) (2,282) Preferred stocks-unaffiliated: Gross gains from sales Other (100) - - Other-than-temporary impairment losses - - (245) Common stocks - unaffiliated: Gross gains from sales 3, ,019 Other-than-temporary impairment losses - - (298) Common stocks - affiliated: Gross gains from sales and merger 4,505 9,073 17,001 Real estate 1,651 (351) 2,960 Mortgage loans: Valuation allowance - (8) - Limited partnerships: Gross gains from distributions 34,397 52,012 54,957 Gross losses from distributions (78) (1,107) (24,243) Other invested assets: Other (490) - - Other-than-temporary impairment loss - note receivable (6,000) - - Derivative financial instruments (11,355) (5,854) 17,867 Other 480 (66) 247 Realized capital gains before taxes and transfer to interest maintenance reserve 46,669 58,847 67,123 Tax on realized capital gains (47,552) (17,086) (27,140) Transfer to interest maintenance reserve 3,617 (17,184) (874) Net realized capital gains $ 2,734 $ 24,577 $ 39,109 Proceeds from the sale of bonds and notes were $95,672, $375,526 and $204,839 in 2017, 2016 and 2015, respectively. Proceeds from the sale of stocks were $53,793, $15,256 and $19,336 in 2017, 2016 and 2015, respectively. On January 30, 2014, CMFG Life sold its 50% ownership interest in CMG Mortgage Insurance Company ( CMG MI ) and CMG Mortgage Assurance Company ( CMGA ), affiliated entities that offered residential mortgage guaranty insurance and insurance policies on second mortgages for loans originated by credit unions. As a result of the sale, the Company established a $40,412 asset for contingent future payments in other assets based on an estimated discounted cash flow analysis. The asset for contingent future payments is based on the performance of inforce policies, which were under CMG MI at the time of sale, over the six-year post-sale period, as defined in 36

63 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) the purchase agreement. The asset is nonadmitted and will be reduced as cash payments are received over the earnout period. During 2017, 2016 and 2015, the Company increased the asset for contingent future payments by $4,307, $5,733 and $4,625, respectively, to reflect the unwind of the accretion of the asset for the change in the initial discount; this increase in the asset is recorded in realized capital gains. Further, the Company updates the assumptions used in its estimated discounted cash flow analysis each year. As a result of updated expectations, the Company increased the asset for contingent future payments, and recorded a pretax realized gain of $198, $3,340 and $4,137 in 2017, 2016 and 2015, respectively. In 2017, the Company received cash of $35,870 for the three-year post-sale anniversary performance payment, pursuant to the purchase agreement. In 2015, the Company also received cash of $10,000 for fulfilling the applicable representations and warranties. The balance of the nonadmitted future contingent payments asset, which the Company expects to collect in 2019 and 2020, is $28,515 and $59,880 as of December 31, 2017 and 2016, respectively. 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 based largely on the fair value of an investment security relative to its amortized cost. When the fair value drops below the Company s amortized 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, but not limited to: The existence of any plans to sell the investment security. The extent to which fair value is less than statement value. The underlying reason for the decline in fair value (credit concerns, interest rates, etc.). The financial condition and near term prospects of the issuer/borrower, including the ability to meet contractual obligations, relevant industry trends and conditions. For loan-backed and structured securities and equity securities, the Company s intent and ability to retain its investment for a period of time sufficient to allow for an anticipated recovery in fair value. The Company s ability to recover all amounts due according to the contractual terms of the agreements. The Company s collateral position, in the case of bankruptcy or restructuring. A bond is considered to be 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. When this occurs, the Company records a realized capital 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. If the bond is a loan-backed or structured security, it is considered to be other-than-temporarily impaired when the amortized cost exceeds the present value of cash flows expected to be collected and its value is not expected to recover through the Company s holding period. The amount of the other-than-temporary impairment recognized in net income as a realized loss equals the difference between the investment's amortized cost basis and its expected cash flows. 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 intent and ability of the Company to hold the investment until the fair value has recovered above its cost basis. 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 equal to the difference between amortized cost and present value of future cash flows is recognized. The Company also considers its intent and ability to retain a temporarily impaired security until recovery. Estimating future cash flows involves 37

64 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) 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. For investments in subsidiaries and limited partnerships, the Company reviews the financial condition and future profitability of the subsidiary or limited partnership interest to assess whether any excess of our initial cost basis over the current carrying basis determined using the equity method of accounting is other-than-temporary. If such excess is deemed to be other-than-temporary, the amount is recorded as a realized capital loss. For those equity securities with a decline in the fair value deemed to be other-than-temporary, a realized capital loss is recorded equal to the difference between the fair value and cost basis of the security. The previous cost basis less the amount of the estimated impairment becomes the security s new cost basis. The Company asserts its intent and ability to retain those equity securities deemed to be temporarily impaired until the price recovers. Once identified, these securities are restricted from trading. Management believes it has made an appropriate provision for other-than-temporarily impaired securities owned at December 31, As a result of the subjective nature of these estimates, however, additional provisions may subsequently be determined to be necessary, as new facts emerge and a greater understanding of economic trends develop. Additional OTTI will be recorded as appropriate and as determined by the Company s regular monitoring procedures of additional facts. In light of the variables involved, such additional OTTI could be significant. The following table identifies the Company s OTTI by type of investment for the years ended December 31: Mortgage-backed securities $ (219) $ (1,455) $ (72) Non-mortgage asset-backed securities - - (3) Political subdivisions of states, territories and possessions - (91) - Industrial and miscellaneous (434) (6,287) (2,207) Total bonds and notes (653) - (7,833) (2,282) Mortgage loans - (8) - Other invested assets - note receivable (6,000) - - Common and preferred stocks - - (543) Total other than temporary impairment losses $ (6,653) $ (7,841) $ (2,825) The Company did not recognize any OTTI on loan-backed and structured securities during 2017, 2016 and 2015 caused by an intent to sell or lack of intent and ability to hold until recovery of the amortized cost basis. 38

65 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The following tables list each loan-backed security held as of December 31, 2017 for which a credit related OTTI loss was recognized during CUSIP Book Adjusted Carrying Value Before Current Period Other-Than-Temporary Impairments Recognized Other- Than-Temporary Impairments Amortized Cost After Other-Than- Temporary Impairments Fair Value 22541S5W4 $ 174 $ (174) $ - $ PCH2 1,076 (6) 1,070 1, PCK5 72 (25) YSF4 4,121-4,121 4, NQJ7 2,093 (11) 2,082 2, NUH6 1,382 (1) 1,381 1, HAH0 2,041 (2) 2,039 2,084 Total $ 10,959 $ (219) $ 10,740 $ 11,111 Net Unrealized Capital Gains The components of the change in net unrealized capital gains included in unassigned surplus for the years ended December 31 are shown in the table below Bonds and notes $ 231 $ 432 $ 1,447 Preferred stocks - unaffiliated Common stocks - unaffiliated (1,636) 5, Common stocks - affiliated (14,662) 7,805 33,103 Limited partnerships 78,697 (40,116) (14,325) Derivative financial instruments (519) 7,345 (19,138) Deferred income taxes (18,489) 9,278 10,863 Change in unrealized capital gains, net of tax $ 43,622 $ (9,611) $ 12,733 39

66 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Information regarding the Company s bonds and notes and stocks with unrealized losses at December 31, 2017 is presented below, segregated between those that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months. Bonds and notes Months in Unrealized Loss Position Less Than Twelve Twelve Months Months or Greater Fair Value Unrealized Loss Fair Value Unrealized Loss Total December 31, 2017 Fair Value Unrealized Loss U.S. government and agencies $ 55,009 $ (740) $ 66,617 $ (1,517) $ 121,626 $ (2,257) Political subdivisions of states, territories and possessions ,958 (588) 18,958 (588) Special revenue and special assessment obligations - - 3,627 (373) 3,627 (373) Industrial and miscellaneous 501,004 (18,854) 536,058 (25,037) 1,037,062 (43,891) Mortgage-backed Residential mortgage-backed 118,376 (770) 126,960 (2,446) 245,336 (3,216) Commercial mortgage-backed 84,194 (595) 34,656 (464) 118,850 (1,059) Non-mortgage asset-backed Collateralized loan and debt obligations Other structured securities 47,688 (61) 33,941 (613) 81,629 (674) Total bonds and notes 806,292 (21,020) 820,817 (31,038) 1,627,109 (52,058) Common stock - unaffiliated - (100) 2,163 (82) 2,163 (182) Total temporarily impaired securities $ 806,292 $ (21,120) $ 822,980 $ (31,120) $ 1,629,272 $ (52,240) At December 31, 2017, the Company owned 375 bonds and notes with a fair value of $1,627,109 in an unrealized investment loss position. There were 167 of the 375 bonds and notes with a fair value of $820,817 in an unrealized loss position for twelve or more months. The aggregate severity of unrealized losses for bonds and notes is approximately 3.6% of amortized cost. The total fair value of bonds and notes with unrealized losses at December 31, 2017 and which are rated investment grade based on having an NAIC rating of 1 or 2 is $1,527,082 or 93.9% of the total fair value of all bonds and notes with unrealized losses at December 31, Total unrealized losses on investment grade bonds and notes were $45,129 at December 31, At December 31, 2017, the Company had one stock with a fair value of $2,163 in an unrealized loss position for more than twelve months. The severity of unrealized losses for stocks is 3.6% of cost. 40

67 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Information regarding the Company s bonds and notes and stocks with unrealized losses at December 31, 2016 is presented below, segregated between those that have been in a continuous unrealized loss position for less than twelve months and those that have been in a continuous unrealized loss position for twelve or more months. Bonds and notes Months in Unrealized Loss Position Less Than Twelve Twelve Months Months or Greater Fair Value Unrealized Loss Fair Value Unrealized Loss Total December 31, 2016 Fair Value Unrealized Loss U.S. government and agencies $ 142,058 $ (10,498) $ - $ - $ 142,058 $ (10,498) Political subdivisions of states, territories and possessions 47,865 (3,046) ,865 (3,046) Special revenue and special assessment obligations 10,218 (782) ,218 (782) Industrial and miscellaneous 1,399,855 (64,326) 169,271 (15,291) 1,569,126 (79,617) Mortgage-backed Residential mortgage-backed 198,613 (4,788) ,613 (4,788) Commercial mortgage-backed 48,738 (590) 2,878 (70) 51,616 (660) Non-mortgage asset-backed Collateralized loan and debt obligations - - 1,943 (12) 1,943 (12) Other structured securities 79,265 (1,619) 166,191 (655) 245,456 (2,274) Total bonds and notes 1,926,612 (85,649) 340,283 (16,028) 2,266,895 (101,677) Common stocks and preferred stocks - - 2,163 (82) 2,163 (82) Total temporarily impaired securities $ 1,926,612 $ (85,649) $ 342,446 $ (16,110) $ 2,269,058 $ (101,759) At December 31, 2016, the Company owned 505 bonds and notes with a fair value of $2,226,895 in an unrealized investment loss position. There were 87 of the 505 bonds and notes with a fair value of $340,283 in an unrealized loss position for twelve or more months. The aggregate severity of unrealized losses for bonds and notes is approximately 4.5% of amortized cost. The total fair value of bonds and notes with unrealized losses at December 31, 2016 and which are rated investment grade based on having an NAIC rating of 1 or 2 is $2,121,529 or 93.6% of the total fair value of all bonds and notes with unrealized losses at December 31, Total unrealized losses on investment grade bonds and notes were $95,881 at December 31, At December 31, 2016, the Company had one stock with a fair value of $2,163 in an unrealized loss position. The aggregate severity of unrealized losses for stocks is 3.8% of cost. Investment Credit Risk The Company maintains a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established certain exposure limits, diversification standards, and review procedures to mitigate credit risk. 41

68 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Self-Occupancy Rent Under statutory accounting practices, the Company is required to include in investment income and general insurance expense an amount representing rental income for occupancy of its own buildings. Investment income includes self-occupancy rental income of $16,690 in 2017, $16,205 in 2016 and $15,699 in Assets Designated/Securities on Deposit Iowa law requires that assets equal to a life insurer s legal reserve must be designated for the Insurance Department for the protection of all policyholders. The legal reserve is equal to the net present value of all outstanding policies and contracts involving life contingencies. The Company designates assets for the Insurance Department for the protection of all policyholders and for other regulatory jurisdictions who require cash and securities be deposited for the benefit of policyholders. The Company also has securities pledged to the Federal Home Loan Bank (see Note 11), commercial banks in support of letters of credit and as other collateral. The statement value of assets designated, on deposit or pledged by designee as of December 31 are as follows: Iowa Insurance Department $ 9,169,601 $ 9,067,219 Other regulatory jurisdictions 4,225 5,256 Federal Home Loan Bank 609, ,026 Other collateral pledges 9,670 9,565 Total assets designated and assets on deposit $ 9,793,345 $ 9,498,066 The statement value of assets designated, on deposit or pledged as of December 31 are as follows: Bonds and notes and short-term investments $ 7,944,283 $ 7,860,460 Mortgage loans 1,745,006 1,534,869 Contract loans 103, ,700 Margin account collateral Total assets designated and assets on deposit $ 9,793,345 $ 9,498,066 42

69 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Securities Lending Securities on loan from the Company related to the securities lending program are included within bond and notes on the consolidated statutory basis statements of admitted assets, liabilities, and capital and surplus. The following table identifies the types of securities on loan as of December 31, There were no securities on loan at December 31, Amortized Cost Fair Value U.S. government $ 54,411 $ 53,296 Domestic corporate securities 191, ,154 Foreign corporate securities 1,149 1,208 Total securities on loan $ 246,863 $ 250,658 The collateral liability by security type and remaining length of the securities lending agreement were as follows for the year ended December 31, 2017: Remaining Length of Securities Lending Agreements Open 1 61 to 90 Days Total Cash and cash eqivalents $ 238,054 $ 20,000 $ 258,054 Total collateral liability $ 238,054 $ 20,000 $ 258,054 1 The related loaned security could be returned to the Company during the next business day, which would require the Company to immediately return the cash collateral. At December 31, 2017, the total collateral on deposit from counterparties was equal to the Company s obligation to return collateral on deposit from counterparties. The collateral on deposit is unrestricted. The amortized cost of the reinvested cash collateral by security type and maturity date of the invested asset was as follows for the year ended December 31, Remaining Time Until Maturity 31 to 60 Days 30 Days or Less 61 to 90 Days Total Reverse repurchase agreements $ 65,554 $ 172,500 $ 20,000 $ 258,054 Total reinvested cash collateral $ 65,554 $ 172,500 $ 20,000 $ 258,054 The Company also participated in the securities lending agreement in During 2017 and 2016, the Company had a maximum of $348,839 and $53,801, respectively, of securities on loan at any one time. 43

70 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The Company earns income from the cash collateral or receives a fee from the borrower. Income related to the securities lending program was $725 and $32 for the years ended December 31, 2017 and 2016, respectively, and is included in net investment income within the consolidated statutory basis statements of operations. Note 4: Fair Value The Company uses fair value measurements to record fair value of certain assets and liabilities and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value. Certain financial instruments, such as insurance policy liabilities other than investment-type contracts and investments accounted for using the equity method, are excluded from the fair value disclosure requirements. The Company uses fair value measurements obtained using observable inputs or internally determined estimates to estimate fair value. Valuation Hierarchy 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: 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. 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. 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 assets and liabilities, 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 financial assets and liabilities, 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 measuring 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. Transfers in and out of level categorizations are reported as having occurred at the end of the quarter in which the transfer occurred. Therefore, for all transfers into Level 3, all realized gains and losses and all changes in unrealized gains and losses in the fourth quarter are not reflected in the Level 3 rollforward table. 44

71 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Valuation Process The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance on the overall reasonableness and consistent application of valuation methodologies and inputs and compliance with accounting standards through the execution of various processes and controls designed to provide assurance that assets and liabilities are appropriately valued. The Company has policies and guidelines that require the establishment of valuation methodologies and consistent application of such methodologies. These policies and guidelines govern the use of inputs and price source hierarchies and provide controls around the valuation processes. These controls include appropriate review and analysis of prices against market activity or indicators of reasonableness, approval of price source changes, price overrides, methodology changes and classification of fair value hierarchy levels. The valuation policies and guidelines are reviewed and updated as appropriate. For fair values received from third parties or internally estimated, the Company s processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are appropriately recorded. The Company performs procedures to understand and assess the methodologies, process and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. When using internal valuation models, these models are developed by the Company s investment group using established methodologies. The models, including key assumptions, are reviewed with various investment sector professionals, accounting, operations, compliance, and risk management professionals. In addition, when fair value estimates involve a high degree of subjectivity, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. Transfers Between Levels There were no transfers between Level 1 and Level 2 or between Level 2 and Level 3 during the year ended December 31, There were no transfers between Level 1 and Level 2 during the year ended December 31, There were three transfers totaling $3,498 into Level 2 from Level 3 and one transfer into Level 3 from Level 2 totaling $7,770 during the year ended December 31, The transfers out of Level 3 related to changes from models using one or more significant inputs that were unobservable to models using significant inputs that were observable. The transfer into Level 3 related to changes from models using significant inputs that were observable to models using one or more significant inputs that were unobservable. 45

72 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Fair Value Measurement The following table summarizes the Company s assets and liabilities that are measured at fair value as of December 31, Assets, at Fair Value Level 1 Level 2 Level 3 Total Bonds and notes Political subdivisons $ - $ 221 $ - $ 221 Total bonds and notes Preferred stocks - 4,198 1,260 5,458 Common stocks 31,800-25,946 57,746 Cash equivalents 42, ,491 Securities lending assets - 258, ,054 Derivative assets Options - 29,771-29,771 Total derivative assets - 29,771-29,771 Separate account assets 859 3,069,977-3,070,836 Total assets at fair value $ 75,150 $ 3,362,221 $ 27,206 $ 3,464,577 Liabilities, at Fair Value Level 1 Level 2 Level 3 Total Derivative liabilities Options $ - $ 17,930 $ - $ 17,930 Futures contracts Swaps - 2,099-2,099 Total derivative liabilities ,029-20,289 Securities lending liabilities - 258, ,054 Total liabilities $ 260 $ 278,083 $ - $ 278,343 46

73 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The following table summarizes the Company s assets and liabilities that are measured at fair value as of December 31, Assets, at Fair Value Level 1 Level 2 Level 3 Total Bonds and notes Industrial and miscellaneous $ - $ 816 $ - $ 816 Collateralized loan and debt obligations - - 7,770 7,770 Total bonds and notes ,770 8,586 Preferred stocks - - 6,869 6,869 Common stocks 25,600-23,153 48,753 Short-term investments 79, ,782 Derivative assets Options - 32,458-32,458 Futures contracts Total derivative assets ,458-32,679 Separate account assets 35,905 2,991,224-3,027,129 Total assets at fair value $ 141,508 $ 3,024,498 $ 37,792 $ 3,203,798 Liabilities, at Fair Value Level 1 Level 2 Level 3 Total Derivative liabilities Options $ - $ 19,183 $ - $ 19,183 Total liabilities at fair value $ - $ 19,183 $ - $ 19,183 Determination of Fair Values The Company determines the estimated fair value of its investments using primarily the market approach and the income approach. The use of quoted prices and matrix pricing or similar techniques are examples of market approaches, while the use of discounted cash flow methodologies is an example of the income approach. A summary of valuation techniques for classes of financial assets and liabilities by fair value hierarchy level are as follows: Level 1 Measurements Common stocks: Consists of the Federal Home Loan Bank common stock as required as a member of the Federal Home Loan Bank of Des Moines. Valuation is based on the published redemption price at which the Company could transact. Short-term investments, cash equivalents: Consists of money market mutual funds, which are classified as cash equivalents in 2017 and short-term investments in Valuation is based on the closing price as of December

74 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Derivative assets and liabilities: Exchange traded derivatives that are actively traded and are valued based on quoted prices for identical instruments in markets that are active. Separate account assets: Consists of money market funds. Valuation is based on the closing price as of December 31. Level 2 Measurements Bonds and notes: Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data, such as the U.S. Treasury curve. Derivative assets and liabilities: Valuation inputs having a significant effect on fair value include market quoted interest rates, market-implied volatility and other observable inputs regularly used by industry participants in the over-the-counter derivatives markets. Separate account assets: Consists of mutual funds and unit investment trusts in which the contract holder could redeem its investment at net asset value per share at the measurement date with the investee; and bonds and notes where valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data; and options where valuation is based primarily on quoted interest rates, market-implied volatility and other observable inputs regularly used by industry participants in overthe-counter derivatives markets. Preferred stocks, unaffiliated: Consists of U.S. preferred stocks; valuation is based on observable inputs such as the applicable market yield curve, market indicated spreads by security rating, and quoted prices for identical assets in markets that are not active and/or similar assets in markets that are active. Securities lending assets and liabilities: Consists of repurchase agreements; valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data. Level 3 Measurements Collateralized loan and debt obligations: Valuations are obtained from independent, third-party pricing sources without adjustment. The Company does not have access to the significant unobservable inputs used to price these securities due to the lack of transparency in the process used by third parties to develop prices for these investments. The Company believes however, the types of inputs third parties may use would likely be similar to those used to price securities for which inputs are available to the Company, and therefore may include, but not limited to, loss severity rates, constant repayment rates, constant default rates and counterparty credit spreads. Preferred and common stocks: Consists of non-public securities primarily acquired in conjunction with investments in limited partnerships. Such investments are initially valued at transaction price and subsequently adjusted using internal appraisals that rely on unadjusted information obtained from general partners of the private equity investments. 48

75 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Changes in Fair Value Measurement The following table sets forth the changes in assets classified as Level 3 within the fair value hierarchy for the year ended December 31, 2017: Balance January 1, 2017 Transfers in to Level 3 Transfers out of Level 3 Realized/Unrealized Gain (Loss) Included in: Net Income 1 Unassigned Surplus Net Purchases, (Sales) and (Maturities) Balance December 31, 2017 Bonds and notes Collateralized loan and debt obligations $ 7,770 $ - $ - $ (3) $ 233 $ (8,000) $ - Preferred stocks 6, (6,576) 1,119 Common stocks 23, ,407 (1,635) 1,021 25,946 Total assets $ 37,792 $ - $ - $ 4,230 $ (1,402) $ (13,555) $ 27,065 1 Included in net income are amortization of premium/discount, impairments, and realized gains and losses. The following table provides the components of the items included in Level 3 net purchases, sales and maturities for 2017: Purchases Sales Maturities Net Purchases, (Sales) and (Maturities) Bonds Collateralized loan and debt obligations $ - $ - $ (8,000) $ (8,000) Preferred stocks - (2,426) (4,150) (6,576) Common stocks 5,929 (4,908) - 1,021 Total assets $ 5,929 $ (7,334) $ (12,150) $ (13,555) 49

76 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The following table sets forth the changes in assets classified as Level 3 within the fair value hierarchy for the year ended December 31, 2016: Balance January 1, 2016 Transfers in to Level 3 Transfers out of Level 3 Realized/Unrealized Gain (Loss) Included in: Net Income 1 Unassigned Surplus Net Purchases, (Sales) and (Maturities) Balance December 31, 2016 Bonds and notes Mortgage-backed securities $ 568 $ - $ 568 $ - $ - $ - $ - Collateralized loan and debt obligations 2,930 7,770 2, ,770 Preferred stocks 7, (346) - - 6,869 Common stocks 11, ,645 6,317 23,153 Total assets $ 21,904 $ 7,770 $ 3,498 $ (346) $ 5,645 $ 6,317 $ 37,792 1 Included in net income are amortization of premium/discount, impairments, and realized gains and losses. The following table provides the components of the items included in Level 3 net purchases, sales and maturities for 2016: Purchases Sales Maturities Net Purchases, (Sales) and (Maturities) Common stocks $ 6,317 $ - $ - $ 6,317 Total assets $ 6,317 $ - $ - $ 6,317 50

77 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Fair Value Measurement of Financial Instruments Accounting standards require disclosure of fair value information about certain on and off-balance sheet financial instruments for which it is practicable to estimate that value. The following table summarizes the carrying amounts and fair values of the Company s financial instruments for which it is practicable to estimate fair value by fair value measurement level at December 31, 2017: Carrying Amount Fair Value Level 1 Level 2 Level 3 Financial instruments recorded as assets: Bonds and notes $ 8,113,307 $ 8,453,216 $ - $ 7,814,619 $ 638,597 Preferred stocks - unaffiliated 5,119 5,458-4,198 1,260 Common stocks - unaffiliated 57,746 57,746 31,800-25,946 Mortgage loans 1,745,006 1,793, ,793,641 Cash equivalents and short-term investments 1 42,491 42,491 42, Other invested assets 80, ,090-97,638 4,452 Securities lending assets 258, , ,054 - Derivatives 29,771 35,290-35,290 - Separate account assets 5,284,329 5,281, ,871, ,399 Financial instruments recorded as liabilities: Deposit-type contracts 550, , ,123 - Securities lending liabilities 258, , ,054 - Derivatives 20,289 21, ,988 - Notes and interest payable 345, , ,151 - Separate account liabilities 5,284,329 5,281, ,871, ,399 Financial instruments recorded as surplus: Surplus notes 85, , ,474-1 Excludes cash of $59,212 that is not subject to fair value accounting. 51

78 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The following table summarizes the carrying amounts and fair values of CMFG Life s financial instruments for which it is practical to estimate by fair value measurement level at December 31, 2016: Carrying Amount Fair Value Level 1 Level 2 Level 3 Financial instruments recorded as assets: Bonds and notes $ 7,777,181 $ 8,015,590 $ - $ 7,474,817 $ 540,773 Preferred stocks - unaffiliated 15,869 16,967-9,059 7,908 Common stocks - unaffiliated 48,753 48,753 25,600-23,153 Mortgage loans 1,534,869 1,577, ,577,353 Cash equivalents and short-term investments 1 79,782 79,782 79, Other invested assets 87, ,249-93,790 7,459 Derivatives 33,170 39, ,527 - Separate account assets 4,500,112 4,494,920 35,905 4,120, ,970 Financial instruments recorded as liabilities: Deposit-type contracts 355, , ,317 - Derivatives 19,197 42,275-42,275 - Notes and interest payable 390, , ,061 - Separate account liabilities 4,500,112 4,494,920 35,905 4,120, ,970 Financial instruments recorded as surplus: Surplus notes 85, , ,658-1 Excludes cash and cash equivalents of $29,032 that is not subject to fair value accounting. The carrying amounts for cash, accrued investment income, and margin deposits approximate their fair values due to their short-term nature and have been excluded from the fair value tables above. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments by fair value hierarchy level: Level 1 Measurements Common stocks - unaffiliated: Consists of the Federal Home Loan Bank common stock as required as a member of the Federal Home Loan Bank of Des Moines. Valuation is based on the published redemption price at which the Company could transact. Cash equivalents and short-term investments: Consists of money market mutual funds, which are classified as cash equivalents in 2017 and short-term investments in Valuation is based on the closing price as of December 31. Derivative assets and liabilities: Consists of exchange traded derivatives that are actively traded and are valued based on quoted prices for identical instruments in markets that are active. Separate account assets and liabilities: Consists of money market funds; valuation is based on the closing price as of the balance sheet date. 52

79 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Level 2 Measurements Bonds and notes: Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data. Preferred stocks - unaffiliated: Consists of privately placed common and preferred stock. Valuation is based on observable market inputs such as risk free rates and market comparables. Cash equivalents and short-term investments: Consists of U.S. government bonds that mature within one year from the date of purchase. Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data. Other invested assets: Consists of surplus notes. Valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data. Securities lending assets and liabilities: Consists of repurchase agreements; valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data. Derivative assets and liabilities: Consists of derivatives such as options and swaps; valuation inputs having a significant effect on fair value include market quoted interest rates, market-implied volatility and other observable inputs regularly used by industry participants in the over-the-counter derivatives market. Separate account assets and liabilities: Separate account assets are investments in mutual funds and unit investment trusts in which the contract holder could redeem its investment at net asset value per share at the measurement date with the investee; and bonds and notes where valuation is principally based on observable inputs including quoted prices for similar assets in markets that are active and observable market data; and options where valuation is based primarily on quoted interest rates, market-implied volatility and other observable inputs regularly used by industry participants in over-the-counter derivatives markets. Separate account liabilities represent the account value owed to the customer; the fair value is determined by reference to the fair value of the related separate account assets. Deposit-type contracts: The fair value of the Company s liabilities under deposit-type insurance contracts, including funding agreements, is based on the account balance less applicable surrender charges and considering applicable market value adjustments, such as a spread equivalent to the cost of funds for insurance companies. Notes and interest payable and surplus notes: The fair value for notes and interest payable and surplus notes is estimated using discounted cash flow analysis with interest rates currently being offered in the marketplace for similar loans to borrowers with similar credit ratings. Level 3 Measurements Bonds and notes: Valuation is principally based on unobservable inputs that are significant including estimated prices for similar assets in markets that may not be active. When available, market indices and observable inputs, along with analytical modeling are used. However, observable inputs on non-distressed asset trades are not frequent. Common and preferred stocks - unaffiliated: Consists of non-public securities primarily acquired in conjunction with investments in limited partnerships. Such investments are initially valued at transaction price and subsequently adjusted when evidence is available to support adjustments. Such evidence includes change in value as a result of public offerings, market comparables, market liquidity, the investees' financial results, sales restrictions, or other items. 53

80 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Mortgage loans: The fair value for mortgage loans is estimated using discounted cash flow analyses with interest rates currently being offered in the marketplace for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Fair values for mortgages in default are reported at the estimated fair value of the underlying collateral. Other invested assets: Consists of collateral loans and LIHTC. The fair value of collateral loans is based upon quoted market prices for similar assets with unobservable inputs. The fair value of LIHTC is based on unadjusted information obtained from general partners of the limited partnership investment. Other invested assets accounted for on the equity method, primarily limited partnerships, are excluded from fair value disclosures. Separate account assets and liabilities: Separate account assets are investments held for single premium deferred and flexible premium deferred variable annuities. Valuations of bonds and notes are based on internal models, which include unobservable inputs for similar assets in markets that may not be active. The fair value for mortgage loans is estimated using discounted cash flow analyses with interest rates currently being offered in the marketplace for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Fair values for mortgages in default are reported at the estimated fair value of the underlying collateral. Separate account liabilities represent the account value owed to the customer; the fair value is determined by reference to the fair value of the related separate account assets. Not Practicable to Estimate Fair Value Contract loans: The Company believes it is not practicable to determine the fair value of contract loans since there is no stated maturity and they are often repaid by reductions to benefits. Note 5: Income Tax The Company is included in the consolidated federal income tax return of CMHC along with the following affiliates, which are also subsidiaries of CMHC: CUMIS, CUMIS Specialty Insurance Company, Inc., CUMIS Vermont, Inc., CMIC, CUNA Mutual Insurance Agency, Inc., CUMIS Mortgage Reinsurance Company, CUNA Brokerage Services, Inc., International Commons, Inc., MEMBERS Capital Advisors, Inc., CPI Qualified Plan Consultants, Inc., CUNA Mutual Financial Group, Inc., and CUNA Mutual Global Holdings, Inc. The Company has entered into a tax sharing agreement with CMHC and its subsidiaries. The agreement provides for the allocation of tax expense 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. Current income tax expense consists of the following for the years ended December 31: Federal income tax expense (benefit) on operations $ (32,804) $ 20,458 $ 42,717 Federal income tax expense on realized capital gains 46,286 23,100 27,446 Federal income tax expense $ 13,482 $ 43,558 $ 70,163 54

81 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The 2017 change in net deferred income tax is comprised of the following: December 31, December 31, Change Adjusted gross deferred tax assets $ 230,459 $ 318,326 $ (87,867) Total deferred tax liabilities (150,468) (124,397) (26,071) Net deferred tax asset (excluding nonadmitted) $ 79,991 $ 193,929 (113,938) Tax effect of unrealized capital gains and losses, unrealized foreign exchange capital gains and losses, and changes as a result of other surplus adjustments 20,515 Change in net deferred income tax $ (93,423) The net change in deferred tax assets and deferred tax liabilities due to the change in enacted tax rate is $53,328 and has been recorded in the following surplus components: Change in net deferred income tax $ (59,482) Change in net unrealized capital gains/losses 8,473 Change in net unrealized foreign exchange capital gain/loss (204) Change in postretirement benefits liability (2,115) Total change in deferred tax assets and liabilities due to the change in enacted tax rate $ (53,328) The 2016 change in net deferred income tax is comprised of the following: 2017 December 31, December 31, Change Adjusted gross deferred tax assets $ 318,326 $ 320,591 $ (2,265) Total deferred tax liabilities (124,397) (111,835) (12,562) Net deferred tax asset (excluding nonadmitted) $ 193,929 $ 208,756 (14,827) Tax effect of unrealized capital gains and losses, unrealized foreign exchange capital gains and losses, and changes as a result of other surplus adjustments (3,267) Change in net deferred income tax $ (18,094) 55

82 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The 2015 change in net deferred income tax is comprised of the following: December 31, December 31, Change Adjusted gross deferred tax assets $ 320,591 $ 308,163 $ 12,428 Total deferred tax liabilities (111,835) (113,164) 1,329 Net deferred tax asset (excluding nonadmitted) $ 208,756 $ 194,999 13,757 Tax effect of unrealized capital gains and losses, unrealized foreign exchange capital gains and losses, and changes as a result of other surplus adjustments (12,645) Change in net deferred income tax $ 1,112 Reconciliation to U.S. Tax Rate The total statutory provision for income taxes for the years ended December 31 differs from the amount computed by applying the U. S. federal corporate income tax rate of 35% to income before federal income taxes plus gross realized capital gains (losses) due to the items listed in the following reconciliation: Tax expense computed at federal corporate rate $ 84,123 $ 87,832 $ 114,819 Dividends received deductions (13,036) (11,036) (37,938) Meals and entertainment Foreign tax credit (118) (119) (298) Income tax expense (benefit) related to prior years 404 (6,871) 4,968 Nonadmitted assets (4,472) (3,933) (8,313) Distributions from disregarded entities (8,400) - - Low income housing tax credits and benefits (net of amortization of cost) (710) - - Adjustment of deferred tax assets and liabilities for the enacted rate change 59, Separate account reserves surplus adjustment (6,653) - - Nontaxable gain on merger - - (2,884) Nondeductible penalties (817) (537) 1,509 Interest maintenance reserve amortization (3,832) (3,405) (4,016) Change in valuation allowance - (79) (57) Realized foreign currency translation adjustment - (1,253) - Other Total statutory income taxes $ 106,905 $ 61,652 $ 69,051 Federal income tax expense $ 13,482 $ 43,558 $ 70,163 Change in net deferred income tax 93,423 18,094 (1,112) Total statutory income taxes $ 106,905 $ 61,652 $ 69,051 56

83 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Deferred Income Taxes The components of the net deferred tax asset at December 31 are as follows: December 31, 2017 December 31, 2016 Change Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total Gross deferred tax assets $ 224,968 $ 5,491 $ 230,459 $ 293,719 $ 24,607 $ 318,326 $ (68,751) $ (19,116) $ (87,867) Statutory valuation allow ance adjustment Adjusted gross deferred tax assets 224,968 5, , ,719 24, ,326 (68,751) (19,116) (87,867) Deferred tax assets nonadmitted (387) - (387) Admitted deferred tax assets 224,968 5, , ,332 24, ,939 (68,364) (19,116) (87,480) Deferred tax liabilities (111,197) (39,271) (150,468) (88,662) (35,735) (124,397) (22,535) (3,536) (26,071) Net admitted deferred tax assets $ 113,771 $ (33,780) $ 79,991 $ 204,670 $ (11,128) $ 193,542 $ (90,899) $ (22,652) $ (113,551) The nonadmitted deferred tax asset decreased $387 in 2017 and $14,259 in Gross deferred tax assets are reduced by a statutory valuation allowance adjustment if it is more likely than not that some portion or all of the deferred tax assets will not be realized. 57

84 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The tax effects of temporary differences that give rise to the significant portions of the deferred tax assets and liabilities at December 31 are as follows: Change Ordinary deferred tax assets: Life and accident and health reserves $ 104,957 $ 99,741 $ 5,216 Investments 2, ,886 Deferred acquisition costs 36,509 56,459 (19,950) Unearned revenue 5,882 13,858 (7,976) Receivables - nonadmitted (99) Employee benefits 49,202 88,947 (39,745) Miscellaneous nonadmitted assets 9,877 13,637 (3,760) Policyholder dividends 7,028 14,015 (6,987) Fixed assets 1,275-1,275 Other 7,335 6, Subtotal ordinary deferred tax assets 224, ,719 (68,751) Nonadmitted ordinary deferred tax assets - (387) 387 Admitted ordinary deferred tax asset 224, ,332 (68,364) Capital deferred tax assets: Receivable for future contingent payments 5,491 17,162 (11,671) Unrealized losses - 7,445 (7,445) Admitted capital deferred tax asset 5,491 24,607 (19,116) Admitted deferred tax assets 230, ,939 (87,480) Ordinary deferred tax liabilities: Investments - (493) 493 Deferred and uncollected premiums (39,889) (61,662) 21,773 Other tax reserve method changes (3,868) (7,468) 3, tax reform reserve method change (43,430) - (43,430) Fixed assets and real estate - (1,553) 1,553 Prepaid expenses (3,476) (6,292) 2,816 Unrealized gains (14,474) (10,607) (3,867) Other (6,060) (587) (5,473) Total ordinary deferred tax liabilities (111,197) (88,662) (22,535) Capital deferred tax liabilities: Investments (27,451) (35,735) 8,284 Unrealized gains (11,820) - (11,820) Subtotal capital deferred tax liabilities (39,271) (35,735) (3,536) Total deferred tax liabilities (150,468) (124,397) (26,071) Net admitted deferred tax asset $ 79,991 $ 193,542 $ (113,551) 58

85 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Deferred Tax Asset Admission Calculation The components of the deferred tax asset admission calculation at December 31 are as follows: December 31, 2017 December 31, 2016 Change Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total (a) Federal income taxes paid in prior years recoverable through loss carrybacks $ - $ 5,491 $ 5,491 $ 120,456 $ 12,466 $ 132,922 $ (120,456) $ (6,975) $ (127,431) (b) Adjusted gross deferred tax assets expected to be realized after application of the threshold limitation; the lesser of (i) or (ii): 102, ,107 60,620-60,620 41,487-41,487 (i) Adjusted gross deferred tax assets expected to be realized follow ing the balance sheet date 102, ,106 60,620-60,620 41,486-41,486 (ii) Adjusted gross deferred tax assets allow ed per limitation threshold , , ,115 (c) Adjusted gross deferred tax assets offset by gross deferred tax liabilities 122, , ,256 12, ,397 10,606 (12,141) (1,535) Admitted deferred tax asset $ 224,969 $ 5,491 $ 230,460 $ 293,332 $ 24,607 $ 317,939 $ (68,363) $ (19,116) $ (87,479) The amounts calculated in (b)(i) and (b)(ii) in the table above are based on the following information: Ratio percentage used to determine recovery period and threshold limitation amount (RBC reporting entity) 1221% 1092% Recovery period used in (b)(i) 3 years 3 years Percentage of adjusted capital and surplus used in (b)(ii) 15% 15% Amount of adjusted capital and surplus used in (b)(ii) $ 2,043,901 $ 1,829,797 The Company did not use tax planning strategies, including the use of reinsurance, in the calculation of adjusted gross deferred tax assets and net admitted deferred tax assets in 2017 and Other Tax Items As of December 31, 2017, for income tax purposes, the Company did not have any federal capital loss, operating loss, or credit carryforwards. 59

86 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) There are no deferred tax liabilities not recognized. Due to a restructure of the Company s international operations completed in 2016, the Company has no undistributed foreign earnings or related unrecognized deferred tax liability as of December 31, 2017 and Income taxes incurred in 2017, 2016, and 2015 of $16,891, $29,907, and $18,664, respectively, are available for recoupment in the event of future capital losses. The Company did not have any protective tax deposits under Section 6603 of the Internal Revenue Code. A reconciliation of the beginning and ending amount of tax contingences is as follows: Balance at January 1 $ 11,349 $ 10,212 Additions based on tax positions related to the current year 674 1,171 Reductions for prior years' tax position (490) (34) Reductions for settlements (2,493) - Reductions for expiration of statutes (777) - Balance at December 31 $ 8,263 $ 11,349 The overall effective income tax rate in future periods will be affected if the balances of the tax contingencies as of December 31, 2017 are revalued. The Company has no tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within twelve months of the reporting date. The Company recognizes interest and penalties accrued related to tax contingencies as part of the income tax provision. During the years ended December 31, 2017, 2016 and 2015, the Company recognized a decrease of approximately $358, and increases of approximately $1,168 and $309, respectively, in interest and penalties. The Company had accrued approximately $3,486 and $3,844 for the payment of interest and penalties at December 31, 2017 and 2016, respectively. The Company is included in a consolidated U.S. federal income tax return filed by CMHC. The Company also files income tax returns in various states and foreign jurisdictions. The Company is subject to tax audits. These audits may result in additional tax liabilities. For the major jurisdictions where it operates, the Company is generally no longer subject to income tax examination by tax authorities for years ended before Amended refund claims are expected to be filed for tax years 2010 and 2012 in early 2018, which will be subject to examination as part of the Joint Committee on Taxation approval process. Tax Reform The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; (4) modifying the rules related to the utilization of net operating losses created in tax years beginning after December 31, 2017; (5) changing the method of computing life insurance reserves; and (6) modifying the capitalization of expenses related to specified insurance contracts referred to as deferred acquisition costs. On February 8, 2018, the NAIC adopted INT 18-01, which provides guidance to companies on accounting for the tax effects of the Tax Act. INT provides a measurement period not to exceed one year from the Tax Act enactment date for companies to complete the accounting under SSAP No In accordance with INT 18-01, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under SSAP No. 101 is complete. To the extent that a company s accounting for certain income tax effects of the Tax Act is 60

87 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply SSAP No. 101 based on the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company elects to apply the provisions of INT The Company has completed its initial evaluation of the impacts of the Tax Act and has recorded a decrease in surplus of $53,328 for the period ending December 31, 2017, which has been reported in the following components of surplus: change in net unrealized capital gains (losses), change in net unrealized foreign exchange capital gain (loss), change in net deferred income tax, and change in postretirement benefits liability. This decrease in surplus is due to the remeasurement of deferred tax assets and liabilities. Reduction of US federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21 percent effective January 1, The Company has recorded a provisional decrease in its net deferred tax asset of $53,328 with a corresponding decrease in surplus of $53,328 for the year ended December 31, While the Company was able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act. Life insurance reserves: The Tax Act changed the method of computing tax reserves of life insurance companies. Under the Tax Act, tax reserves are restated as of January 1, 2018 and are determined based on the greater of net surrender value or 92.81% of statutory reserves. The difference between the tax reserves as of December 31, 2017 and the restated tax reserves is included in taxable income over an eight-year period. The Company was able to make a reasonable estimate of the tax reserves computed under the provisions of the Tax Act which resulted in a decrease in tax reserves of $206,810. The decrease in tax reserves resulted in an increase in the Company s deferred tax asset related to reserves of $43,430 which was offset by a deferred tax liability of $43,430 for the taxable income to be recognized over the eight-year period. The Company is continuing to gather additional information to more precisely compute the amount of the tax reserves computed under the provisions of the Tax Act. Valuation allowances: The Company must assess whether its valuation allowance analyses are affected by various aspects of the Tax Act. Since, the Company has recorded provisional amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance is also provisional. Management believes it has made the appropriate adjustments for the impacts of the Tax Act at December 31, As a result of the subjective nature of these adjustments, however, additional adjustments may subsequently be determined to be necessary as clarification of the law and accounting guidance emerges. Additional adjustments will be recorded as appropriate and as determined by the Company s continued evaluation of the Tax Act. In light of the variables involved, such additional adjustments could be material. Note 6: Related Party Transactions In the normal course of business, the Company has various lending and other transactions with related entities. In certain circumstances, expenses are shared between the companies. Expenses incurred that are specifically identifiable with a particular company are borne by that company; other expenses are allocated among the companies on the basis of time and usage studies. Amounts due from intercompany activity are generally settled monthly. 61

88 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Significant amounts due to/from affiliates are shown in the following table: Due to the Company: CUMIS Insurance Society, Inc. $ 1,968 $ 6,733 CUNA Mutual Insurance Agency, Inc. 19,163 22,864 CUNA Mutual AdvantEdge Analytics, LLC 11,552 - CUNA Brokerage Services, Inc. 10,500 8,365 CPI Qualified Plan Consultants - 3,439 CMFG Ventures, LLC 11,181 11,640 CUNA Mutual Management Services, LLC 5,536 - All other affiliates 4,202 1,860 Total $ 64,102 $ 54,901 Due from the Company: CUMIS VT $ 39,515 $ 40,780 CMFG Ventures, LLC 4,000 - MEMBERS Capital Advisors, Inc ,058 All other affiliates 1, Total $ 45,431 $ 42,283 CMFG Life allocated expenses of $522,912, $511,437, and $475,775 to its subsidiaries in 2017, 2016, and 2015, respectively. The Company hires MEMBERS Capital Advisors, Inc. ( MCA ) for investment advisory services. 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. The Company recorded MCA investment management fees totaling $19,205, $19,880 and $18,940 in 2017, 2016, and Subsidiaries of the Company recorded MCA investment management fees of $7,066, $5,114 and $3,427 in 2017, 2016 and 2015, respectively. CMFG Life made a capital contribution to CUNA Mutual AdvantEdge Analytics, LLC of cash of $20,000 in CMFG Life made a capital contribution to CMIC of cash of $10,000 in CMFG Life made a capital contribution to TruStage Insurance Agency, LLC of cash of $1,000 in TruStage Insurance Agency, LLC paid a dividend to CMFG Life of cash of $12,000 in CUNA Mutual Management Services, LLC paid a dividend to CMFG Life of cash of $12,000 in CMFG Life did not make any contributions to TruStage Insurance Agency, LLC in 2017 or CMFG Life also received cash dividends of $27,000, $20,000 and $100,000 from CMIC in 2017, 2016 and 2015, respectively. CMFG Life paid a cash dividend of $24,500 and $2,000 to CMFG, the Company s immediate parent, during 2017 and 2016, respectively. MLIC paid a cash dividend of $7,000 to CMIC during There were no cash dividends paid in The Company enters into reinsurance agreements with various related parties. See Note 7 Reinsurance. Pursuant to intercompany agreements used for cash management, the Company had notes payable to CUMIS VT of up to $41,728 and $43,600 during 2017 and 2016, respectively. The Company had $39,515 and $40,780 of notes payable to CUMIS VT outstanding as of December 31, 2017 and 2016, respectively. 62

89 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The Company is party to an unsecured line of credit agreement with CMG Student Lending Services, LLC ( CMG SLS ) whereby the Company advances funds up to $100,000 at the three-month London InterBank Offered Rate ( LIBOR ) plus 100 basis points. CMG SLS is a downstream affiliate of the Company. At December 31, 2017 and 2016, there was an outstanding balance of $4,452 and $7,459 with accrued interest of $910 at December 31, During 2017, 2016 and 2015, the Company recorded interest income of $123, $162 and $163, respectively. The Company utilizes CUNA Brokerage Services, Inc. ( CBSI ), which is 100% owned by CMIC, to distribute its annuity products and recorded a commission for this service of $31,979, $27,998 and $26,952 in 2017, 2016, and 2015, respectively, which is included in insurance taxes, licenses, fees and commissions. Note 7: Reinsurance The Company enters into ceded reinsurance agreements for the purpose of limiting its exposure to loss on any one single insured, diversifying its risk and limiting its overall financial exposure and to exit certain products. The Company retains the risk of loss in the event that a reinsurer is unable to meet the obligations assumed under the reinsurance agreements. The Company also utilizes reinsurance to meet its overall financial and capital objectives. MEMBERS Life cedes 100% of its business to CMFG Life, and receives a ceding commission from CMFG Life equal to 100% of actual expenses incurred for this business. These agreements are eliminated in the consolidated financial statements. On December 31, 2012, CMFG Life entered into a coinsurance and modified coinsurance agreement with CMFG Life VT, an affiliate, to cede 100% of its variable annuity business. CMFG Life commuted this agreement on November 30, 2015 and recaptured the ceded reserves associated with the reinsurance agreement as if the commutation occurred January 1, The commutation had no impact on surplus or net income. 63

90 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The following table shows the effect of reinsurance on premiums, benefits, and surrenders, and increase in policy reserves for 2017, 2016, and Premiums earned: Direct $ 3,160,141 $ 3,175,188 $ 2,929,275 Assumed from affiliates 1, Assumed from non-affiliates Ceded to affiliates ,611 Ceded to non-affiliates (10,287) (11,068) (11,713) Premiums earned, net of reinsurance $ 3,151,347 $ 3,165,818 $ 3,147,628 Benefits and surrender expenses: Direct $ 2,336,939 $ 2,173,942 $ 2,527,146 Assumed from non-affiliates Ceded to affiliates Ceded to non-affiliates (10,478) (7,431) (11,990) Benefits and surrender expenses, net of reinsurance $ 2,326,918 $ 2,166,830 $ 2,515,848 Increase in policy reserves: Direct $ 154,821 $ 372,170 $ 136,049 Assumed from affiliates - (15) - Ceded to affiliates ,597 Ceded to non-affiliates (6,137) (12,347) (7,215) Increase in policy reserves, net of reinsurance $ 148,684 $ 359,808 $ 357,431 Policy reserves and claim liabilities are stated net of reinsurance balances ceded of $189,313 and $183,574 in 2017 and 2016, respectively. 64

91 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Note 8: Liability for Claim Reserves Activity in the liability for life and accident and health claim reserves, including an allowance for the cost of investigating and settling losses, which is included in the liabilities for policy reserves and policy and contract claims is summarized as follows: Life Insurance Accident and Health Insurance Life Insurance Accident and Health Insurance Balance as of January 1 $ 55,255 $ 382,389 $ 55,585 $ 372,954 Less experience refunds liability 17,567-17,516 - Less reinsurance recoverables , ,211 Net balance as of January 1 37, ,460 37, ,743 Incurred, net of reinsurance recoverable, related to: Current year 357, , , ,936 Prior years (15,166) (28,209) (9,665) (25,003) Total incurred 342, , , ,933 Paid, net of reinsurance recoverable, related to: Current year 318,633 83, ,663 84,072 Prior years 19, ,947 25, ,144 Total paid 338, , , ,216 Net balance at December 31 41, ,330 37, ,460 Plus experience refunds liability 18,376-17,567 - Plus reinsurance recoverables , ,929 Balance at December 31 $ 60,196 $ 366,259 $ 55,255 $ 382,389 For life products, the 2017 and 2016 decrease in prior year incurred losses primarily relates to favorable development driven by fewer reported losses than expected. For accident and health products, the 2017 decrease in prior year incurred losses primarily relates to favorable development on credit disability driven by lower than expected frequency and for 2016 the decrease in prior year incurred losses primarily relates to favorable development on credit disability driven by lower than expected frequency. 65

92 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Note 9: Annuity Reserves and Deposit Liabilities The withdrawal characteristics of the Company s annuity reserves and deposit liabilities at December 31, which are reported as policy reserves on annuity contracts and liability for deposit type contracts are shown in the tables below: Separate Separate General Account with Account % of December 31, 2017 Account Guarantees Nonguaranteed Total Total Subject to discretionary withdrawal - lump sum: With market value adjustment $ 2,572,748 $ 2,320,995 $ - $ 4,893, % At book value less surrender charge of 5% or more 381, , % At fair value - - 2,509,100 2,509, % Total with adjustment or at fair value 2,954,063 2,320,995 2,509,100 7,784, % At book value with minimal or no charge adjustment 1,185, ,185, % Not subject to discretionary withdrawal 1,438,489-4,335 1,442, % Gross annuity reserves and deposit liabilities 5,577,741 2,320,995 2,513,435 10,412, % Reinsurance ceded Total annuity reserves and deposit liabilities $ 5,577,741 $ 2,320,995 $ 2,513,435 $ 10,412,171 66

93 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Separate Separate General Account with Account % of December 31, 2016 Account Guarantees Nonguaranteed Total Total Subject to discretionary withdrawal - lump sum: With market value adjustment $ 2,601,072 $ 1,508,889 $ - $ 4,109, % At book value less surrender charge of 5% or more 433, , % At fair value - - 2,647,600 2,647, % Total with adjustment or at fair value 3,034,214 1,508,889 2,647,600 7,190, % At book value with minimal or no charge adjustment 1,224, ,224, % Not subject to discretionary withdrawal 1,112,360-3,367 1,115, % Gross annuity reserves and deposit liabilities 5,370,945 1,508,889 2,650,967 9,530, % Reinsurance ceded Total annuity reserves and deposit liabilities $ 5,370,945 $ 1,508,889 $ 2,650,967 $ 9,530,801 CMFG Life Insurance Company Funding Agreements Federal Home Loan Bank In 2017, the Company issued funding agreements to the FHLB. Interest on agreements was calculated daily at floating rates that ranged from 1.2% to 1.7% in The original maturities of the agreements range from four to seven years. Recognized liabilities, included in policyholder account balances in the consolidated balance sheet, are matched to specific assets so that liabilities and assets are aligned. The funding agreements are subject to prepayment penalties equal to the net present value of future interest cash flows lost due to the prepayment, if any, plus any cost of terminating or offsetting any related hedging transactions. Note 10: Statutory Financial Data and Dividend Restrictions Risk-based capital ( RBC ) requirements promulgated by the NAIC and adopted by the Insurance Department require U. S. life insurers to maintain minimum capitalization levels that are determined based on formulas incorporating asset risk, insurance risk, and business risk. The adequacy of the Company s actual capital is evaluated by a comparison to the RBC results, as determined by the formula. At December 31, 2017 and 2016, CMFG Life s and MEMBERS Life s adjusted capital exceeded the RBC minimum requirements, as required by the NAIC. CMFG Life and its downstream insurance subsidiaries are subject to statutory regulations as to maintenance of policyholders surplus and payment of stockholder dividends. Generally, dividends to the parent must be reported to the appropriate state regulatory authority in advance of payment and extraordinary dividends, as defined by statutes, require regulatory approval. CMFG Life could pay $224,830 in stockholder dividends in 2018 without the approval of the Insurance Department. MEMBERS Life could pay $1,860 in stockholder dividends in 2018 without the approval of the Insurance Department. CMFG Life has two indirect wholly-owned insurance 67

94 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) subsidiaries that could pay an aggregate of $96,650 in stockholder dividends in 2018 without regulatory approval. CMFG Life has one indirect wholly-owned reinsurance subsidiary and one indirect wholly-owned captive insurer, for which all dividends require regulatory approval. Note 11: Notes and Interest Payable The following table provides the details of the Company s notes and interest payable at December 31: Line of credit - Federal Home Loan Bank $ 345,151 $ 390,091 Total notes and interest payable $ 345,151 $ 390,091 CMFG Life Insurance Company Line of Credit Federal Home Loan Bank The Company has borrowing capacity as a result of contractual arrangements with the FHLB that were entered into in 2007 and amended in 2009 and evidenced by Advances, Collateral Pledge, and Security Agreements. These agreements provide that the Company is entitled to borrow from the FHLB if the Company purchases FHLB restricted stock and provides securities as collateral for such borrowings. The Company must hold FHLB membership stock equal to.12% of the Company s total assets, with an overall limitation of $10,000. The Company must also hold activity stock of 4% of the amount of outstanding advances. Interest on borrowings was calculated daily at floating rates that ranged from 0.74% to 1.63% in 2017, 0.47% to 0.81% in 2016, and 0.23% to 0.46% in Payments are due on the line of credit at various dates through 2017 with options of renewal available. CUNA Mutual Financial Group, Inc. Line of Credit Wells Fargo Bank In June 2015, CMFG, CMFG Life, CUMIS and CMIC entered into a $250,000 five year unsecured revolving credit facility agreement with Wells Fargo Bank, National Association and other lenders. The facility has an unused fee assessed at 0.175% of the unused principal at December 31, 2017 and Interest amounts are calculated based on certain benchmark interest rates plus a spread that ranges from 1.25% to 1.75% based on CMFG s debt to capital ratio. CMFG is required to comply with financial covenants including a maximum ratio of total debt to capital and a minimum consolidated net worth. CMFG Life and CUMIS are required to comply with minimum statutory risk-based capital ratios. CMFG, CMFG Life and CUMIS were in compliance with these covenants at December 31, 2017 and As of December 31, 2017 and 2016, there were no outstanding borrowings under the facility. The facility expires in June The entire $250,000 line of credit was available for general corporate purposes. 68

95 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Federal Home Loan Bank Information The FHLB stock owned, borrowing capacity, collateral pledged, aggregate borrowing and reserves for the line of credit and funding agreements were as follows: Membership stock $ 10,000 $ 10,000 Activity stock 21,800 15,600 Total stock 31,800 25,600 Estimated borrowing capacity 580, ,277 Collateral pledged as of reporting date: Carrying value 609, ,303 FHLB discounted value 580, ,026 Borrowing as of reporting date $ 545,000 $ 390,000 Borrowing at time of maximum collateral 593, ,000 Maximum borrowing during reporting period 593, ,000 Funding agreement reserves 200,540 - Note 12: Surplus Notes The 8.5% $85,000 surplus notes, issued in 2010, are due in July Interest on the notes is payable semiannually. The surplus notes are unsecured obligations of CMFG Life, ranking subordinate to the claims of policyholders and all other creditors. CMFG Life may not pay any principal, interest or make-whole amounts (fee paid on prepayment of principal) unless it has given notice to and received approval from the applicable insurance regulatory authority. Beginning on July 31, 2020, and continuing annually thereafter until July 2030, scheduled principal payments (in equal annual installments) will be due and payable, subject to the foregoing regulatory approvals. CMFG Life is required to comply with certain financial covenants including maintenance of a minimum statutory risk-based capital ratio and minimum total adjusted statutory capital level. At December 31, 2017, CMFG Life was in compliance with these covenants. A request for payment of surplus note interest due January 2018 was submitted to the Insurance Department and approval was granted in Since the approval was received in 2018, there is no accrual at December 31, CMFG Life incurred and paid interest of $7,225 in 2017, 2016 and

96 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Note 13: Commitments and Contingencies Investment Commitments The Company has the following investment commitments outstanding at December 31: Limited partnerships $ 12,968 $ 145,934 Investment in affiliated LLC 806, ,800 Low income housing tax credit investments 29,572 - Mortgage loans 3,400 8,000 Private placement debt securities 24,000 44,385 Bank loans Total investment commitments $ 877,261 $ 796,295 Limited partnership commitments generally represent commitments to acquire financial interests or instruments. The Company enters into these agreements to allow for additional participation in certain limited partnership investments. Investment in affiliated LLC represents the Company s commitments to fund MCA Holding, MCA Fund II Holding, and MCA Funds Holding. These commitments generally represent obligations to fund the LLC s acquisition of financial interests or instruments. The Company enters into these agreements to allow for additional participation in certain limited partnership investments. Low income housing tax credit investment commitments are agreements signed prior to year-end to fund low income housing tax credit investments. Mortgage loan commitments are agreements to fund commercial mortgages after year-end for loans approved prior to year-end. Private placement debt security commitments are contracts signed prior to year-end to purchase debt securities after year-end. Bank loan commitments represent commitments to acquire loans from banks at a specified future date. Leases The Company contracts for long term leases for office space, autos and equipment. Certain leases have renewal options and/or fixed rental increases. Renewal options that are reasonably assured of exercise are included in determining the lease term. Any rent abatements or lease incentives, in addition to fixed rental increases, are included in the calculation of rent expense and amortized on a straight-line basis over the defined lease term. 70

97 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The Company has the following minimum operating lease payments as of December 31, Future Minimum Operating Lease Payments 2018 $ 3, , Thereafter 382 Total minimum lease payments $ 5,853 Rental expense included in the Company s operations, excluding rent expense applicable to its own buildings, amounted to $6,884, $13,882 and $10,487 in 2017, 2016 and 2015, respectively. In December 2013, the Company entered into sale leaseback transactions with an unrelated party to sell and leaseback software. The Company had entered into similar sale leaseback transactions with software and equipment in 2012 and All of these leases have since terminated. The lease term for the software lease was for 4 years with annual lease payments of $1,028, $2,429, and $1,904 for the leases beginning in 2013, 2012, and 2011, respectively. The lease term for the equipment was 5 years with annual lease payments of $2,459. At the end of each year of each lease, the Company has the option of purchasing the software and equipment at a predetermined percentage of the original sale price. At December 31, 2017 and 2016, the Company has elected to purchase all software and equipment at the end of each lease year. Insurance Guaranty Funds The Company is liable for guaranty fund assessments related to unaffiliated insurance companies that have become insolvent during 2017 and prior years. The Company includes a provision for all known assessments that will be levied as well as an estimate of amounts that it believes will be assessed in the future relating to past insolvencies. The Company has established a liability of $6,659 and $7,572 at December 31, 2017 and 2016, respectively, for guaranty fund assessments. The Company also estimates the amount recoverable from future premium tax payments related to these accrued assessments and has established an asset of $9,208 and $5,784 as of December 31, 2017 and 2016, respectively. Recoveries of assessments from premium taxes are generally made over a five-year period. 71

98 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Assets recognized from paid and accrued premium tax offsets and policy surcharges are summarized as follows: Creditable guaranty fund assessments paid $ 1,781 $ 1,779 Creditable guaranty fund assessments accrued 5,784 4,380 Balance as of January 1 7,565 6,159 Decreases: Premium tax offset applied Accrued assessments 1,089 - Total decreases 1, Increases: Creditable guaranty fund assessments paid 3, Accrued assessments - 1,404 Total increases 3,196 1,836 Creditable guaranty fund assessments paid 4,513 1,781 Creditable guaranty fund assessments accrued 4,695 5,784 Balance as of December 31 $ 9,208 $ 7,565 Legal Matters Various legal and regulatory actions, including state market conduct exams and federal tax audits, are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry, the Company is routinely involved in a number of lawsuits and other types of proceedings, some of which may involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and involve a range of the Company's practices. The ultimate outcome of these disputes is unpredictable. These matters in some cases raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities, including but not limited to, the underlying facts of each matter; novel legal issues; variations between jurisdictions in which matters are being litigated, heard or investigated; differences in applicable laws and judicial interpretations; the length of time before many of these matters might be resolved by settlement, through litigation or otherwise and, in some cases, the timing of their resolutions relative to other similar matters involving other companies. 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 may not be advised of the nature and extent of relief sought until the final stages of the examination or proceeding. In the opinion of management, the ultimate liability, if any, resulting from all such pending actions will not materially affect the consolidated statutory basis financial statements of the Company. 72

99 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Note 14: Benefit Plans Postretirement Benefit Plans CMFG Life had noncontributory defined benefit pension plans that covered most full time employees, for which retirement benefits were provided using either a traditional or cash balance formula. The traditional formula provided benefits based on compensation and years of service whereas the cash balance formula utilized notional accounts that credit participants with benefits equal to a percentage of eligible pay as well as earnings credits for each account balance. The cash balance formula applied to employees hired after December 31, 2001 for employees not covered under a collective bargaining agreement ( non-represented employees ) and September 1, 2005 for employees covered under a collective bargaining agreement ( represented employees ). Pursuant to a collective bargaining agreement ( the Agreement ) executed on May 3, 2013 the traditional formula portion of the pension plan for represented employees was frozen as of December 31, Benefits vested according to plan schedules. The Company s policy was to fund pension costs as required to meet the minimum funding requirements under the Employee Retirement Income Security Act of Effective January 1, 2013, the Company adopted SSAP No. 102, Accounting for Pensions, A Replacement of SSAP No. 89 ( SSAP No. 102 ), and SSAP No. 92, Accounting for Postretirement Benefits Other Than Pensions, A Replacement of SSAP No. 14 ( SSAP No. 92 ). Under these standards, future obligations due to non-vested participants are required to be included in benefit obligations. These SSAPs also require the Company s surplus, as reported on the statement of admitted assets, liabilities, and capital and surplus, to fully reflect the net liability related to the plans projected benefit obligations, reduced by the fair value of any plan assets, including unrecognized net experience losses and prior service costs. The Company elected to recognize the impact into surplus over a transition period not to exceed ten years as provided under the standards. Beginning in 2014, the Company s remaining transition liability related to other postretirement benefits of $11,085, was recognized in unassigned surplus on a systematic basis, consistent with the transition rules described in the guidance, over a four-year period. In 2016 and 2015, $2,719 and $4,881, respectively, of the transition liability was recognized in unassigned surplus. At December 31, 2017 and 2016, the entire transition liability has been recognized in unassigned surplus. The Company has no ongoing obligation to the qualified defined benefit pension plan for non-represented employees but expects to contribute to the annual cost. There were $45,000, $22,600 and $16,000 of expenses recorded in general insurance expenses related to this plan in 2017, 2016 and 2015, respectively. The Company has no ongoing obligation to the qualified defined benefit pension plan for represented employees but expects to contribute to the annual cost. There were $15,000, $9,500 and $14,000 of expenses recorded in general insurance expenses related to this plan in 2017, 2016 and 2015, respectively. The Company also maintains non-qualified defined benefit plans for certain employees and directors, as well as postretirement benefit plans that provide certain medical and life insurance benefits to eligible participants and dependents. The cost of postretirement benefits is recognized over the period the employees perform services to earn the benefits. Retirement medical subsidies were eliminated January 1, 2016 for future retirees and will be eliminated for all future retirees who do not meet certain age, years of service and/or employment status criteria. This was pursuant to the amendments to a collective bargaining agreement with represented employees. The measurement date for all benefit plans is December

100 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The following tables provide information with respect to the benefit obligations, the fair value of assets, and the funded status of the plans for the years ended at December 31: Pension Benefits Other Postretirement Benefits Reconciliation of benefit obligation Obligations at January 1 $ 41,108 $ 39,478 $ 66,361 $ 70,053 Service cost ,101 1,058 Interest cost 1,792 1,944 3,046 3,271 Actuarial loss (gain) 2,489 1,696 3,082 (5,586) Benefit payments (2,660) (2,598) (2,066) (1,993) Other - - (230) (442) Total benefit obligation at December 31 $ 43,318 $ 41,108 $ 71,294 $ 66,361 Reconciliation of fair value of plan assets Pension Benefits Other Postretirement Benefits Fair value of plan assets at January 1 $ - $ - $ 8,221 $ 8,216 Actual return on plan assets Employer contributions 2,660 2,597 2,066 1,993 Pension plan transfer - - (8,221) - Benefit payments (2,660) (2,597) (2,066) (1,993) Fair value of plan assets at December 31 $ - $ - $ - $ 8,221 74

101 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Funded status Pension Benefits Other Postretirement Benefits Funded status at December 31 $ (43,318) $ (41,108) $ (71,294) $ (58,140) Deferred surplus ,718 Recognize deferred surplus (2,718) Accrued benefit liability $ (43,318) $ (41,108) $ (71,294) $ (58,140) Pension Benefits Other Postretirement Benefits Net prior service cost (benefit) $ (248) $ (445) $ 3,007 $ 6,445 Net actuarial gain (loss) 13,579 11,793 (1,231) (4,313) Balance, December 31, $ 13,331 $ 11,348 $ 1,776 $ 2,132 The estimated net actuarial loss and prior service cost that will be amortized into net periodic benefit cost during 2018 for the non-qualified pension plans are $901 and $150, respectively. The estimated prior service cost that will be amortized for the other postretirement benefit plans is $185. There is no anticipated estimated amortization of actuarial loss that will be amortized in The accumulated benefit obligation ( ABO ) represents the actuarial net present value of estimated future benefit obligations. The ABO for pension plans was $41,334 and $39,070 at December 31, 2017 and 2016, respectively. The following table provides information with respect to the components of the net periodic benefit cost. Pension Benefits Other Postretirement Benefits Service cost $ 589 $ 588 $ 583 $ 1,101 $ 1,058 $ 1,818 Interest cost 1,792 1,944 2,026 3,046 3,271 3,088 Expected return on plan assets (557) (567) Amortization of prior service cost (benefit) (198) (198) (198) 3,361 3,496 3,523 Amortization of net unrecognized loss (153) - - Net periodic benefit cost $ 2,887 $ 3,070 $ 3,259 $ 7,355 $ 7,268 $ 7,862 75

102 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) The actuarial assumptions used to develop pension and other postretirement benefit obligations for the years ended December 31 were as follows: Pension Benefits Other Postretirement Benefits Weighted average assumptions at December 31 for benefit cost: Discount rate 4.2% 4.8% 4.7% 4.9% Rate of compensation increase Expected long-term rate of return on plan assets Weighted average assumptions at December 31 for obligation: Discount rate 4.2% 4.6% 4.1% 4.7% For measurement purposes, a 6.4% annual rate of increase in the per capita cost of covered health care benefits was assumed, decreasing gradually to 3.9% for 2071 and thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% increase (or decrease) in the assumed health care cost trend rate for each year would increase (decrease) the accumulated other postretirement benefit obligation as of December 31, 2017 by $3,449 (or $3,290) and the annual net periodic other postretirement benefit cost for the year then ended by $267 (or $251). In determining the discount rate for the year ended December 31, 2017 and 2016, the Company used a hypothetical bond portfolio of actual AA rated securities matching the expected monthly benefits. In determining the expected long-term rate of return on plan assets, the Company used the current investment allocation applied to a long-term historical indexed rate of return for these asset classes. 76

103 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Estimated Future Benefit Payments Expected future benefit payments for the years ended December 31 are as follows: Other Other Other Benefits Benefits Benefits Pension Before Medicare After Benefits Subsidy Subsidy Subsidy Estimated future benefit payments: 2018 $ 2,653 $ 2,947 $ (46) $ 2, ,684 3,346 (60) 3, ,672 3,768 (72) 3, ,701 3,978 (97) 3, ,702 4,321 (110) 4, ,606 20,536 (646) 19,890 The Company anticipates remitting $30,000 in 2018 to CMFG for CMFG s contribution to the pension plans it sponsors for which the Company s employees participate. Such remittance will be recorded as expense upon payment. For the remaining pension plans and other postretirement benefits, the employer contribution will be equivalent to the estimated 2017 benefits. Note 15: Unassigned Surplus Unassigned surplus at December 31 considers the accumulated balances for the following items: Nonadmitted assets: Net deferred tax asset $ - $ (387) Electronic data processing equipment and software (68,052) (57,543) Furniture and equipment (19,367) (1,498) Prepaid pension (8,288) - Assets of 401(h) account (28,424) (30,515) Contingent receivable (28,515) (59,880) Other (20,293) (11,175) Total nonadmitted assets $ (172,939) $ (160,998) 77

104 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Note 16: Premiums Deferred and Uncollected Deferred and uncollected life insurance premiums as of December 31 are shown in the following table: Net of Net of Gross Loading Gross Loading Ordinary new business $ 39,026 $ 21,268 $ 38,457 $ 22,312 Ordinary renewal 145, , ,818 92,675 Credit life 17,316 17,316 17,208 17,208 Group life 71,825 60,020 77,038 63,926 Accident and health 28,998 28,998 29,166 29,166 Nonadmitted receivables (158) (158) (398) (398) Total $ 302,195 $ 238,268 $ 278,289 $ 224,889 Gross premium represents the amount of premium charged to the policyholders. The amounts net of loading exclude the portion of the gross premium attributable to expenses and certain pricing assumptions. Note 17: Separate Accounts Separate accounts represent funds that are invested to support the Company s obligations under variable annuity, single premium deferred and flexible premium deferred variable annuity contracts and variable universal life policies. The assets of the separate accounts are carried at fair value, with the exception of certain assets for the single premium deferred annuity and for the flexible premium deferred variable annuity, which are carried at amortized cost, or the lower of amortized cost or fair value, based on the security s NAIC designation. See Note 2, Summary of Significant Accounting Policies Prescribed Statutory Accounting Practice for additional information regarding this prescribed practice. The general account of the Company has a maximum guarantee of separate account variable annuity liabilities of $51,760 and $69,114 as of December 31, 2017 and 2016, respectively. The general account paid $233, $268, and $371 in 2017, 2016, and 2015, respectively, towards variable annuity guarantees. The separate account paid risk charges to the general account related to these guarantees of $4,733, $5,430, and $6,004 in 2017, 2016, and 2015, respectively. 78

105 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Information relating to the Company s separate account business as of December 31 is set forth in the tables below: Indexed with Guarantees Non- Guaranteed Indexed with Guarantees Non- Guaranteed Reserves with assets held: At fair value $ - $ 2,732,402 $ - $ 2,871,305 At amortized cost 2,320,995-1,508,888 - Total $ 2,320,995 $ 2,732,402 $ 1,508,888 $ 2,871,305 Reserves with assets subject to discretionary withdrawal: At fair value $ - $ 2,728,067 $ - $ 2,867,938 With fair value adjustment 2,320,995-1,508,888 - At book value without fair value adjustment and with current surrender charge less than 5% Not subject to discretionary withdrawal - 4,335-3,367 Total $ 2,320,995 $ 2,732,402 $ 1,508,888 $ 2,871,305 The fair value of separate account assets held at amortized cost was $2,033,029 and $1,218,526 at December 31, 2017 and 2016, respectively. The unrealized gain (loss) on the assets held was $66,111, $28,530 and ($4,274) at December 31, 2017, 2016 and 2015, respectively. The following table shows the premiums and deposits for contracts recorded in the separate accounts for the years ended December 31: Indexed with Guarantees Non- Guaranteed Indexed with Guarantees Non- Guaranteed Non-guaranteed premiums, considerations and deposits received for separate account policies $ 716,942 $ 155,550 $ 632,413 $ 188,126 Total $ 716,942 $ 155,550 $ 632,413 $ 188,126 79

106 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Notes to Consolidated Statutory Basis Financial Statements ($ in 000s) Details of the net transfers to (from) separate accounts are shown in the table below for the years ended: Indexed with Guarantees Non- Guaranteed Indexed with Guarantees Non- Guaranteed Transfers to separate accounts $ 716,942 $ 155,550 $ 632,413 $ 188,638 Transfers from separate accounts (36,748) (628,106) (23,760) (626,623) Valuation adjustment - (113) - (38) Net transfers to (from) separate accounts $ 680,194 $ (472,669) $ 608,653 $ (438,023) Note 18: Reconciliation to 2017 Annual Statement Subsequent to filing the Company s 2017 annual statement with the Insurance Department, the Company reclassified certain non-cash limited partnership activity on the consolidated statutory basis statement of cash flows for presentation purposes. The reconciliation from the 2017 annual statement to the 2017 statutory basis financial statements is summarized below: As Reported In As Reported in Statutory Basis 2017 Annual Financial Statement Statements Difference Statutory basis statement of cash flows Cash from investing activities Proceeds from investments sold, matured or repaid: Other invested assets $ 554,851 $ 350,965 $ 203,886 Cost of investments acquired: Other invested assets 483, , ,886 Net cash used in investing activities (404,252) (404,252) - Note 19: Subsequent Events The Company evaluated subsequent events from December 31, 2017 through March 9, 2018, the date the consolidated statutory basis financial statements were available for issuance. During this period, there were no significant subsequent events that require adjustment to or disclosure in the accompanying consolidated statutory basis financial statements. 80

107 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Supplemental Schedules December 31, 2017 Supplemental Schedules 81

108 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Admitted Assets, Liabilities and Capital and Surplus December 31, 2017 (000s omitted) Admitted Assets MEMBERS CMFG Life Life Eliminations Consolidated Cash and invested assets: Bonds and notes 8,102,657 10,650 - $ 8,113,307 A Investments in affiliates 1,039,568 - (18,601) 1,020,967 Common stocks - unaffiliated 57, ,746 Preferred stocks 5, ,119 Mortgage loans 1,745, ,745,006 Real estate occupied by the Company, at cost less accumulated depreciation 65, ,920 Real estate held for production of income, at cost less accumulated depreciation Real estate held for sale, at cost less accumulated depreciation 6, ,699 Contract loans 103, ,380 Derivatives 29, ,771 Other invested assets 820, ,814 Receivable for securities sold 1, ,682 Securities lending assets 258, ,054 Cash, cash equivalents and short-term investments 83,264 18, ,703 Total cash and invested assets 12,319,680 29,089 (18,601) 12,330,168 Premiums in the course of collection 238,596 - (328) C 238,268 Accrued investment income 85, ,707 Federal income taxes recoverable 39,142 2,472-41,614 Net deferred tax asset 79, ,991 Amounts due from reinsurers 17,172 14,597 (30,285) 1,484 C Electronic data processing equipment - at cost, less accumulated depreciation 1, ,875 Receivables from affiliates 67,364 5,022 (8,284) B 64,102 Other assets 13, ,633 Separate account assets 5,215,324 69,005-5,284,329 Total admitted assets $ 18,078,268 $ 120,401 (57,498) $ 18,141,171 A. To eliminate CMFG Life s indirect investment in MEMBERS Life. B. To eliminate affiliated receivables and payables. C. To eliminate intercompany reinsurance agreements. 82

109 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Admitted Assets, Liabilities and Capital and Surplus, continued December 31, 2017 (000s omitted) MEMBERS Liabilities and Capital and Surplus CMFG Life Life Eliminations Consolidated Liabilities: Policy reserves Life insurance and annuity contracts $ 7,516,366 $ - $ - $ 7,516,366 Accident and health contracts 840, ,606 Liability for deposit-type contracts 550, C 550,649 Policy and contract claims 105,109 - (490) 104,619 Dividends payable to policyholders 24, ,731 Advance premium and experience refunds 88, C 88,861 Reinsurance payable 9,949 16,016 (25,023) 942 Funds held under reinsurance Interest maintenance reserve 34, ,833 Liability for employee retirement plans 212, C 212,310 Amount held for others 11, (5,100) B 6,365 Payable to affiliates 50,394 3,321 (8,284) 45,431 Commissions, expenses, taxes, licenses, and fees accrued 177,931 1, ,282 Notes and interest payable 345, ,151 Asset valuation reserve 379, ,001 Derivatives 20, ,289 Payable for securities purchased 3, ,141 Other liabilities 138,021 14, ,463 Payable for securities lending 258, ,054 Transfers to separate accounts (11,927) (2,492) - (14,419) Separate account liabilities 5,215,324 69,005-5,284,329 Total liabilities 15,971, ,800 (38,897) 16,034,004 Capital and surplus: Capital Common stock 7,500 5,000 (5,000) A 7,500 Paid-in capital 62,837 10,500 (10,500) A 62,837 Surplus notes 85, ,000 Unassigned surplus 1,951,830 3,101 (3,101) A 1,951,830 Total capital and surplus 2,107,167 18,601 (18,601) 2,107,167 Total liabilities and capital and surplus $ 18,078,268 $ 120,401 (57,498) $ 18,141,171 A. To eliminate CMFG Life s indirect investment in MEMBERS Life. B. To eliminate affiliated receivables and payables. C. To eliminate intercompany reinsurance agreements. 83

110 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Statement of Operations Year Ended December 31, 2017 (000s omitted) Statement of Operations Income Premiums and other considerations MEMBERS CMFG Life Life Eliminations Consolidated Life and annuity contracts $ 2,558,647 $ - $ - $ 2,558,647 Accident and health contracts 571, ,499 Supplementary contracts 21, ,201 Net investment income 485, ,676 Reinsurance commissions 1,299 56,631 (56,631) C 1,299 Separate account net gain from operations 19, ,009 Commission and fee income 68, ,806 Other income (loss) (3,272) 44,930-41,658 Total income 3,722, ,085 (56,631) 3,767,795 Benefits and expenses Death and annuity benefits 484, ,934 Disability and accident and health benefits 227, ,407 Interest on deposit-type contracts 13, ,287 Other benefits to policyholders and beneficiaries 1, ,535 Surrender benefits 1,564, ,564,882 Payments on supplementary contracts with life contingencies, interest and policy or deposit-type contract funds, and group conversions 34, ,873 Increase in policy reserves-life and annuity contracts and accident and health insurance 148, ,684 General insurance expenses 761,792 22, ,217 Insurance taxes, licenses, fees, and commissions 102,117 35,751 (56,631) C 81,237 Net transfers to (from) separate accounts 166,024 41, ,525 Total benefits and expenses 3,505,535 99,677 (56,631) 3,548,581 Income before dividends to policyholders, federal income tax expense (benefit) and 216,806 2, ,214 net realized capital gains Dividends to policyholders 25, ,536 Income before federal income tax expense (benefit) and net realized capital gains 191,270 2, ,678 Federal income tax expense (benefit) (33,556) (32,804) Income before net realized capital gains 224,826 1, ,482 Net realized capital gains, excluding gains transferred to IMR, net of tax expense 2, ,734 Net income $ 227,302 $ 1,914 $ - $ 229,216 C. To eliminate intercompany reinsurance agreements. ` 84

111 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Changes in Capital and Surplus Year Ended December 31, 2017 (000s omitted) Capital and Surplus MEMBERS CMFG Life Life Eliminations Consolidated Balance at the beginning of year $ 2,002,670 $ 23,205 $ (23,205) $ 2,002,670 Additions (deductions): Net income 227,302 1, ,216 Change in unrealized capital gains, net of tax 39,018-4,604 A 43,622 Change in unrealized foreign exchange capital gain, Change in net deferred income tax (93,062) (361) - (93,423) Change in nonadmitted assets (12,783) (11,941) Change in asset valuation reserve (9,804) 1 - (9,803) Change in pension liablity, net of tax (3,177) - - (3,177) Dividends to stockholders (24,500) (7,000) - (31,500) Other changes in surplus of separate accounts due to correction of prior year reserve calculation (19,006) - - (19,006) Net additions (deductions) 104,497 (4,604) 4, ,497 Balance at the end of the year $ 2,107,167 $ 18,601 $ (18,601) $ 2,107,167 A. To eliminate CMFG Life s indirect investment in MEMBERS Life. 85

112 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Statement of Cash Flows Year Ended December 31, 2017 (000s omitted) MEMBERS CMFG Life Life Eliminations Consolidated Cash from operating activities Premiums and other considerations $ 3,126,288 $ 3,649 $ - $ 3,129,937 Net investment income received 490, ,142 sionreinsurance commissions 1,299 56,631 (56,631) C 1,299 Other income 54,431 43,896-98,327 Policy and contract benefits and dividends paid (2,333,919) 11 - (2,333,908) Operating expenses paid (836,022) (56,827) 56,631 C (836,218) Federal income taxes received (paid) (57,464) (1,316) - (58,780) Net transfers (to) from separate accounts (154,616) (43,404) - (198,020) Net cash provided by operating activities 290,608 3, ,779 Cash from investing activities Proceeds from investments sold, matured or repaid Bonds and notes 996, ,168 Stocks 62, ,749 Mortgage loans 168, ,107 Real estate 2, ,725 S Other invested assets 350, ,965 ds Miscellaneous proceeds 8, ,815 Total investment proceeds 1,590, ,590,529 Cost of investments acquired Bonds and notes 1,236, ,236,846 Stocks 77, ,608 Mortgage loans 378, ,244 Real estate 2, ,973 P Other invested assets 279, ,624 Miscellaneous applications 18, ,806 - Total investments acquired 1,994, ,994,101 Net decrease in contract loans Net cash provided by (used in) investing activities (404,619) (404,252) C. To eliminate intercompany reinsurance agreements. 86

113 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Statement of Cash Flows, continued Year Ended December 31, 2017 (000s omitted) MEMBERS CMFG Life Life Eliminations Consolidated Cash from financing and miscellaneous activities Borrowed (repaid) funds, net (49,084) - - (49,084) Net deposits on deposit-type contracts 182,426 (4) - 182,422 Dividends to stockholders (24,500) (7,000) - (31,500) Other cash provided (used) (1,649) 3,173-1,524 Net cash provided by (used in) financing and miscellaneous activities 107,193 (3,831) - 103,362 Net change in cash, cash equivalents and short-term investments (6,818) (293) - (7,111) Cash, cash equivalents and short-term investments at the beginning of year 90,082 18, ,814 Cash, cash equivalents and short-term investments at the end of year $ 83,264 $ 18,439 $ - $ 101,703 87

114 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Admitted Assets, Liabilities and Capital and Surplus Year Ended December 31, 2016 (000s omitted) Admitted Assets MEMBERS CMFG Life Life Eliminations Consolidated Cash and invested assets: Bonds and notes $ 7,766,145 $ 11,036 - $ 7,777,181 Investments in affiliates 1,038,161 - (23,205) A 1,014,956 Common stocks - unaffiliated 48, ,753 Preferred stocks 15, ,869 Mortgage loans 1,534, ,534,869 Real estate occupied by the Company, at cost less accumulated depreciation 71, ,319 Real estate held for production of income, at cost less accumulated depreciation 7, ,302 Contract loans 102, ,700 Derivatives 33, ,170 Other invested assets 792, ,253 Receivable for securities sold 3, ,073 Cash, cash equivalents and short-term investments 90,082 18, ,814 Total cash and invested assets 11,503,696 29,768 (23,205) 11,510,259 Premiums in the course of collection 225,251 - (362) C 224,889 Accrued investment income 85, ,522 Federal income taxes recoverable - 1,650 (1,650) D - Net deferred tax asset 193, ,542 Amounts due from reinsurers 13,092 13,114 (25,120) 1,086 C Electronic data processing equipment - at cost, less accumulated depreciation 2, ,537 B Receivables from affiliates 61,085 8,698 (14,882) 54,901 Other assets 9, ,361 Separate account assets 4,479,891 20,221-4,500,112 Total admitted assets $ 16,573,513 $ 73,915 (65,219) $ 16,582,209 A. To eliminate CMFG Life s indirect investment in MEMBERS Life. B. To consolidate and eliminate affiliated receivables and payables. C. To eliminate intercompany reinsurance agreements. D. To net federal income taxes recoverable/payable for consolidated presentation. 88

115 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Admitted Assets, Liabilities and Capital and Surplus, continued Year Ended December 31, 2016 (000s omitted) MEMBERS Liabilities and Capital and Surplus CMFG Life Life Eliminations Consolidated Liabilities: Policy reserves Life insurance and annuity contracts $ 7,378,372 $ - $ - $ 7,378,372 Accident and health contracts 829, ,913 Liability for deposit-type contracts 355, ,977 C Policy and contract claims 98,321 - (338) 97,983 Dividends payable to policyholders 24, ,796 Advance premium and experience refunds 87, ,990 C Reinsurance payable 9,744 12,367 (21,190) 921 Interest maintenance reserve 48, ,487 Liability for employee retirement plans 191, ,910 C Amount held for others 10, (3,954) 6,885 Payable to affiliates 50,969 6,196 (14,882) B 42,283 Commissions, expenses, taxes, licenses, and fees accrued 168, ,477 Notes and interest payable 390, ,091 Asset valuation reserve 370, ,198 Derivatives 19, ,197 Payable for securities purchased 12, ,832 Federal income taxes payable 5,355 - (1,650) D 3,705 Other liabilities 60,740 11,594-72,334 Transfers to separate accounts (23,335) (589) - (23,924) Separate account liabilities 4,479,891 20,221-4,500,112 Total liabilities 14,570,843 50,710 (42,014) 14,579,539 Capital and surplus: Capital Common stock 7,500 5,000 (5,000) A 7,500 Paid-in capital 62,837 10,500 (10,500) A 62,837 Surplus notes 85, ,000 Unassigned surplus 1,847,333 7,705 (7,705) A 1,847,333 Total capital and surplus 2,002,670 23,205 (23,205) 2,002,670 Total liabilities and capital and surplus $ 16,573,513 $ 73,915 (65,219) $ 16,582,209 A. To eliminate CMFG Life s indirect investment in MEMBERS Life. B. To consolidate and eliminate affiliated receivables and payables. C. To eliminate intercompany reinsurance agreements. D. To net federal income taxes recoverable/payable for consolidated presentation. 89

116 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Statement of Operations Year Ended December 31, 2016 (000s omitted) Statement of Operations Income Premiums and other considerations MEMBERS CMFG Life Life Eliminations Consolidated Life and annuity contracts $ 2,573,157 $ (21) $ - $ 2,573,136 Accident and health contracts 566, ,283 Supplementary contracts 26, ,399 Net investment income 453, ,968 Reinsurance commissions 1,292 45,156 (45,156) C 1,292 Commission and fee income 58, ,073 Other income 22,492 21,423-43,915 Total income 3,702,118 67,104 (45,156) 3,724,066 Benefits and expenses Death and annuity benefits 464,197 (2) - 464,195 Disability and accident and health benefits 221, ,637 Interest on deposit-type contracts 10, ,942 Other benefits to policyholders and beneficiaries 2, ,233 Surrender benefits 1,433, ,433,573 Payments on supplementary contracts with life contingencies, interest and policy or deposit-type contract funds, and group conversions 34, ,250 Increase in policy reserves-life and annuity contracts and accident and health insurance 359, ,808 General insurance expenses 708,943 15, ,996 Insurance taxes, licenses, fees, and commissions 99,389 31,075 (45,156) C 85,308 Net transfers to (from) separate accounts 151,351 19, ,630 Total benefits and expenses 3,486,320 65,408 (45,156) 3,506,572 Income before dividends to policyholders, federal income tax expense and 215,798 1, ,494 net realized capital gains Dividends to policyholders 25, ,392 Income before federal income tax expense and net realized capital gains 190,406 1, ,102 Federal income tax expense 19,292 1,166-20,458 Income before net realized capital gains 171, ,644 Net realized capital gains, excluding gains transferred to IMR, net of tax expense 24, ,577 Net income $ 195,172 $ 1,049 $ - $ 196,221 C. To eliminate intercompany reinsurance agreements. 90

117 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Changes in Capital and Surplus Year Ended December 31, 2016 (000s omitted) Capital and Surplus MEMBERS CMFG Life Life Eliminations Consolidated Balance at the beginning of year $ 1,858,445 $ 21,111 $ (21,111) $ 1,858,445 Additions (deductions): Net income 195,172 1, ,221 Change in unrealized capital gains, net of tax (7,517) - (2,094) A (9,611) Change in unrealized foreign exchange capital gain (loss), (3,920) - - (3,920) Change in net deferred income tax (17,977) (117) - (18,094) Change in asset valuation reserve (25,849) - - (25,849) Change in nonadmitted assets 2,910 1,162-4,072 Change in pension liablity, net of tax 3, ,406 x odividends to stockholders (2,000) - - (2,000) Net additions 144,225 2,094 (2,094) 144,225 Balance at the end of the year $ 2,002,670 $ 23,205 $ (23,205) $ 2,002,670 A. To eliminate CMFG Life s indirect investment in MEMBERS Life. 91

118 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Statement of Cash Flows Year Ended December 31, 2016 (000s omitted) MEMBERS CMFG Life Life Eliminations Consolidated Cash from operating activities Premiums and other considerations $ 3,129,845 $ 9,722 $ - $ 3,139,567 Net investment income received 442, ,438 sionreinsurance commissions 1,292 45,156 (45,156) C 1,292 Other income 77,191 15,389-92,580 Policy and contract benefits and dividends paid (2,177,725) (2,177,614) Operating expenses paid (821,221) (49,743) 45,156 C (825,808) Federal income taxes received (paid) (35,940) (1,768) - (37,708) Net transfers (to) from separate accounts (137,903) (19,868) - (157,771) Net cash provided by (used in) operating activities 477,571 (595) - 476,976 Cash from investing activities Proceeds from investments sold, matured or repaid Bonds and notes 1,143,052 1,628-1,144,680 Stocks 55, ,041 Mortgage loans 217, ,508 S Other invested assets 176, ,171 ds Miscellaneous proceeds 11, ,274 Total investment proceeds 1,603,046 1,628-1,604,674 Cost of investments acquired Bonds and notes 1,523, ,523,896 Stocks 64, ,404 Mortgage loans 233, ,668 Real estate 6, ,129 P Other invested assets 213, ,388 Miscellaneous applications 20, ,340 Total investments acquired 2,061, ,061,825 Net decrease in contract loans (197) - - (197) Net cash provided by (used in) investing activities (458,582) 1,628 - (456,954) C. To eliminate intercompany reinsurance agreements. 92

119 CMFG LIFE INSURANCE COMPANY and SUBSIDIARY Consolidating Statement of Statutory Basis Statement of Cash Flows, continued Year Ended December 31, 2016 (000s omitted) MEMBERS CMFG Life Life Eliminations Consolidated Cash from financing and miscellaneous activities Borrowed (repaid) funds, net 33, ,401 Net deposits on deposit-type contracts (18,070) - - (18,070) Dividends to stockholders (2,000) - - (2,000) Other cash provided (used) (201) Net cash provided by (used in) financing and miscellaneous activities 13, ,737 Net change in cash, cash equivalents and short-term investments 32,119 1,640-33,759 Cash, cash equivalents and short-term investments at the beginning of year 57,963 17,092-75,055 Cash, cash equivalents and short-term investments at the end of year $ 90,082 $ 18,732 $ - $ 108,814 93

120 CMFG LIFE INSURANCE COMPANY Schedule of Selected Financial Data As of and for the Year Ended December 31, 2017 (000s omitted) Investment income earned: Government bonds $ 3,928 Bonds exempt from U.S. tax - Other bonds (unaffiliated) 358,955 Bonds of affiliates 4,277 Preferred stocks (unaffiliated) 475 Preferred stocks of affiliates - Common stocks (unaffiliated) 1,353 Common stocks of affiliates 51,000 Mortgage loans 77,980 Real estate 18,875 Premium notes, contract loans and liens 7,002 Cash 295 Cash equivalents - Short-term investments 333 Other invested assets 7,721 Derivative financial instruments (1,201) Aggregate write-in for investment income 1,754 Gross investment income $ 532,747 Real estate owned - book value less encumbrances (excluding home office) $ 6,699 Mortgage loans - book value: Farm mortgages $ - Residential mortgages 15 Commercial mortgages 1,744,991 Total mortgage loans $ 1,745,006 Mortgage loans by standing - book value: Good standing $ 1,745,006 Good standing with restructured terms - Interest overdue more than three months, not in foreclosure - Foreclosure in process - Other long-term assets-statement value 820,552 Collateral loans - Bonds and stocks of parents, subsidiaries and affiliates - book value - Bonds 106,688 Preferred stocks - Common stocks 1,036,568 94

121 CMFG LIFE INSURANCE COMPANY Schedule of Selected Financial Data, continued As of and for the Year Ended December 31, 2017 (000s omitted) Bonds and short-term investments by class and maturity: Bonds by maturity - statement value Due within one year or less $ 483,336 Over 1 year through 5 years 2,526,349 Over 5 years through 10 years 2,712,815 Over 10 years through 20 years 1,004,933 Over 20 years 1,375,224 Total by maturity $ 8,102,657 Bonds by class - statement value Class 1 $ 4,873,641 Class 2 2,812,211 Class 3 303,745 Class 4 62,422 Class 5 43,511 Class 6 7,127 Total by class $ 8,102,657 Total bonds publicly traded $ 5,032,305 Total bonds privately placed 3,070,352 Preferred stocks - statement value 5,119 Common stocks - market value 57,746 Short-term investments - book value - Options, caps & floors - statement value 29,771 Options, caps & floors written and in force - statement value (excluding liabilities) - Collar, swap & forward agreements open - statement value - Futures contracts open - current value (excluding liabilities) - Cash 57,379 Cash equivalents 25,885 95

122 CMFG LIFE INSURANCE COMPANY Schedule of Selected Financial Data, continued As of and for the Year Ended December 31, 2017 (000s omitted) Life insurance in force: Industrial $ - Ordinary 28,126,384 Credit life 22,169,162 Group life 9,817,273 Amount of accidental death insurance in force under ordinary policies 1,672,801 Life insurance policies with disability provisions in force: Industrial - Ordinary 2,172,813 Credit life 131,489 Group life 91 Supplementary contracts in force: Ordinary - not involving life contingencies Amount on deposit 151,994 Income payable 9,951 Ordinary - involving life contingencies Income payable 31,345 Group - not involving life contingencies Amount of deposit - Income payable - Group - involving life contingencies Income payable - Annuities: Ordinary Immediate - amount of income payable 27,238 Deferred - fully paid - account balance 2,913,585 Deferred - not fully paid - account balance 1,307,099 Group Immediate - amount of income payable 37,217 Fully paid account payable - Not fully paid - account balance 3,583,462 Accident and health insurance - premium in force Ordinary 58,115 Group 233,718 Credit 369,581 Deposit funds and dividends accumulations: Deposit funds - account balance 18,817 Dividend accumulations - account balance 153,118 96

123 CMFG LIFE INSURANCE COMPANY Schedule of Selected Financial Data, continued As of and for the Year Ended December 31, 2017 (000s omitted) Claim payments 2017 Group accident and health - year ended December $ 44, , , Prior 3,949 Other accident and health , , , , Prior 1,383 Other coverages that use developmental methods to calculate claims reserves , , , , ,747 Prior 11,752 97

124 MEMBERS LIFE INSURANCE COMPANY Schedule of Selected Financial Data As of and for the Year Ended December 31, 2017 (000s omitted) Investment income earned: Government bonds $ 270 Other bonds (unaffiliated) 51 Bonds of affiliates - Preferred stocks (unaffiliated) - Preferred stocks of affiliates - Common stocks (unaffiliated) - Common stocks of affiliates - Mortgage loans - Real estate - Premium notes, contract loans and liens - Collateral loans - Cash - Cash equivalents - Short-term investments - Other invested assets 217 Derivative financial instruments - Aggregate write-in for investment income - Gross investment income $ 538 Real estate owned - book value less encumbrances $ - Mortgage loans - book value: Farm mortgages - Residential mortgages - Commercial mortgages - Total mortgage loans $ - Mortgage loans by standing - book value: Good standing - Good standing with restructured terms - Interest overdue more than three months, not in foreclosure - Foreclosure in process - Other long-term assets-statement value - Collateral loans - Bonds and stocks of parents, subsidiaries and affiliates - book value: Bonds - Preferred stocks - Common stocks - 98

125 MEMBERS LIFE INSURANCE COMPANY Schedule of Selected Financial Data, continued As of and for the Year Ended December 31, 2017 (000s omitted) Bonds and short-term investments by class and maturity: Bonds by maturity - statement value Due within one year or less $ 550 Over 1 year through 5 years 594 Over 5 years through 10 years 407 Over 10 years through 20 years 342 Over 20 years 8,757 Total by maturity $ 10,650 Bonds by class - statement value Class 1 $ 10,650 Class 2 - Class 3 - Class 4 - Class 5 - Class 6 - Total by class $ 10,650 Total bonds publicly traded $ 10,650 Total bonds privately placed - Preferred stocks - statement value - Common stocks - market value - Short-term investments - book value - Options, caps & floors - statement value - Options, caps & floors written and in force - statement value - Collar, swap & forward agreements open - statement value - Futures contracts open - current value - Cash 1,833 Cash equivalents 16,606 99

126 MEMBERS LIFE INSURANCE COMPANY Schedule of Selected Financial Data, continued As of and for the Year Ended December 31, 2017 (000s omitted) Life insurance in force: Industrial $ - Ordinary - Credit life - Group life - Amount of accidental death insurance in force under ordinary policies - Life insurance policies with disability provisions in force: Industrial - Ordinary - Credit life - Group life - Supplementary contracts in force: Ordinary - not involving life contingencies Amount in deposit - Income payable - Ordinary - involving life contingencies Income payable - Group - not involving life contingencies Amount of deposit - Income payable - Group - involving life contingencies Income payable - Annuities: Ordinary Immediate - amount of income payable - Deferred - fully paid - account balance - Deferred - not fully paid - account balance - Group Immediate - amount of income payable - Fully paid account payable - Not fully paid - account balance - Accident and health insurance - premium in force Ordinary - Group - Credit - Deposit funds and dividends accumulations: Deposit funds - account balance - Dividend accumulations - account balance - 100

127 MEMBERS LIFE INSURANCE COMPANY Schedule of Selected Financial Data, continued As of and for the Year Ended December 31, 2017 (000s omitted) Claim payments 2017 Group accident and health - year ended December $ Prior - Other accident and health Prior - Other coverages that use developmental methods to calculate claims Prior - 101

128 CMFG LIFE INSURANCE COMPANY Summary Investment Schedule December 31, 2017 (000s omitted) Investment Categories Gross Admitted Assets Reported Investment in the Annual Statement Holdings Amount Percentage Bonds: U.S. treasury securities $ 155,878 $ 155, % U.S. government agency and corporate obligations (excluding mortgage-backed securities): Issued by U.S. government agencies % Issued by U.S. government sponsored agencies % Non-U.S.government (including Canada, excluding mortgage-backed securities) % Securities issued by states, territories and possessions and political subdivisions in the U.S.: States, territories and possessions general obligations 32,319 32, % Political subdivisions of states, territories and possessions and political subdivisions general obligations 284, , % Revenue and assessment obligations 31,237 31, % Industrial development and similar obligations % Mortgage-backed securities (includes residential and commercial MBS): Pass-through securities: Issued or guaranteed by GNMA 6,522 6, % Issued or guaranteed by FNMA and FHLMC 333, , % Privately issued 1,832 1, % CMO's and REMIC's: Issued by FNMA and FHLMC 347, , % Privately issued and collateralized by MBS issued or guaranteed by GNMA, FNMA or FHLMC 175, , % Privately issued 192, , % Other debt and other fixed income securities (excluding short term): Unaffiliated domestic securities (includes credit tenant loans rated by the SVO) 4,683,501 4,683, % Unaffiliated foreign securities 1,750,284 1,750, % Affiliated securities 106, , % 102

129 CMFG LIFE INSURANCE COMPANY Summary Investment Schedule, continued December 31, 2017 (000s omitted) Gross Investment Admitted Assets Reported in the Annual Statement Investment Categories Categories Amount Percentage Equity interests: Investment in mutual funds $ - $ - 0.0% Preferred stocks: Affiliated % Unaffiliated 5,119 5, % Publicly traded equity securities (excluding preferred stocks): Affiliated % Unaffiliated % Other equity securities: Affiliated 1,039,568 1,039, % Unaffiliated 57,746 57, % Other equity interests including tangible personal property under lease: Affiliated % Unaffiliated % Mortgage loans: Construction and land development % Agricultural % Single family residential properties % Multifamily residential properties % Commercial loans 1,744,992 1,744, % Real estate investments: Property occupied by company 65,920 65, % Property held for production of income (includes no property acquired in satisfaction of debt) % Property held for sale (including $ - property acquired in satisfaction of debt) 6,699 6, % Contract loans 103, , % Derivatives 30,188 30, % Receivables for securities 1,682 1, % Cash and short-term investments 83,264 83, % Other invested assets 820, , % Securities lending assets 258, , % Total cash and invested assets $ 12,319,680 $ 12,319, % 103

130 MEMBERS LIFE INSURANCE COMPANY Summary Investment Schedule December 31, 2017 (000s omitted) Investment Categories Gross Admitted Assets Reported Investment in the Annual Statement Holdings Amount Percentage Bonds: U.S. treasury securities $ 9,052 $ 9, % U.S. government agency and corporate obligations (excluding mortgage-backed securities ) Issued by U.S. government agencies % Issued by U.S. government sponsored agencies % Foreign government (including Canada, excluding mortgage-backed securities % Securities issued by states, territories and possessions and political subdivisions in the U.S.: States, territories and possessions general obligations % Political subdivisions of states, territories and possessions and political subdivisions general obligations % Revenue and assessment obligations % Industrial development and similar obligations % Mortgage-backed securities (includes residential and commercial MBS): Pass-through securities: Guaranteed by GNMA % Issued by FNMA and FHLMC % All other % CMO's and REMIC's: Issued or guaranteed by GNMA, FNMA, FHLMC or VA % Issued by non-u.s. Government issuers and collateralized by mortgage-backed securities issued or guaranteed by GNMA, FNMA, FHLMC or VA % All other % Other debt and other fixed income securities (excluding short term): Unaffiliated domestic securities (includes credit tenant loans rated by the SVO) % Unaffiliated foreign securities % Affiliated securities % Equity interests: Investment in mutual funds % Preferred stocks: Publicly traded equity securities (excluding preferred stocks): Affiliated % Unaffiliated % 104

131 MEMBERS LIFE INSURANCE COMPANY Summary Investment Schedule, continued December 31, 2017 (000s omitted) Investment Categories Gross Admitted Assets Reported Investment in the Annual Statement Holdings Amount Percentage Other equity securities: Affiliated $ - $ - 0.0% Unaffiliated % Other equity interests including tangible personal property under lease: Affiliated % Unaffiliated % Mortgage loans: Construction and land development % Agricultural % Single family residential properties % Multifamily residential properties % Commercial loans % Real estate investments % Contract loans % Receivables for securities sold % Cash and short-term investments 18,439 18, % Other invested assets % Total invested assets $ 29,089 $ 29, % 105

132 CMFG LIFE INSURANCE COMPANY Supplemental Investment Risks Interrogatories December 31, 2017 (000s omitted) 1. Reporting entity s total admitted assets, excluding separate account assets. $ 12,862, Ten largest exposures to a single issuer/borrower/investment Percentage of Total Issuer Description of Exposure Amount Admitted Assets 2.01 CUNA Mutual Investment Corporation Equity $ 1,036, % 2.02 MCA Funds Holding Company LLC Equity 440, % 2.03 MCA Fund I Holding LLC Bond/Equity 234, % 2.04 MCA Fund II Holding LLC Bond/Equity 159, % 2.05 Federal Home Loan Bank Des Moines Equity 31, % 2.06 Reliance Industries Limited Bond 27, % 2.07 JP Morgan Chase and Company Bond 27, % 2.08 American Transmission Company Bond 27, % 2.09 Morgan Stanley Bond 24, % 2.10 Allete Incorporated Bond 23, % 3. Amounts and percentages of the reporting entity's total admitted assets held in bonds and preferred stocks by NAIC rating. Bonds NAIC-1 $ 4,873, % 3.02 NAIC-2 2,812, % 3.03 NAIC-3 303, % 3.04 NAIC-4 62, % 3.05 NAIC-5 43, % 3.06 NAIC-6 7, % Preferred Stocks P/RP-1 $ % 3.08 P/RP-2 4, % 3.09 P/RP % 3.10 P/RP % 3.11 P/RP-5 1, % 3.12 P/RP % 4. Assets held in foreign investments: 4.01 Are assets held in foreign investments less than 2.5% of the reporting entity's total admitted assets? Yes [ ] No [ X ] If response to 4.01 above is yes, responses are not provided for interrogatories Total admitted assets held in foreign investments $ 1,528, % 4.03 Foreign-currency-denominated investments 41, % 4.04 Insurance liabilities denominated in that same foreign currency % 106

133 CMFG LIFE INSURANCE COMPANY Supplemental Investment Risks Interrogatories, continued December 31, 2017 (000s omitted) 5. Aggregate foreign investment exposure categorized by NAIC sovereign rating: Countries rated NAIC-1 $ 1,402, % 5.02 Countries rated NAIC-2 89, % 5.03 Countries rated NAIC-3 or below 37, % 6. Two largest foreign investment exposures by country, categorized by the country's NAIC sovereign rating: 1 2 Countries rated NAIC-1: 6.01 Country 1: United Kingdom $ 306, % 6.02 Country 2: Cayman Islands 279, % Countries rated NAIC-2: 6.03 Country 1: Mexico $ 48, % 6.04 Country 2: India 27, % Countries rated NAIC-3 or below: 6.05 Country 1: Bahamas $ 16, % 6.06 Country 2: Jamaica 6, % Aggregate unhedged foreign currency exposure: $ 7, % 8. Aggregate unhedged foreign currency exposure categorized by NAIC sovereign rating: Countries rated NAIC-1 $ 1, % 8.02 Countries rated NAIC % 8.03 Countries rated NAIC-3 or below 6, % 9. Two largest unhedged foreign currency exposures by country, categorized by the country's NAIC sovereign rating: Countries rated NAIC-1: Country 1: Netherlands $ 1, % 9.02 Country 2: % Countries rated NAIC-2: 9.03 Country 1: Hungary $ % 9.04 Country 2: % Countries rated NAIC-3 or below: 9.05 Country 1: St. Vincent $ 1, % 9.06 Country 2: Trinidad 1, % 107

134 CMFG LIFE INSURANCE COMPANY Supplemental Investment Risks Interrogatories, continued December 31, 2017 (000s omitted) 10. Ten largest non-sovereign (i.e. non-governmental) foreign issues: 1 2 Issuer NAIC Rating Reliance Industries Limited 2 $ 27, % TICP CLO Limited 1 25, % Shell International Financial 1 21, % Rabobank Nederland 1 20, % Trafigura Beheer B.V 2 20, % BP Capital Markets PLC 1 19, % Transurban Queensland 2 19, % Triton Container International 2 18, % Sound Point CLO Limited 1 17, % NSW Electricity 2 17, % 11. Amounts and percentages of the reporting entity's total admitted assets held in Canadian investments and unhedged Canadian currency exposure: Are assets held in Canadian investments less than 2.5% of the reporting entity's total admitted assets? Yes [ X ] No [ ] If response to is yes, detail is not provided for the remainder of Interrogatory Report aggregate amounts and percentages of the reporting entity's total admitted assets held in investments with contractual sales restrictions Are assets held in investments with contractual sales restrictions less than 2.5% of the reporting entity's total admitted assets? Yes [ X ] No [ ] If response to is yes, responses are not provided for the remainder of Interrogatory

135 CMFG LIFE INSURANCE COMPANY Supplemental Investment Risks Interrogatories, continued December 31, 2017 (000s omitted) 13. Amounts and percentages of admitted assets held in the ten largest equity interests: Are assets held in equity interest less than 2.5% of the reporting entity's total admitted assets? Yes [ ] No [ X ] If response to above is yes, responses are not provided for the remainder of Interrogatory Name of Issuer CUNA Mutual Investment Corporation $ 1,036, % MCA Funds Holding Company LLC 440, % MCA Fund II Holding LLC 159, % MCA Fund I Holding LLC 127, % Federal Home Loan Bank Des Moines 31, % Owl Rock Capital Corporation 11, % Preferred Freezer Holdings Inc. 9, % Allstate Corporation 4, % Landmark Acquisition Fund VIII LP 3, % MEMBERS Trust Company 2, % 14. Amounts and percentages of the reporting entity's total admitted assets held in nonaffiliated, privately placed equities: Are assets held in nonaffiliated, privately placed equities less than 2.5% of the reporting entity's total admitted assets? Yes [ X ] No [ ] If response to above is yes, responses are not provided for the remainder of Interrogatory Amounts and percentages of the reporting entity's total admitted assets held in general partnership interests: Are assets held in general partnership interests less than 2.5% of the reporting entity's total admitted assets? Yes [ X ] No [ ] If response to above is yes, responses are not provided for the remainder of Interrogatory

136 CMFG LIFE INSURANCE COMPANY Supplemental Investment Risks Interrogatories, continued December 31, 2017 (000s omitted) 16. Amounts and percentages of the reporting entity's total admitted assets held in mortgage loans: Are mortgage loans reported in Schedule B less than 2.5% of the reporting entity's Yes [ ] No [ X ] total admitted assets? If response to above is yes, responses are not provided for the remainder of Interrogatory 16 and Interrogatory Type (Residential, Commercial, Agricultural) Handler Apartment Portfolio, Commercial $ 28, % Welsh-Rooker, Commercial 18, % High Point at Overland Apartment, Commercial 17, % Dalfen, Commercial 17, % Cardinal Health Distribution, Commercial 16, % Gateway Commerce Center, Commercial 15, % Turntable Apartments, Commercial 15, % MLK, Commercial 14, % Knoxville FBI Office, Commercial 14, % Van Ness Garage, Commercial 14, % Amount and percentage of the reporting entity's total admitted assets held in the following categories of mortgage loans: Loans Construction loans $ % Mortgage loans over 90 days past due % Mortgage loans in the process of foreclosure % Mortgage loans foreclosed % Restructured mortgage loans % 17. Aggregate mortgage loans having the following loan-to-value ratios as determined from the most current appraisal as of the annual statement date: Residential Commercial Agricultural Loan-to-Value above 95% $ % $ % $ % % to 95% % % % % to 90% % 8, % % % to 80% % 81, % % below 70% % 1,655, % % 18. Amounts and percentages of the reporting entity's total admitted assets held in each of the five largest investments in real estate: Are assets held in real estate reported less than 2.5% of the reporting entity's total admitted assets? Yes [ X ] No [ ] If response to above is yes, responses are not provided for the remainder of Interrogatory

137 CMFG LIFE INSURANCE COMPANY Supplemental Investment Risks Interrogatories, continued December 31, 2017 (000s omitted) 19. Report aggregate amounts and percentages of the reporting entity's total admitted assets held in investments held in mezzanine real estate loans Are assets held in investments held in mezzanine real estate loans less than 2.5% of the reporting entity's admitted assets? Yes [ X ] No [ ] If response to is yes, responses are not provided for the remainder of Interrogatory Amounts and percentages of the reporting entity's total admitted assets subject to the following types of agreements: At Year-End At End of Each Quarter 1st Qtr 2nd Qtr 3rd Qtr Securities lending agreements (do not include assets held as collateral for such transactions) $ 246, % $ 177,629 $ 320,303 $ 235, Repurchase agreements % Reverse repurchase agreements 258, % 181, , , Dollar repurchase agreements % Dollar reverse repurchase agreements % Amounts and percentages of the reporting entity's total admitted assets for warrants not attached to other financial instruments, options, caps and floors: Owned Written Hedging $ % $ % Income generation % % Other % % 22. Amounts and percentages of the reporting entity's total admitted assets of potential exposure for collars, swaps, and forwards: At Year-End At End of Each Quarter 1st Qtr 2nd Qtr 3rd Qtr Hedging $ 3, % $ 7,011 $ 7,220 $ 7, Income generation % Replications % Other % Amounts and percentages of the reporting entity's total admitted assets of potential exposure for futures contracts: At Year-End At End of Each Quarter 1st Qtr 2nd Qtr 3rd Qtr Hedging $ % $ 182 $ 140 $ Income generation % Replications % Other %

138 MEMBERS LIFE INSURANCE COMPANY Supplemental Investment Risks Interrogatories December 31, 2017 (000s omitted) 1. Reporting entity s total admitted assets, excluding separate account assets. $ 51, Ten largest exposures to a single issuer/borrower/investment Percentage of Total Issuer Description of Exposure Amount Admitted Assets 2.01 FHLMC - 30 YR PT POOL A91900 Bond $ % 2.02 FHLMC - 30 YR PT POOL P50295 Bond % 2.03 FNMA - 30 YR PT POOL Bond % 2.04 FHLMC - 30 YR PT POOL P50426 Bond % 2.05 FNMA - 30 YR PT POOL Bond % 2.06 FNMA - 30 YR PT POOL Bond % 2.07 FNMA - 30 YR PT POOL Bond % 2.08 FNMA - 20 YR PT POOL Bond % 2.09 FHLMC - 30 YR PT POOL C01005 Bond % 3. Amounts and percentages of the reporting entity's total admitted assets held in bonds and preferred stocks by NAIC rating. Bonds NAIC-1 $ 10, % 3.02 NAIC % 3.03 NAIC % 3.04 NAIC % 3.05 NAIC % 3.06 NAIC % Preferred Stocks P/RP-1 $ % 3.08 P/RP % 3.09 P/RP % 3.10 P/RP % 3.11 P/RP % 3.12 P/RP % Questions 4-23 are not applicable. 112

139 Prospectus May 1, 2018 T. Rowe Price International Stock Portfolio A fund seeking long-term growth of capital through investments in common stocks of established non-u.s. companies and a growth approach to stock selection. The fund is only available as an investment option for variable annuity and variable life insurance contracts. The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

140 Table of Contents 1 SUMMARY International Stock Portfolio 1 2 MORE ABOUT THE FUND Organization and Management 5 More Information About the Fund s Principal Investment Strategies and Its Principal Risks 7 Investment Policies and Practices 10 Financial Highlights 15 Disclosure of Fund Portfolio Information 16 3 T. ROWE PRICE ACCOUNT INFORMATION Investing in T. Rowe Price Variable Insurance Portfolios 18 Distribution and Shareholder Servicing Fees 18 Pricing of Shares and Transactions 18 General Policies Relating to Transactions 20 Information on Distributions and Taxes 23 Rights Reserved by the Funds 23

141 SUMMARY Investment Objective The fund seeks long-term growth of capital through investments primarily in the common stocks of established, non- U.S. companies. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. There may be additional expenses that apply, as described in your insurance contract prospectus, which are not reflected in the table. Fees and Expenses of the Fund Annual fund operating expenses (expenses that you pay each year as a percentage of the value of your investment) Management fees 1.05% Other expenses Total annual fund operating expenses 1.05 Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods, that your investment has a 5% return each year, and that the fund s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years $107 $334 $579 $1,283 Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when the fund s shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund s performance. During the most recent fiscal year, the fund s portfolio turnover rate was 34.0% of the average value of its portfolio. Investments, Risks, and Performance Principal Investment Strategies The fund expects to primarily invest in stocks outside the U.S. and to diversify broadly among developed and emerging countries throughout the world. The fund normally invests in at least five countries and may purchase the stocks of companies of any size, but its focus will typically be on large companies. Normally, at least 80% of the fund s net assets (including any borrowings for investment purposes) will be invested in stocks. While the adviser invests with an awareness of the global economic backdrop and the adviser s outlook for certain industries, sectors, and individual countries, the adviser s decision-making process focuses on bottom-up stock selection. Country allocation is driven largely by stock selection, though the adviser may limit investments in markets or industries that appear to have poor overall prospects. Security selection reflects a growth style. The adviser relies on a global team of investment analysts dedicated to in-depth fundamental research in an effort to identify companies capable of achieving and sustaining above-average, long-term earnings growth. The adviser seeks to purchase stocks of companies at reasonable prices in relation to present or anticipated earnings, cash flow, or book value. In selecting investments, the adviser generally favors companies with one or more of the following characteristics: leading or improving market position; attractive business niche; attractive or improving franchise or industry position; seasoned management; stable or improving earnings and/or cash flow; and sound or improving balance sheet.

142 T. ROWE PRICE 2 The fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities. Principal Risks As with any mutual fund, there is no guarantee that the fund will achieve its objective. The fund s share price fluctuates, which means you could lose money by investing in the fund. The principal risks of investing in this fund are summarized as follows: Active management risks The investment adviser s judgments about the attractiveness, value, or potential appreciation of the fund s investments may prove to be incorrect. The fund could underperform in comparison to other funds with a similar benchmark or similar objectives and investment strategies if the fund s overall investment selections or strategies fail to produce the intended results. Risks of stock investing Stocks generally fluctuate in value more than bonds and may decline significantly over short time periods. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. The value of a stock in which the fund invests may decline due to general weakness in the stock market or because of factors that affect a particular company or industry. International investing risks Investing in the securities of non-u.s. issuers involves special risks not typically associated with investing in U.S. issuers. International securities tend to be more volatile and less liquid than investments in U.S. securities and may lose value because of adverse local, political, social, or economic developments overseas, or due to changes in the exchange rates between foreign currencies and the U.S. dollar. In addition, international investments are subject to settlement practices and regulatory and financial reporting standards that differ from those of the U.S. Emerging markets risks The risks of international investing are heightened for securities of issuers in emerging market countries. Emerging market countries tend to have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. In addition to all of the risks of investing in international developed markets, emerging markets are more susceptible to governmental interference, local taxes being imposed on international investments, restrictions on gaining access to sales proceeds, and less liquid and less efficient trading markets. Investment style risks Different investment styles tend to shift in and out of favor depending on market conditions and investor sentiment. The fund s growth approach to investing could cause it to underperform other stock funds that employ a different investment style. Growth stocks tend to be more volatile than certain other types of stocks, and their prices may fluctuate more dramatically than the overall stock market. A stock with growth characteristics can have sharp price declines due to decreases in current or expected earnings and may lack dividends that can help cushion its share price in a declining market. Market capitalization risks The fund s focus on large companies subjects the fund to the risks that larger companies may not be able to attain the high growth rates of successful smaller companies, especially during strong economic periods, and that they may be less capable of responding quickly to competitive challenges and industry changes. Because the fund may invest in companies of any size, its share price could be more volatile than a fund that invests only in large companies. Small and medium-sized companies typically have less experienced management, narrower product lines, more limited financial resources, and less publicly available information than larger companies. Performance The following performance information provides some indication of the risks of investing in the fund. The fund s performance information represents only past performance and is not necessarily an indication of future results. The following bar chart illustrates how much returns can differ from year to year by showing calendar year returns and the best and worst calendar quarter returns during those years for the fund.

143 SUMMARY 3 The following table shows the average annual total returns for the fund, and also compares the returns with the returns of a relevant broad-based market index, as well as with the returns of one or more comparative indexes that have investment characteristics similar to those of the fund. Average Annual Total Returns Periods ended December 31, 2017 Y Inception 1 Year 5 Years 10 Years date International Stock Portfolio % 7.83 % 3.02 % 03/31/1994 MSCI All Country World Index ex USA (reflects no deduction for fees, expenses, or taxes) a Lipper Variable Annuity Underlying International Multi-Cap Growth Funds Average a Effective July 1, 2018, the MSCI All Country World Index ex USA Net will replace the MSCI All Country World Index ex USA as the fund s primary benchmark. The new index assumes the reinvestment of dividends after the deduction of withholding taxes applicable to the country where the dividend is paid; as such, the returns of the new benchmark are more representative of the returns experienced by investors in foreign issuers. Updated performance information is available through troweprice.com. Management Investment Adviser T. Rowe Price Associates, Inc. (T. Rowe Price) Investment Subadviser T. Rowe Price International Ltd (T. Rowe Price International) Portfolio Manager Richard N. Clattenburg Title Managed Fund Since Joined Investment Adviser Chairman of Investment Advisory Committee Purchase and Sale of Fund Shares The fund is not sold directly to the general public but is instead offered as an underlying investment option for variable annuity or variable life insurance contracts. Although the fund does not require a minimum amount for initial or subsequent purchases from insurance companies, your insurance company may impose investment minimums for your purchases of the fund. You may purchase, redeem, or exchange shares of the fund on any day the New York Stock Exchange is open for business. You must purchase, redeem, and exchange shares through your insurance company.

144 T. ROWE PRICE 4 Tax Information The fund distributes any dividends and capital gains to its shareholders, which are the insurance company separate accounts that sponsor your variable annuity or variable life insurance contract. Variable product owners seeking to understand the tax consequences of their investment, including redemptions of fund shares and the impact of dividend and capital gains distributions by the fund, should consult with the insurance company that issued their variable product or refer to their variable annuity or variable life insurance contract prospectus. Payments to Insurance Companies, Broker-Dealers, and Other Financial Intermediaries The fund is generally available only through variable annuity or variable life insurance contracts. The fund and/or its related companies may make payments to a sponsoring insurance company or other financial intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the insurance company or other financial intermediary to recommend the fund over another investment option or by influencing an insurance company to include the fund as an underlying investment option in a variable contract. The prospectus (or other offering document) for your variable contract may contain additional information about these payments. Ask your insurance company or financial intermediary, or visit your insurance company s or financial intermediary s website, for more information.

145 MORE ABOUT THE FUND 2 ORGANIZATION AND MANAGEMENT How is the fund organized? T. Rowe Price International Series, Inc. (the Corporation ) was incorporated in Maryland in Currently, the Corporation consists of one series, the International Stock Portfolio. The International Stock Portfolio is managed in a manner similar to the T. Rowe Price International Stock Fund, a fund with the same objective and investment program as the International Stock Portfolio but offered to the general public and not to insurance company separate accounts. However, investors should be aware that the International Stock Portfolio is not the same as the T. Rowe Price International Stock Fund and will not have the same performance. Investments made by the International Stock Portfolio at any given time may not be the same as those made by the T. Rowe Price International Stock Fund. Different performance will result due to factors such as differences in the cash flows into and out of the funds, different fees and expenses, and differences in net assets and size of holdings. What is meant by shares? Contract holders and participants indirectly (through the insurance company separate account) purchase shares when they put money in a fund offered as an investment option in their insurance contracts. These shares are part of the fund s authorized capital stock, but share certificates are not issued. Each share and fractional share entitles the shareholder (the insurance company separate account) to cast one vote per share on certain fund matters, including the election of fund directors, changes in fundamental policies, or approval of material changes to the fund s investment management agreement. The shares of the fund have equal voting rights. The various insurance companies own the outstanding shares of the fund in their separate accounts. These separate accounts are registered under the Investment Company Act of 1940 or are exempted from registration thereunder. Under current law, the insurance companies must vote the shares held in registered separate accounts in accordance with voting instructions received from variable contract holders or participants having the right to give such instructions. Does the fund have annual shareholder meetings? The mutual funds that are sponsored and managed by T. Rowe Price (the T. Rowe Price Funds ) are not required to hold regularly scheduled shareholder meetings. To avoid unnecessary costs to the funds shareholders, shareholder meetings are only held when certain matters, such as changes in fundamental policies or elections of directors, must be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting for the purpose of voting on the removal of any fund director. If a meeting is held and you cannot attend, you can vote by proxy. Before the meeting, the insurance company will send or make available to you the fund s proxy materials that explain the matters to be decided and include instructions on voting by mail, telephone, or the Internet. Who runs the fund? General Oversight The fund is governed by a Board of Directors (the Board ) that meets regularly to review the fund s investments, performance, expenses, and other business affairs. The Board elects the fund s officers. At least 75% of Board members are independent of T. Rowe Price and its affiliates (the Firm ). Investment Advisers T. Rowe Price is the fund s investment adviser and oversees the selection of the fund s investments and management of the fund s portfolio pursuant to an investment management agreement between the investment adviser and the fund. T. Rowe Price is an SEC-registered investment adviser that provides investment management services to individual and institutional investors, and sponsors and serves as adviser and subadviser to registered investment companies, institutional separate accounts, and common trust funds. The address for T. Rowe Price is 100 East Pratt Street, Baltimore, Maryland As of December 31, 2017, the Firm had approximately $991 billion in assets under

146 T. ROWE PRICE 6 management and provided investment management services for more than 8 million individual and institutional investor accounts. T. Rowe Price has entered into a subadvisory agreement with T. Rowe Price International under which T. Rowe Price International is authorized to trade securities and make discretionary investment decisions on behalf of the fund. T. Rowe Price International is an investment adviser registered or licensed with the SEC, United Kingdom Financial Conduct Authority, Financial Services Agency of Japan, and other non-u.s. regulatory authorities. T. Rowe Price International sponsors and serves as adviser to foreign collective investment schemes and provides investment management services to investment companies and other institutional investors. T. Rowe Price International is headquartered in London and has several branch offices around the world. T. Rowe Price International is a direct subsidiary of T. Rowe Price and its address is 60 Queen Victoria Street, London EC4N 4TZ, United Kingdom. Portfolio Management T. Rowe Price has established an Investment Advisory Committee with respect to the fund. The committee chairman has day-to-day responsibility for managing the fund s portfolio and works with the committee in developing and executing the fund s investment program. The members of the committee are as follows: Richard N. Clattenburg, Chairman, Harishankar Balkrishna, Sheena L. Barbosa, Jai Kapadia, Tobias F. Mueller, Oluwaseun A. Oyegunle, Sebastian Schrott, and Ernest C. Yeung. The following information provides the year that the chairman (the portfolio manager ) first joined the Firm and the chairman s specific business experience during the past five years (although the chairman may have had portfolio management responsibilities for a longer period). Mr. Clattenburg has been chairman of the committee since He joined the Firm in 2005 and his investment experience dates from During the past five years, he has served as an equity research analyst and a portfolio manager (beginning 2015). The Statement of Additional Information provides additional information about the portfolio manager s compensation, other accounts managed by the portfolio manager, and the portfolio manager s ownership of the fund s shares. The Management Fee The fund pays the investment adviser an annual all-inclusive management fee of 1.05% based on the fund s average daily net assets. The management fee is calculated and accrued daily and it includes investment management services and ordinary, recurring operating expenses, but does not cover interest; expenses related to borrowing, taxes, and brokerage and other transaction costs; or nonrecurring, extraordinary expenses. A discussion about the factors considered by the Board and its conclusions in approving the fund s investment management agreement (and any subadvisory agreement, if applicable) appear in the fund s semiannual report to contract holders for the period ended June 30. Variable Annuity Contracts and Variable Life Insurance Charges Variable annuity and variable life fees and charges imposed on contract holders and participants by the insurance companies are in addition to those described previously and are described in the variable annuity and variable life contract prospectuses. Variable Annuity Contracts and Variable Life Insurance Conflicts The fund may serve as an investment medium for both variable annuity contracts and variable life insurance policies. Shares of the fund may be offered to separate accounts established by any number of insurance companies. The fund currently does not foresee any disadvantages to variable annuity contract owners due to the fact that the fund may serve as an investment medium for both variable life insurance policies and annuity contracts; however, due to differences in tax treatment or other considerations, it is theoretically possible that the interests of owners of annuity contracts and insurance policies for which the fund serves as an investment medium might at some time be in conflict. The fund s Board is required to monitor events to identify any material conflicts between variable annuity contract owners and variable life policy owners, and will determine what action, if any, should be taken in the event of such a conflict. If such a conflict were to occur, an insurance company participating in the fund might be required to redeem the investment of one or more of its separate accounts from the fund. This might force the fund to sell securities at disadvantageous prices.

147 MORE ABOUT THE FUND 7 MORE INFORMATION ABOUT THE FUND S PRINCIPAL INVESTMENT STRATEGIES AND ITS PRINCIPAL RISKS Consider your investment goals, your time horizon for achieving them, and your tolerance for risk. If you want to diversify your domestic stock portfolio by adding a fund with investments mainly in foreign stocks and are comfortable with the risks that accompany foreign investments, the fund could be an appropriate part of your overall investment strategy. The market may reward growth stocks with price increases when earnings expectations are met or exceeded. Funds that employ a growth-oriented approach to stock selection rely on the premise that by investing in companies that increase their earnings faster than both inflation and the overall economy, the market will eventually reward those companies with a higher stock price. The fund s successful implementation of a growth-oriented strategy may lead to long-term growth of capital over time. Investing a portion of your overall portfolio in stock funds with foreign holdings can enhance your diversification and increase your available investment opportunities. The fund typically focuses its investments more on developed foreign countries than on emerging market countries. As a result, the fund may at times have significant investments in the United Kingdom and other developed European countries, as well as Japan. Portfolio managers closely monitor the fund s investments as well as political and economic trends in the countries and regions in which the fund invests. Holdings are adjusted according to the portfolio manager s analysis and outlook. The impact of unfavorable developments in a particular country may be reduced when investments are spread among many countries. However, the economies and financial markets of countries in a certain region may be heavily influenced by one another. As with any mutual fund, there is no guarantee the fund will achieve its objective. The fund s share price fluctuates, which means you could lose money when you sell your shares of the fund. The principal risks associated with the fund s principal investment strategies include the following: Risks of stock investing As with all stock funds, the fund s share price can fall because of weakness in one or more of its primary equity markets, a particular industry, or specific holdings. Stock markets can decline for many reasons, including adverse local, political, social, or economic developments; changes in investor psychology; or heavy institutional selling. The prospects for an industry or company may deteriorate because of a variety of factors, including disappointing earnings or changes in the competitive environment. In addition, the adviser s assessment of companies held by the fund may prove incorrect, resulting in losses or poor performance, even in rising markets. Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. Growth investment risks Growth stocks can be volatile for several reasons. Since these companies usually invest a high portion of earnings in their businesses, they may lack the dividends that can cushion stock prices in a falling market. Also, earnings disappointments often lead to sharply falling prices because investors buy growth stocks in anticipation of superior earnings growth. Currency risks A decline in the value of a foreign currency versus the U.S. dollar could reduce the dollar value of securities denominated in that foreign currency. The overall impact on the fund s holdings can be significant, unpredictable, and long-lasting, depending on the currencies represented in the fund s portfolio and how each foreign currency appreciates or depreciates in relation to the U.S. dollar and whether currency positions are hedged. Under normal conditions, the fund does not engage in extensive foreign currency hedging programs. Further, since exchange rate movements are volatile, a fund s attempts at hedging could be unsuccessful, and it is not possible to effectively hedge the currency risks of many emerging market countries. Other risks of foreign investing Risks can result from varying stages of economic and political development; differing regulatory environments, trading days and accounting standards; uncertain tax laws; and higher transaction costs of non-u.s. markets. Investments outside the U.S. could be subject to governmental actions such as capital or currency controls, nationalization of a company or industry, expropriation of assets, or imposition of high taxes. A trading market

148 T. ROWE PRICE 8 may close without warning for extended time periods, preventing the fund from buying or selling securities in that market. Trading in the securities in which the fund invests may take place in various foreign markets on certain days when the fund is not open for business and does not calculate its net asset value. For example, the fund may invest in securities that trade in various foreign markets that are open on weekends. As the securities trade, their value may substantially change. As a result, the fund s net asset value may be significantly affected on days when shareholders cannot make transactions. In addition, market volatility may significantly limit the liquidity of securities of certain companies in a particular country or geographic region, or of all companies in the country or region. The fund may be unable to liquidate its positions in such securities at any time, or at a favorable price, in order to meet the fund s obligations. Risks of investing in Japan The fund s relatively high exposure to Japan subjects the fund to a higher degree of risk that adverse developments in a single country will negatively impact the fund. The growth of Japan s economy historically has lagged that of its Asian neighbors and other major developed economies. The Japanese economy is heavily dependent on international trade and has been adversely affected by trade tariffs, other protectionist measures, competition from emerging economies, and the economic conditions of its trading partners. Japan s neighbors, in particular China, have become increasingly important export markets. Despite a deepening in the economic relationship between Japan and China, the countries political relationship has at times been strained in recent years. Should political tension increase, it could adversely affect the economy, especially the export sector, and destabilize the region as a whole. Japan also remains heavily dependent on oil imports, and higher commodity prices could therefore have a negative impact on the Japanese economy. The Japanese economy faces several other concerns, including a financial system with large levels of nonperforming loans, over-leveraged corporate balance sheets, extensive cross-ownership by major corporations, a changing corporate governance structure, and large government deficits. These issues may cause a slowdown of the Japanese economy. The Japanese yen has fluctuated widely at times, and any increase in its value may cause a decline in exports that could weaken the Japanese economy. The yen may also be affected by currency volatility elsewhere in Asia, especially Southeast Asia and China. Japan has, in the past, intervened in the currency markets to attempt to maintain or reduce the value of the yen. Japanese intervention in the currency markets could cause the value of the yen to fluctuate sharply and unpredictably and could cause losses to investors. In addition, Japan has an aging workforce and has experienced a significant population decline in recent years. Japan s labor market appears to be undergoing fundamental structural changes, as a labor market traditionally accustomed to lifetime employment adjusts to meet the need for increased labor mobility, which may adversely affect Japan s economic competitiveness. Emerging markets risks To the extent the fund invests in emerging markets, it will be subject to greater risk than a fund investing only in developed markets. The economic and political structures of developing countries, in most cases, do not compare favorably with the U.S. or other developed countries in terms of wealth and stability, and their financial markets often lack liquidity. The fund s performance will likely be hurt by exposure to countries in the midst of hyperinflation, currency devaluation, trade disagreements, sudden political upheaval, or interventionist government policies. Significant buying or selling by a few major investors may also heighten the volatility of emerging markets. These factors make investing in such countries significantly riskier than investing in other countries, and any one of these factors could cause the fund s share price to decline. Some of the principal tools the adviser uses to try to reduce overall risk include intensive research when evaluating a company s prospects and limiting exposure to any one industry or company. In addition, other risks associated with the additional investment strategies that may be employed by the fund include the following: Additional strategies and risks While most assets will be invested in common stocks, other strategies may be employed that are not considered part of the fund s principal investment strategies. For instance, the fund may, to a limited extent, use derivatives such as futures contracts and forward currency exchange contracts. Any investments in futures would typically serve as an efficient means of gaining exposure to certain markets or as a cash management tool to maintain liquidity while being invested in the market. Forward currency exchange contracts would primarily be used to settle trades in a foreign currency or to help protect the fund s holdings from unfavorable changes in foreign currency exchange rates, although other currency hedging techniques may be used from time to time. To the extent the fund uses futures and forward currency exchange contracts, it is exposed to potential volatility and losses greater than direct investments in the contracts underlying assets, and the risk that anticipated currency movements will not be accurately predicted.

149 MORE ABOUT THE FUND 9 A derivative involves risks different from, and possibly greater than, the risks associated with investing directly in the assets on which the derivative is based. Derivatives can be highly volatile, illiquid, and difficult to value. Changes in the value of a derivative may not properly correlate with changes in the value of the underlying asset, reference rate, or index. The fund could be exposed to significant losses if it is unable to close a derivatives position due to the lack of a liquid trading market. Derivatives involve the risk that a counterparty to the derivatives agreement will fail to make required payments or comply with the terms of the agreement. There is also the possibility that limitations or trading restrictions may be imposed by an exchange or government regulation, which could adversely impact the value and liquidity of a derivatives contract subject to such regulation. Recent regulations have changed the requirements related to the use of certain derivatives. Some of these new regulations have limited the availability of certain derivatives and made their use by funds more costly. It is expected that additional changes to the regulatory framework will occur, but the extent and impact of additional new regulations are not certain at this time. Banking and financial companies risks The fund may invest significantly in banks and other financial services companies. To the extent the fund has significant investments in financial companies, it is more susceptible to adverse developments affecting such companies and may perform poorly during a downturn in the banking industry. Banks can be adversely affected by, among other things, regulatory changes, interest rate movements, the availability of capital and the cost to borrow, and the rate of debt defaults. Banks and other financial services institutions are often subject to extensive governmental regulation and intervention, and the potential for additional regulation could reduce profit margins and adversely affect the scope of their activities, the amount of capital they must maintain, and limit the amounts and types of loans and other financial commitments they can make. In addition, companies in the financials sector may also be adversely affected by decreases in the availability of money or asset valuations, credit rating downgrades, increased competition, and adverse conditions in other related markets. The oversight of, and regulations applicable to, banks in emerging markets may be ineffective when compared with the regulatory frameworks for banks in developed markets. Banks in emerging markets may have significantly less access to capital than banks in more developed markets, leading them to be more likely to fail under adverse economic conditions. In addition, the impact of future regulation on any individual bank, or on the financial services sector as a whole, can be very difficult to predict. Information technology sector risks The fund may invest significantly in the information technology sector. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on their profit margins. Like other technology companies, information technology companies may have limited product lines, markets, financial resources, or personnel. The products of information technology companies may face obsolescence due to rapid technological developments, frequent new product introduction, unpredictable changes in growth rates, and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Risks of investing in Europe The fund s relatively high exposure to Europe subjects the fund to a higher degree of risk that adverse developments in the region will negatively impact the fund. The Economic and Monetary Union of the European Union (EU) requires compliance with restrictions on inflation rates, deficits, interest rates, debt levels, and fiscal and monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the euro (the common currency of certain EU countries), the default or threat of default by an EU member country on its sovereign debt, and/or an economic recession in an EU member country may have a significant adverse effect on the economies of EU member countries and their trading partners. The European financial markets have recently experienced volatility and adverse trends due to concerns about economic downturns or rising government debt levels in several European countries, including Greece, Ireland, Italy, Portugal, and Spain. These events have adversely affected the exchange rate of the euro and may continue to significantly affect every country in Europe, including countries that do not use the euro. Responses to the financial problems by European governments, central banks, and others, including austerity measures and reforms, may not produce the desired results, may result in social unrest, and may limit future growth and economic recovery or have other unintended consequences. Further defaults or restructurings by governments and other entities of their debt could have additional adverse effects on economies, financial markets, and asset valuations around

150 T. ROWE PRICE 10 the world. In addition, one or more countries may abandon the euro and/or withdraw from the EU. The impact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far-reaching. Risks of investing in Asia The fund s relatively high exposure to Asia subjects the fund to a higher degree of risk that adverse developments in the region will negatively impact the fund. Certain Asian economies have experienced high inflation, high unemployment, currency devaluations and restrictions, and overextension of credit. Many Asian economies have experienced rapid growth and industrialization, and there is no assurance that this growth rate will be maintained. Economic events in any one Asian country may have a significant economic effect on the entire Asian region, as well as on major trading partners outside Asia. Any adverse event in the Asian markets may have a significant adverse effect on some or all of the economies of the countries in which the fund invests. Many Asian countries are subject to political risk, including corruption and regional conflict with neighboring countries. In addition, many Asian countries are subject to social and labor risks associated with demands for improved political, economic, and social conditions. The Asian region, and particularly China and South Korea, may be adversely affected by political, military, economic, and other factors related to North Korea. The Statement of Additional Information contains more detailed information about the fund and its investments, operations, and expenses. INVESTMENT POLICIES AND PRACTICES This section provides a more detailed description of the various types of portfolio holdings and investment practices that may be used by the fund to execute its overall investment program. Some of these holdings are considered to be principal investment strategies of the fund and have already been described earlier in the prospectus. Any of the following holdings and investment practices that were not already described in Section 1 of the prospectus are not considered part of the fund s principal investment strategies, but they may be used by the fund to help achieve its investment objective. The fund s investments may be subject to further restrictions and risks described in the Statement of Additional Information. Shareholder approval is required to substantively change the fund s investment objective. Shareholder approval is also required to change certain investment restrictions noted in the following section as fundamental policies. Portfolio managers also follow certain operating policies that can be changed without shareholder approval. Shareholders will receive at least 60 days prior notice of a change in the fund s policy requiring it to normally invest at least 80% of its net assets in stocks. The fund s holdings in certain kinds of investments cannot exceed maximum percentages as set forth in this prospectus and the Statement of Additional Information. For instance, there are limitations regarding the fund s investments in certain types of derivatives. While these restrictions provide a useful level of detail about the fund s investments, investors should not view them as an accurate gauge of the potential risk of such investments. For example, in a given period, a 5% investment in derivatives could have a significantly greater impact on the fund s share price than its weighting in the portfolio. The net effect of a particular investment depends on its volatility and the size of its overall return in relation to the performance of all of the fund s investments. Certain investment restrictions, such as a required minimum or maximum investment in a particular type of security, are measured at the time the fund purchases a security. The status, market value, maturity, duration, credit quality, or other characteristics of the fund s securities may change after they are purchased, and this may cause the amount of the fund s assets invested in such securities to exceed the stated maximum restriction or fall below the stated minimum restriction. If any of these changes occur, it would not be considered a violation of the investment restriction and will not require the sale of an investment if it was proper at the time the investment was made (this exception does not apply to the fund s borrowing policy). However, certain changes will require holdings to be sold or purchased by the fund during the time it is above or below the stated percentage restriction in order for the fund to be in compliance with applicable restrictions. For purposes of determining whether the fund invests in at least five countries, the fund relies on the country assigned to a security by MSCI Inc., a third-party provider of benchmark indexes and data services, or another unaffiliated data

151 MORE ABOUT THE FUND 11 provider. The data providers use various criteria to determine the country to which a security is economically tied. Examples include the following: (1) the country under which the issuer is organized; (2) the location of the issuer s principal place of business or principal office; (3) where the issuer s securities are listed or traded principally on an exchange or over-the-counter market; and (4) where the issuer conducts the predominant part of its business activities or derives a significant portion (e.g., at least 50%) of its revenues or profits. Changes in the fund s holdings, the fund s performance, and the contribution of various investments to the fund s performance are discussed in the shareholder reports. Portfolio managers have considerable discretion in choosing investment strategies and selecting securities they believe will help achieve the fund s objective. Types of Portfolio Securities In seeking to meet its investment objective, the fund may invest in any type of security or instrument (including certain potentially high-risk derivatives described in this section) whose investment characteristics are consistent with its investment program. The following pages describe various types of the fund s holdings and investment management practices, some of which are also described as part of the fund s principal investment strategies. Diversification As a fundamental policy, the fund will not purchase a security if, as a result, with respect to 75% of its total assets, more than 5% of the fund s total assets would be invested in securities of a single issuer or more than 10% of the outstanding voting securities of the issuer would be held by the fund. The fund s investments are primarily in common stocks and, to a lesser degree, other types of securities as follows: Common and Preferred Stocks Stocks represent shares of ownership in a company. Generally, preferred stocks have a specified dividend rate and rank after bonds and before common stocks in their claim on income for dividend payments and on assets should the company be liquidated. After other claims are satisfied, common stockholders participate in company profits on a prorata basis and profits may be paid out in dividends or reinvested in the company to help it grow. Increases and decreases in earnings are usually reflected in a company s stock price, so common stocks generally have the greatest appreciation and depreciation potential of all corporate securities. Unlike common stock, preferred stock does not ordinarily carry voting rights. While most preferred stocks pay a dividend, the fund may decide to purchase preferred stock where the issuer has suspended, or is in danger of suspending, payment of its dividend. The fund may purchase American Depositary Receipts and Global Depositary Receipts, which are certificates evidencing ownership of shares of a foreign issuer. American Depositary Receipts and Global Depositary Receipts trade on established markets and are alternatives to directly purchasing the underlying foreign securities in their local markets and currencies. Such investments are subject to many of the same risks associated with investing directly in foreign securities. For purposes of the fund s investment policies, investments in depositary receipts are deemed to be investments in the underlying securities. For example, a depositary receipt representing ownership of common stock will be treated as common stock. Convertible Securities and Warrants The fund may invest in debt instruments or preferred equity securities that are convertible into, or exchangeable for, equity securities at specified times in the future and according to a certain exchange ratio. Convertible bonds are typically callable by the issuer, which could in effect force conversion before the holder would otherwise choose. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than nonconvertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree than common stock. Some convertible securities combine higher or lower current income with options and other features. Warrants are options to buy, directly from the issuer, a stated number of shares of common stock at a specified price anytime during the life of the warrants (generally, two or more years). Warrants have no voting rights, pay no dividends, and can be highly volatile. In some cases, the redemption value of a warrant could be zero. Participation Notes (P-notes) The fund may gain exposure to securities traded in foreign markets through investments in P-notes. P-notes are generally issued by banks or broker-dealers and are designed to offer a return linked to an underlying common stock or other security. An investment in a P-note involves additional risks beyond the risks normally associated with a direct

152 T. ROWE PRICE 12 investment in the underlying security. While the holder of a P-note is entitled to receive from the broker-dealer or bank any dividends paid by the underlying security, the holder is not entitled to the same rights (e.g., voting rights) as a direct owner of the underlying security. P-notes are considered general unsecured contractual obligations of the banks or broker-dealers that issue them as the counterparty. As such, the fund must rely on the creditworthiness of the counterparty for its investment returns on the P-notes, and could lose the entire value of its investment in the event of default by a counterparty. Additionally, there is no assurance that there will be a secondary trading market for a P-note or that the trading price of a P-note will equal the value of the underlying security. Operating policy The fund s investments in P-notes are limited to 20% of its total assets. Investments in P-notes are not subject to the limit on investments in hybrid instruments. Fixed Income Securities From time to time, the fund may invest in corporate and government fixed income securities as well as below investment-grade bonds, commonly referred to as junk bonds. These securities would be purchased in companies that meet the fund s investment criteria. The price of a fixed income security fluctuates with changes in interest rates, generally rising when interest rates fall and falling when interest rates rise. Below investment-grade bonds, or junk bonds, can be more volatile and have greater risk of default than investment-grade bonds, and should be considered speculative. Futures and Options Futures are often used to establish exposures or manage or hedge risk because they enable the investor to buy or sell an asset in the future at an agreed-upon price. Options may be used to generate additional income, to enhance returns, or as a defensive technique to protect against anticipated declines in the value of an asset. Call options give the investor the right to purchase (when the investor purchases the option), or the obligation to sell (when the investor writes or sells the option), an asset at a predetermined price in the future. Put options give the purchaser of the option the right to sell, or the seller (or writer ) of the option the obligation to buy, an asset at a predetermined price in the future. Futures and options contracts may be bought or sold for any number of reasons, including to manage exposure to changes in interest rates, bond prices, foreign currencies, and credit quality; as an efficient means of increasing or decreasing the fund s exposure to certain markets; in an effort to enhance income; to improve risk-adjusted returns; to protect the value of portfolio securities; and to serve as a cash management tool. Call or put options may be purchased or sold on securities, futures, financial indexes, and foreign currencies. The fund may choose to continue a futures contract by rolling over an expiring futures contract into an identical contract with a later maturity date. This could increase the fund s transaction costs and portfolio turnover rate. Futures and options contracts may not always be successful investments or hedges; their prices can be highly volatile; using them could lower the fund s total return; the potential loss from the use of futures can exceed the fund s initial investment in such contracts; and the losses from certain options written by the fund could be unlimited. Operating policies Initial margin deposits on futures and premiums on options used for non-hedging purposes will not exceed 5% of the fund s net asset value. The total market value of securities covering call or put options may not exceed 25% of the fund s total assets. No more than 5% of the fund s total assets will be committed to premiums when purchasing call or put options. Hybrid Instruments Hybrid instruments (a type of potentially high-risk derivative) can combine the characteristics of securities, futures, and options. For example, the principal amount, redemption, or conversion terms of a security could be related to the market price of some commodity, currency, security, or securities index. Such instruments may or may not bear interest or pay dividends. Under certain conditions, the redemption value of a hybrid could be zero. Hybrids can have volatile prices and limited liquidity, and their use may not be successful. Operating policy The fund s investments in hybrid instruments are limited to 10% of its total assets. Currency Derivatives The fund will normally conduct any foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward contracts to purchase or sell foreign currencies. The fund will generally not enter into a forward contract with a term greater than one year. The fund may enter into forward currency exchange contracts to lock in the U.S. dollar price of a security when it enters into a

153 MORE ABOUT THE FUND 13 contract for the purchase or sale of a security denominated in a foreign currency, and when the fund believes that the currency of a particular foreign country may move substantially against another currency, it may enter into a forward contract to sell or buy the former foreign currency. A fund that invests in foreign securities may attempt to hedge its exposure to potentially unfavorable currency changes. The primary means of doing this is through the use of forward currency exchange contracts, which are contracts between two counterparties to exchange one currency for another on a future date at a specified exchange rate. The fund may also use these instruments to create a synthetic bond, which is issued in one currency with the currency component transformed into another currency. However, futures, swaps, and options on foreign currencies may also be used. In certain circumstances, the fund may use currency derivatives to substitute a different currency for the currency in which the investment is denominated, a strategy known as proxy hedging. If the fund were to engage in any of these foreign currency transactions, it could serve to protect its foreign securities from adverse currency movements relative to the U.S. dollar, although the fund may also use currency derivatives in an effort to gain exposure to a currency expected to appreciate in value versus other currencies. As a result, the fund could be invested in a currency without holding any securities denominated in that currency. Such transactions involve, among other risks, the risk that anticipated currency movements will not occur, which could reduce the fund s total return. There are certain markets, including many emerging markets, where it is not possible to engage in effective foreign currency hedging. Hedging may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in an increase (or decrease) in the amount of taxable dividends paid by the fund and could affect whether dividends paid by the fund are classified as capital gains or ordinary income. Investments in Other Investment Companies The fund may invest in other investment companies, including open-end funds, closed-end funds, and exchange-traded funds. The fund may purchase the securities of another investment company to temporarily gain exposure to a portion of the market while awaiting purchase of securities or as an efficient means of gaining exposure to a particular asset class. The fund might also purchase shares of another investment company to gain exposure to the securities in the investment company s portfolio at times when the fund may not be able to buy those securities directly. Any investment in another investment company would be consistent with the fund s objective and investment program. The risks of owning another investment company are generally similar to the risks of investing directly in the securities in which that investment company invests. However, an investment company may not achieve its investment objective or execute its investment strategy effectively, which may adversely affect the fund s performance. In addition, because closed-end funds and exchange-traded funds trade on a secondary market, their shares may trade at a premium or discount to the actual net asset value of their portfolio securities and their shares may have greater volatility if an active trading market does not exist. As a shareholder of another investment company, the fund must pay its pro-rata share of that investment company s fees and expenses. The fund s investments in non-t. Rowe Price investment companies are subject to the limits that apply to investments in other funds under the Investment Company Act of 1940 or under any applicable exemptive order. The fund may also invest in certain other T. Rowe Price Funds as a means of gaining efficient and cost-effective exposure to certain asset classes, provided the investment is consistent with the fund s investment program and policies. Investments in other investment companies could allow the fund to obtain the benefits of a more diversified portfolio than might otherwise be available through direct investments in a particular asset class, and will subject the fund to the risks associated with the particular asset class or asset classes in which an underlying fund invests. Examples of asset classes in which other mutual funds (including T. Rowe Price Funds) focus their investments include high yield bonds, inflation-linked securities, floating rate loans, international bonds, emerging market bonds, stocks of companies involved in activities related to real assets, stocks of companies that focus on a particular industry or sector, and emerging market stocks. If the fund invests in another T. Rowe Price Fund, the management fee paid by the fund will be reduced to ensure that the fund does not incur duplicate management fees as a result of its investment.

154 T. ROWE PRICE 14 Illiquid Securities Some of the fund s holdings may be considered illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold in the ordinary course of business within seven days at approximately the prices at which they are valued. The determination of liquidity involves a variety of factors. Illiquid securities may include private placements that are sold directly to a small number of investors, usually institutions. Unlike public offerings, such securities are not registered with the SEC. Although certain of these securities may be readily sold (for example, pursuant to Rule 144A under the Securities Act of 1933) and therefore deemed liquid, others may have resale restrictions and be considered illiquid. The sale of illiquid securities may involve substantial delays and additional costs, and the fund may only be able to sell such securities at prices substantially lower than what it believes they are worth. Operating policy The fund may not purchase an illiquid security if it holds 15% or more of its net assets in illiquid securities. Types of Investment Management Practices Reserve Position A certain portion of the fund s assets may be held in reserves. The fund s reserve positions will primarily consist of: (1) shares of a T. Rowe Price internal money market fund or short-term bond fund (which does not charge any management fees); (2) short-term, high-quality U.S. and foreign dollar-denominated money market securities, including repurchase agreements; and (3) U.S. dollar or non-u.s. dollar currencies. In order to respond to adverse market, economic, political, or other conditions, the fund may assume a temporary defensive position that is inconsistent with its principal investment objective and/or strategies and may invest, without limitation, in reserves. If the fund has significant holdings in reserves, it could compromise its ability to achieve its objective. The reserve position provides flexibility in meeting redemptions, paying expenses, and managing cash flows into the fund and can serve as a short-term defense during periods of unusual market volatility. Non-U.S. dollar reserves are subject to currency risk. Borrowing Money and Transferring Assets The fund may borrow from banks, other persons, and other T. Rowe Price Funds for temporary or emergency purposes, to facilitate redemption requests, or for other purposes consistent with the fund s policies as set forth in this prospectus and the Statement of Additional Information. Such borrowings may be collateralized with the fund s assets, subject to certain restrictions. Fundamental policy Borrowings may not exceed 33 1 /3% of the fund s total assets. This limitation includes any borrowings for temporary or emergency purposes, applies at the time of the transaction, and continues to the extent required by the Investment Company Act of Operating policy The fund will not transfer portfolio securities as collateral except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 33 1 /3% of its total assets. The fund will not purchase additional securities when its borrowings exceed 5% of its total assets. Meeting Redemption Requests We expect that the fund will hold cash or cash equivalents to meet redemption requests. The fund may also use the proceeds from the sale of portfolio securities to meet redemption requests if consistent with the management of the fund. These redemption methods will be used regularly and may also be used in deteriorating or stressed market conditions. The fund reserves the right to pay all or part of redemption proceeds with securities from the fund s portfolio rather than in cash ( redemption in-kind ), as described under Large Redemptions. Redemptions in-kind are typically used to meet redemption requests that represent a large percentage of the fund s net assets in order to minimize the effect of large redemptions on the fund and its remaining shareholders. In general, any in-kind redemptions will represent a prorata distribution of the fund s securities, subject to certain limited exceptions. Redemptions in-kind may be used regularly in circumstances as described above, and may also be used in stressed market conditions. The fund, along with other T. Rowe Price Funds, is a party to an interfund lending exemptive order received from the SEC that permits the T. Rowe Price Funds to borrow money from and/or lend money to other T. Rowe Price Funds to help the funds meet short-term redemptions and liquidity needs. During periods of deteriorating or stressed market conditions, when an increased portion of the fund s portfolio may be comprised of less-liquid investments, or during extraordinary or emergency circumstances, the fund may be more likely

155 MORE ABOUT THE FUND 15 to pay redemption proceeds with cash obtained through interfund lending, through short-term borrowing arrangements (if available), or by redeeming a large redemption request in-kind. Lending of Portfolio Securities The fund may lend its securities to broker-dealers, other institutions, or other persons to earn additional income. Risks include the potential insolvency of the broker-dealer or other borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that decline in value, default, or do not perform as well as expected. Fundamental policy The value of loaned securities may not exceed 33 1 /3% of the fund s total assets. Portfolio Turnover Turnover is an indication of frequency of trading. Each time the fund purchases or sells a security, it incurs a cost. This cost is reflected in the fund s net asset value but not in its operating expenses. The higher the turnover rate, the higher the transaction costs and the greater the impact on the fund s total return. The fund s portfolio turnover rates are shown in the Financial Highlights table. FINANCIAL HIGHLIGHTS The Financial Highlights table, which provides information about the fund s financial history, is based on a single share outstanding throughout the periods shown. The table is part of the fund s financial statements, which are included in its annual report and are incorporated by reference into the Statement of Additional Information (available upon request). The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions and no payment of any applicable account or redemption fees). The financial statements in the annual report were audited by the fund s independent registered public accounting firm, PricewaterhouseCoopers LLP.

156 T. ROWE PRICE 16 Financial Highlights Year ended December Net asset value, beginning of period $13.90 $15.72 $15.26 $14.67 $14.27 Income From Investment Operations Net investment income a Net gains or losses on securities (both realized and unrealized) 1.78 (0.35) (0.28) Total from investment operations 1.95 (0.20) (0.14) Less Distributions Dividends (from net investment income) (0.13) (0.17) (0.15) (0.16) (0.19) Distributions (from capital gains) (0.09) (0.30) (0.55) (0.70) Returns of capital Total distributions (0.13) (0.26) (0.45) (0.71) (0.89) Net asset value, end of period $15.72 $15.26 $14.67 $14.27 $17.35 Total return % (1.24)% (0.90)% 2.13 % 27.88% Ratios/Supplemental Data Net assets, end of period (in thousands) $355,918 $329,646 $305,031 $310,621 $382,759 Ratio of expenses to average net assets 1.05 % 1.05% 1.05% 1.05 % 1.05% Ratio of net income to average net assets 1.13 % 0.94% 0.88% 1.15 % 1.04% Portfolio turnover rate 53.1 % 45.3% 37.3% 39.5 % 34.0% a Per share amounts calculated using average shares outstanding method. DISCLOSURE OF FUND PORTFOLIO INFORMATION The T. Rowe Price Funds full portfolio holdings as of their fiscal year-ends are disclosed in their annual shareholder reports and their full portfolio holdings as of their fiscal mid-point are disclosed in their semiannual shareholder reports. The annual and semiannual shareholder reports are filed with the SEC and sent to the funds shareholders within 60 days of the period covered. The T. Rowe Price Funds also disclose their full portfolio holdings as of their first and third fiscal quarter-ends on Form N-Q. Form N-Q is filed with the SEC within 60 days of the period covered, but is not sent to the funds shareholders. Under certain conditions, the shareholder reports and Form N-Q may include up to 5% of a fund s holdings under the caption Miscellaneous Securities without identifying the specific security or issuer. Generally, a holding would not be individually identified if it is determined that its disclosure could be harmful to the fund or its shareholders. A holding will not be excluded for these purposes from a fund s SEC filings for more than one year. The money market funds also file detailed month-end portfolio holdings information on Form N-MFP with the SEC each month. Form N-MFP, as well as the shareholder reports and Form N-Q, are publicly available immediately upon filing with the SEC. In addition, most T. Rowe Price Funds disclose their calendar quarter-end full portfolio holdings on troweprice.com 15 calendar days after each quarter. At the discretion of the investment adviser, these holdings reports may exclude the issuer name and other information relating to a holding in order to protect the fund s interests and prevent harm to the fund or its shareholders. Private placements and other restricted securities may not be individually identified in the calendar quarter-end holdings on troweprice.com, but would be disclosed in any SEC filings. Money market funds also disclose on troweprice.com their month-end full portfolio holdings five business days after each month-end and historical information about the fund s investments for the previous six months, as of the last business day of the

157 MORE ABOUT THE FUND 17 preceding month. This information includes, among other things, the percentage of the fund s investments in daily and weekly liquid assets, the fund s weighted average maturity and weighted average life, the fund s market-based net asset value, and the fund s net inflows and outflows. The calendar quarter-end portfolio holdings will remain on the website for one year and the month-end money market fund portfolio holdings will remain on the website for six months. In addition, most T. Rowe Price Funds disclose their 10 largest holdings on troweprice.com on the seventh business day after each month-end. These holdings are listed in alphabetical order along with the aggregate percentage of the fund s total assets that these 10 holdings represent. Each monthly top 10 list will remain on the website for six months. A description of T. Rowe Price s policies and procedures with respect to the disclosure of portfolio information is available in the Statement of Additional Information.

158 T. ROWE PRICE ACCOUNT INFORMATION 3 The following policies and procedures generally apply to the T. Rowe Price Variable Insurance Portfolios, which are T. Rowe Price mutual funds specifically designed to be made available through variable annuity or variable life insurance contracts. For instructions on how to purchase and redeem shares of the funds, you should refer to your insurance contract prospectus. INVESTING IN T. ROWE PRICE VARIABLE INSURANCE PORTFOLIOS Shares of the Variable Insurance Portfolios are designed to be offered to insurance company separate accounts established for the purpose of funding variable annuity and variable life insurance contracts. The variable annuity and variable life contract holders or participants are not the shareholders of the funds. Rather, the separate account of the insurance company is the shareholder. The variable annuity and variable life contracts are described in separate prospectuses issued by the insurance companies. The funds assume no responsibility for any insurance company prospectuses or variable annuity or variable life contracts. Some of the Variable Insurance Portfolios are available only in a single share class, while some of the Variable Insurance Portfolios are also available in a II Class. Shares of the funds are sold and redeemed without the imposition of any sales charges, commissions, or redemption fees, although shares of the II Class are subject to a 12b-1 fee at a rate of up to 0.25% annually. In addition, certain other charges may apply to annuity or life contracts. Those charges are disclosed in the insurance contract prospectus. Your ability to exchange from these funds into any other T. Rowe Price Fund that serves as an investment option under your insurance contract is governed by the terms of that contract and the insurance contract prospectus, as well as the funds excessive and short-term trading policy described later in this section. DISTRIBUTION AND SHAREHOLDER SERVICING FEES Each II Class has adopted a 12b-1 plan to pay certain expenses associated with the distribution of the fund s shares out of the fund s assets. Each Variable Insurance Portfolio offering II Class shares has adopted a 12b-1 plan under which the II Class may make payments at a rate of up to 0.25% of the class average daily net assets per year to various insurance companies, their agents, and contract distributors for distribution and servicing of fund shares. These payments may be more or less than the costs incurred by the insurance companies, their agents, and contract distributors. Because the fees are paid from the II Class net assets on an ongoing basis, they will increase the cost of your investment and, over time, could result in your paying more than with other types of sales charges. In addition, from time to time, T. Rowe Price may make payments from its own resources to eligible insurance companies for recordkeeping and administrative services they provide to a fund for contract holders. These payments may range from 0.15% to 0.25% of the average annual total assets invested by the separate accounts of the insurance company in the fund. All payments described specifically by this paragraph are paid by T. Rowe Price and are not paid directly from the Variable Insurance Portfolios assets. PRICING OF SHARES AND TRANSACTIONS How and When Shares Are Priced The trade date for your transaction request generally depends on the day and time that your insurance company or T. Rowe Price receives your request and will normally be executed using the next share price calculated after your order is received in correct form by your insurance company or T. Rowe Price or its agent. The share price, also called the net asset value, for each share class of a fund is calculated at the close of trading on the New York Stock Exchange ( NYSE ), which is normally 4 p.m. ET, on each day that the exchange is open for business. Net asset values are not calculated for

159 T. ROWE PRICE ACCOUNT INFORMATION 19 the funds on days when the NYSE is scheduled to be closed for trading (for example, weekends and certain U.S. national holidays). If the NYSE is unexpectedly closed due to weather or other extenuating circumstances on a day it would typically be open for business, or if the NYSE has an unscheduled early closing on a day it has opened for business, the funds reserve the right to treat such day as a business day and accept purchase and redemption orders and calculate their share price as of the normally scheduled close of regular trading on the NYSE for that day. To calculate the net asset value, the fund s assets are valued and totaled; liabilities are subtracted; and each class proportionate share of the balance, called net assets, is divided by the number of shares outstanding of that class. Market values are used to price portfolio holdings for which market quotations are readily available. Market values generally reflect the prices at which securities actually trade or represent prices that have been adjusted based on evaluations and information provided by the fund s pricing services. Investments in other mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. If a market value for a portfolio holding is not available or normal valuation procedures are deemed to be inappropriate, the fund will make a good faith effort to assign a fair value to the holding by taking into account various factors and methodologies that have been approved by the fund s Board. This value may differ from the value the fund receives upon sale of the securities. Amortized cost is used to price securities held by money market funds and certain short-term debt securities held by other funds. The Government Money Portfolio, which seeks to maintain a stable net asset value of $1.00, uses the amortized cost method of valuation to calculate its net asset value. Amortized cost allows money market funds to value a holding at the fund s acquisition cost with adjustments for any premiums or discounts, and then round the net asset value per share to the nearest whole cent. The amortized cost method of valuation enables money market funds to maintain a $1.00 net asset value, but it may also result in periods during which the stated value of a security held by the funds differs from the market-based price the funds would receive if they sold that holding. The current market-based net asset value per share for each business day in the preceding six months is available for the Government Money Portfolio through troweprice.com. These market-based net asset values are for informational purposes only and are not used to price transactions. The funds use various pricing services to provide closing market prices, as well as information used to adjust those prices and to value most fixed income securities. A fund cannot predict how often it will use closing prices and how often it will adjust those prices. As a means of evaluating its fair value process, the fund routinely compares closing market prices, the next day s opening prices in the same markets, and adjusted prices. Non-U.S. equity securities are valued on the basis of their most recent closing market prices at 4 p.m. ET, except under the following circumstances. Most foreign markets close before 4 p.m. ET. For example, the most recent closing prices for securities traded in certain Asian markets may be as much as 15 hours old at 4 p.m. ET. If a fund determines that developments between the close of a foreign market and the close of the NYSE will, in its judgment, affect the value of some or all of the fund s securities, the fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of 4 p.m. ET. In deciding whether to make these adjustments, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. A fund may also fair value certain securities or a group of securities in other situations for example, when a particular foreign market is closed but the fund is open. For a fund that has investments in securities that are primarily listed on foreign exchanges which trade on weekends or other days when the fund does not price its shares, the fund s net asset value may change on days when shareholders will not be able to purchase or redeem the fund s shares. If an event occurs that affects the value of a security after the close of the market, such as a default of a commercial paper issuer or a significant move in short-term interest rates, a fund may make a price adjustment depending on the nature and significance of the event. The funds also evaluate a variety of factors when assigning fair values to private placements and other restricted securities. Other mutual funds may adjust the prices of their securities by different amounts or assign different fair values from the fair value that the fund assigns to the same security. How the Trade Date Is Determined The insurance companies purchase shares of the fund for their separate accounts, using premiums allocated by the contract holders or participants. Shares are purchased at the net asset value next determined after the insurance company receives the premium payment in correct form. Initial and subsequent payments allocated to the fund are subject to the limits stated in the insurance contract prospectus issued by the insurance company.

160 T. ROWE PRICE 20 The insurance companies redeem shares of the fund to make benefit or surrender payments under the terms of their contracts. Redemptions are processed on any day on which the NYSE is open and are priced at the fund s net asset value next determined after the insurance company receives a surrender request in acceptable form. The funds have authorized certain insurance companies, financial intermediaries, or their designees to accept orders to buy or sell fund shares on their behalf. Generally, when insurance companies receive an order in correct form, the order is considered as being placed with the fund and shares will be bought or sold at the net asset value next calculated after the order is received by the insurance company. The insurance company or financial intermediary must transmit the order to T. Rowe Price or its agent and pay for such shares in accordance with the agreement with T. Rowe Price, or the order may be canceled and the insurance company or financial intermediary could be held liable for the losses. If the fund does not have such an agreement in place with your insurance company or financial intermediary, T. Rowe Price or its agent must receive the request in correct form from your insurance company or financial intermediary by the close of the NYSE in order for your transaction to be priced at that business day s net asset value. Note: The time at which transactions and shares are priced and the time until which orders are accepted may be changed in case of an emergency or if the NYSE closes at a time other than 4 p.m. ET. The funds reserve the right to not treat an unscheduled intraday disruption or closure in NYSE trading as a closure of the NYSE and still accept transactions and calculate their net asset value as of 4 p.m. ET. GENERAL POLICIES RELATING TO TRANSACTIONS Purchasing Shares All initial and subsequent investments by insurance companies or financial intermediaries are typically made by bank wire or electronic payment. There is no assurance that the share price for the purchase will be the same day the wire was initiated. The Variable Insurance Portfolios do not require a particular minimum amount for initial or subsequent purchases. However, you should check with your insurance company to determine if a minimum applies to your investment. Purchases by financial intermediaries are typically initiated through the National Securities Clearing Corporation or by calling Financial Institution Services. When authorized by the fund, certain financial institutions purchasing fund shares on behalf of customers through T. Rowe Price Financial Institution Services may place a purchase order unaccompanied by payment. Payment for these shares must be received by the time designated by the fund (not to exceed the period established for settlement under applicable regulations). If payment is not received by this time, the order may be canceled. The financial institution is responsible for any costs or losses incurred by the fund or T. Rowe Price if payment is delayed or not received. U.S. Dollars All purchases must be paid for in U.S. dollars. Nonpayment Purchases may be canceled for any orders that are not paid in full. The purchaser may be responsible for any losses or expenses incurred by the fund or its transfer agent, and the fund can redeem shares as reimbursement. The funds and their agents have the right to reject or cancel any purchase due to nonpayment. Redeeming Shares Unless otherwise indicated, redemption proceeds will be sent via bank wire to the insurance company s or financial intermediary s designated bank. Redemptions are typically initiated through the National Securities Clearing Corporation or by calling Financial Institution Services. Normally, the fund transmits proceeds to insurance companies and financial intermediaries for redemption orders received in correct form on either the next business day or second business day after receipt of the order, depending on the arrangement with the insurance company or financial intermediary. You may want to contact your insurance company about procedures for receiving your redemption proceeds under your insurance contract. Please note that certain purchase and redemption requests initiated through the National Securities Clearing Corporation may be rejected, and in such instances, the transaction must be placed by contacting Financial Institution Services. Large Redemptions Large redemptions can adversely affect a portfolio manager s ability to implement a fund s investment strategy by causing the premature sale of securities that would otherwise be held longer. Therefore, the fund

161 T. ROWE PRICE ACCOUNT INFORMATION 21 reserves the right (without prior notice) to redeem in-kind. In general, any in-kind redemptions will represent a pro-rata distribution of a fund s securities, subject to certain limited exceptions. The redeeming shareholder or account will be responsible for disposing of the securities, and the shareholder or account will be subject to the risks that the value of the securities could decline prior to their sale, the securities could be difficult to sell, and brokerage fees could be incurred. If a shareholder or account owner continues to hold the securities, he or she may be subject to any ownership restrictions imposed by the issuers. For example, real estate investment trusts often impose ownership restrictions on their equity securities. Delays in Sending Redemption Proceeds The T. Rowe Price Variable Insurance Portfolios typically expect that redemption requests will be paid out to redeeming shareholders by the business day following the receipt of a redemption request that is in correct form. Proceeds sent by wire are typically credited to the insurance company s or financial intermediary s designated bank the next business day after the redemption. However, under certain circumstances, and when deemed to be in a fund s best interests, proceeds may not be sent for up to seven calendar days after receipt of a valid redemption order (for example, during periods of deteriorating or stressed market conditions, or during extraordinary or emergency circumstances). In addition, under certain limited circumstances, the Board of Directors of a money market fund may elect to permanently suspend redemptions in order to facilitate an orderly liquidation of the money market fund (subject to any additional liquidation requirements). Under certain limited circumstances, the Board of Directors of a money market fund may elect to permanently suspend redemptions in order to facilitate an orderly liquidation of the money market fund (subject to any additional liquidation requirements). Excessive and Short-Term Trading T. Rowe Price may bar excessive and short-term traders from purchasing shares. Excessive transactions and short-term trading can be harmful to fund shareholders in various ways, such as disrupting a fund s portfolio management strategies, increasing a fund s trading costs, and negatively affecting its performance. Shortterm traders in funds that invest in foreign securities may seek to take advantage of developments overseas that could lead to an anticipated difference between the price of the funds shares and price movements in foreign markets. While there is no assurance that T. Rowe Price can prevent all excessive and short-term trading, the Boards of the T. Rowe Price Funds have adopted the following trading limits that are designed to deter such activity and protect the funds shareholders. The funds may revise their trading limits and procedures at any time as the Boards deem necessary or appropriate to better detect short-term trading that may adversely affect the funds, to comply with applicable regulatory requirements, or to impose additional or alternative restrictions. The excessive and short-term trading policy for the T. Rowe Price Funds applies to contract holders notwithstanding any provisions in your insurance contract. Subject to certain exceptions, each T. Rowe Price Fund restricts a shareholder s purchases (including through exchanges) into a fund account for a period of 30 calendar days after the shareholder has redeemed or exchanged out of that same fund account (the 30-Day Purchase Block ). The calendar day after the date of redemption is considered Day 1 for purposes of computing the period before another purchase may be made. General Exceptions As of the date of this prospectus, the following types of transactions generally are not subject to the 30-Day Purchase Block (certain of these exceptions are not applicable to Variable Insurance Portfolios): Shares purchased or redeemed in money market funds and ultra short-term bond funds; Shares purchased or redeemed through a systematic purchase or withdrawal plan; Checkwriting redemptions from bond funds and money market funds; Shares purchased through the reinvestment of dividends or capital gain distributions; Shares redeemed automatically by a fund to pay fund fees or shareholder account fees; Transfers and changes of account registration within the same fund; Shares purchased by asset transfer or direct rollover; Shares purchased or redeemed through IRA conversions and recharacterizations; Shares redeemed to return an excess contribution from a retirement account; Transactions in Section 529 college savings plans; Certain transactions in defined benefit and nonqualified plans, subject to prior approval by T. Rowe Price; Shares converted from one share class to another share class in the same fund;

162 T. ROWE PRICE 22 Shares of T. Rowe Price Funds that are purchased by another T. Rowe Price Fund, including shares purchased by T. Rowe Price fund-of-funds products, and shares purchased by discretionary accounts managed by T. Rowe Price or one of its affiliates (please note that shareholders of the investing T. Rowe Price Fund are still subject to the policy); and Transactions initiated by the trustee or adviser to a donor-advised charitable gift fund as approved by T. Rowe Price. Transactions in certain rebalancing, asset allocation, wrap programs, and other advisory programs, as well as non- T. Rowe Price fund-of-funds products, may also be exempt from the 30-Day Purchase Block, subject to prior written approval by T. Rowe Price. In addition to restricting transactions in accordance with the 30-Day Purchase Block, T. Rowe Price may, in its discretion, reject (or instruct an intermediary or insurance company to reject) any purchase or exchange into a fund from a person (which includes individuals and entities) whose trading activity could disrupt the management of the fund or dilute the value of the fund s shares, including trading by persons acting collectively (e.g., following the advice of a newsletter). Such persons may be barred, without prior notice, from further purchases of T. Rowe Price Funds for a period longer than 30 calendar days, or permanently. Omnibus Accounts Intermediaries and insurance companies may maintain their underlying accounts directly with the fund, although they often establish an omnibus account (one account with the fund that represents multiple underlying shareholder accounts or underlying contract holder accounts) in the fund on behalf of their customers. When insurance companies establish omnibus accounts in the T. Rowe Price Funds, T. Rowe Price is not able to monitor the trading activity by underlying contract holders. However, T. Rowe Price monitors aggregate trading activity at the insurance company (omnibus account) level in an attempt to identify activity that indicates potential excessive or short-term trading. If it detects suspicious trading activity, T. Rowe Price will contact the insurance company and may request personal identifying information and transaction histories for some or all of the underlying contract holders. If T. Rowe Price believes that excessive or short-term trading has occurred and there is no exception for such trades under the funds Excessive and Short-Term Trading Policy previously described, it will instruct the insurance company to impose restrictions to discourage such practices and take appropriate action with respect to the underlying contract holder, including restricting purchases for 30 calendar days or longer. There is no assurance that T. Rowe Price will be able to properly enforce its excessive and short-term trading policy for omnibus accounts. Because T. Rowe Price generally relies on intermediaries and insurance companies to provide information and impose restrictions for omnibus accounts, its ability to monitor and deter excessive trading will be dependent upon the intermediaries and insurance companies timely performance of their responsibilities. T. Rowe Price may allow an intermediary or insurance company to maintain restrictions on trading in the T. Rowe Price Funds that differ from the 30-Day Purchase Block. An alternative excessive and short-term trading policy would be acceptable to T. Rowe Price if it believes that the policy would provide sufficient protection to the T. Rowe Price Funds and their shareholders that is consistent with the excessive and short-term trading policy adopted by the funds Boards. The terms of your insurance contract may further restrict your ability to trade between investment options available under your contract. You should carefully review your insurance contract or consult with your insurance company directly to determine the trading policy, as well as any rules or conditions on transactions that will apply to your trades in the T. Rowe Price Funds and any other investment options available under your contract. There is no guarantee that T. Rowe Price will be able to identify or prevent all excessive or short-term trades or trading practices. Responsibility for Unauthorized Transactions T. Rowe Price and its agents use procedures reasonably designed to confirm that telephone, electronic, and other instructions are genuine. These procedures include recording telephone calls, requiring personalized security codes or certain identifying information for inquiries and requests, and requiring Medallion signature guarantees for certain transactions and account changes. If T. Rowe Price and its agents follow these procedures, they are not responsible for any losses that may occur due to unauthorized instructions. In addition, you should verify the accuracy of transactions immediately after you receive confirmation of them and notify T. Rowe Price of any inaccuracies.

163 T. ROWE PRICE ACCOUNT INFORMATION 23 Fund Operations and Shareholder Services T. Rowe Price and The Bank of New York Mellon, subject to the oversight of T. Rowe Price, each provide certain accounting services to the T. Rowe Price Funds. T. Rowe Price Services, Inc., acts as the transfer agent and dividend disbursing agent and provides shareholder and administrative services to the funds. These companies receive compensation from the funds for their services. These fees are included in a fund s financial statements. INFORMATION ON DISTRIBUTIONS AND TAXES Each fund intends to qualify to be treated each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code ). In order to qualify, a fund must satisfy certain income, diversification, and distribution requirements. A regulated investment company is not subject to U.S. federal income tax at the portfolio level on income and gains from investments that are distributed to shareholders. However, if a fund were to fail to qualify as a regulated investment company, and was ineligible to or otherwise did not cure such failure, the result would be fund-level taxation and, consequently, a reduction in income available for distribution to the fund s shareholders. For a discussion of the tax status of your variable annuity contract, please refer to the insurance contract prospectus. Any tax forms applicable to your investment will be provided to you by your insurance company. The policy of the funds is to distribute, to the extent possible, all net investment income and realized capital gains to its shareholders, which are the various insurance companies that have established separate accounts in connection with their issuance of variable annuity and variable life contracts. Any dividends from net investment income are declared daily and paid monthly for the Limited-Term Bond and Government Money Portfolios; declared and paid quarterly for the Equity Income, Equity Index 500, and Personal Strategy Balanced Portfolios; and declared and paid annually for all other Variable Insurance Portfolios. Shares of the Limited-Term Bond and Government Money Portfolios will normally earn dividends through the date of redemption. The funds do not pay dividends in fractional cents. Any dividend amount earned for a particular day on all shares held that is one-half of one cent or greater (for example, $0.016) will be rounded up to the next whole cent ($0.02), and any amount that is less than one-half of one cent (for example, $0.014) will be rounded down to the nearest whole cent ($0.01). Please note that if the dividend payable on all shares held is less than one-half of one cent for a particular day, no dividend will be earned for that day. If a fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December. If a second distribution is necessary, it is paid the following year. All fund distributions made to a separate account will be reinvested automatically in additional fund shares, unless a shareholder (separate account) elects to receive distributions in cash. Under current law, dividends and distributions made by the fund to separate accounts are generally not taxable to the separate accounts, the insurance company, or the contract holder, provided that the separate account meets the diversification requirements of Code Section 817(h) and other tax-related requirements are satisfied. Each of the Variable Insurance Funds intends to diversify its investments in the manner required under Code Section 817(h). RIGHTS RESERVED BY THE FUNDS T. Rowe Price Funds and their agents, in their sole discretion, reserve the following rights: (1) to waive or lower investment minimums; (2) to accept initial purchases by telephone; (3) to refuse any purchase or exchange order; (4) to cancel or rescind any purchase or exchange order placed through an intermediary no later than the business day after the order is received by the intermediary (including, but not limited to, orders deemed to result in excessive trading, market timing, or 5% ownership); (5) to cease offering fund shares at any time to all or certain groups of investors; (6) to freeze any account and suspend account services when notice has been received of a dispute regarding the ownership of the account, or a legal claim against an account, upon initial notification to T. Rowe Price of a shareholder s death until T. Rowe Price receives required documentation in correct form, or if there is reason to believe a fraudulent transaction may occur; (7) to otherwise modify the conditions of purchase and modify or terminate any services at any time; (8) to

164 T. ROWE PRICE 24 waive any wire fees charged to a group of shareholders; (9) to act on instructions reasonably believed to be genuine; (10) to involuntarily redeem an account at the net asset value calculated the day the account is redeemed, in cases of threatening conduct, suspected fraudulent or illegal activity, or if the fund or its agent is unable, through its procedures, to verify the identity of the person(s) or entity opening an account; and (11) for the money market funds, to suspend redemptions to facilitate an orderly liquidation. In an effort to protect T. Rowe Price Funds from the possible adverse effects of a substantial redemption in a large account, as a matter of general policy, no contract holder or participant or group of contract holders or participants controlled by the same person or group of persons will knowingly be permitted to purchase in excess of 5% of the outstanding shares of the fund, except upon approval by the fund s management.

165 A Statement of Additional Information for the T. Rowe Price family of funds, which includes additional information about the funds, has been filed with the SEC and is incorporated by reference into this prospectus. Further information about fund investments, including a review of market conditions and the manager s recent investment strategies and their impact on performance during the past fiscal year, is available in the annual and semiannual shareholder reports. To obtain free copies of any of these documents, or for shareholder inquiries, contact your insurance company. Certain documents and updated performance information are available through troweprice.com. Fund information and Statements of Additional Information are also available from the Public Reference Room of the SEC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at Fund reports and other fund information are available on the EDGAR Database on the SEC s Internet site at Copies of this information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Public Reference Room, U.S. Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C Act File No E /1/18

166 ULTRA SERIES FUND Prospectus - May 1, 2018 Target Allocation Funds Conservative Allocation Fund Moderate Allocation Fund Aggressive Allocation Fund Income Funds Core Bond Fund High Income Fund Diversified Income Fund Stock Funds Large Cap Value Fund Large Cap Growth Fund Mid Cap Fund International Stock Fund As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved the shares in these funds, nor does the Commission guarantee the accuracy or adequacy of the prospectus. Any statement to the contrary is a criminal offense.

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168 ULTRA SERIES FUND TABLE OF CONTENTS FUND SUMMARIES Conservative Allocation Fund... Moderate Allocation Fund... Aggressive Allocation Fund... Core Bond Fund... High Income Fund... Diversified Income Fund... Large Cap Value Fund... Large Cap Growth Fund... Mid Cap Fund... International Fund... ADDITIONAL RISKS... THE SHARES Offer... Pricing of Fund Shares... Purchase and Redemption... Conflicts... Distribution And Service Plan... Frequent Trading... Disclosure of Portfolio Holdings... Dividends... Taxes... INVESTMENT ADVISER... PORTFOLIO MANAGEMENT... FINANCIAL HIGHLIGHTS... MORE INFORMATION ABOUT ULTRA SERIES FUND Please note that an investment in any of these funds is not a deposit in a financial institution and is neither insured nor endorsed in any way by any financial institution or government agency.

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170 FUND SUMMARY CONSERVATIVE ALLOCATION FUND Investment Objective The Conservative Allocation Fund seeks income, capital appreciation and relative stability of value. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. Actual expenses may be greater or less than those shown. The expenses do not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Shareholder Fees: (fees paid directly from your investment) Class I Class II Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None None Maximum Deferred Sales Charge (as a percentage of amount redeemed) None None Redemption Fee Within 30 days of Purchase (as a percentage of amount redeemed) None None Annual Fund Operating Expenses: (expenses that you pay each year as a percentage of the value of your investment) Class I Class II Management Fees 0.30% 0.30% Distribution and/or Service (Rule 12b-1) Fees None 0.25% Other Expenses 0.02% 0.02% Acquired Fund Fees and Expenses % 0.48% Total Annual Fund Operating Expenses 0.80% 1.05% Less: Management Fee Waiver % -0.10% Net Annual Fund Operating Expenses (after fee waiver) % 0.95% 1 Acquired fund fees and expenses have been restated to reflect expenses expected to be incurred in the current fiscal year. 2 The investment adviser has contractually agreed to waive 0.10% of its management fee until at least April 30, The fee waiver may be terminated by the Board of Trustees of the fund at any time and for any reason; however, the Board has no intention of terminating this agreement in the next year. 3 Total annual fund operating expenses for the period ended December 31, 2017 do not match the financial statements because the financial statements do not include acquired fund fees and expenses. Example: The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the time periods indicated and then hold or redeem your shares at the end of the period. The example also assumes that your investment has a 5% return each year and that the fund s operating expenses remain the same (except that the Example incorporates the fee waiver described above for only the first year). Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 Year 3 Years 5 Years 10 Years Class I $72 $245 $434 $980 Class II ,274 The example does not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover may indicate higher transaction costs. These costs, which are not reflected in total annual fund operating expenses or in the expense examples above, affect the fund s performance. During the most recent fiscal year, the fund s portfolio turnover rate was 49% of the average value of its portfolio. 1

171 Principal Investment Strategies The fund invests primarily in shares of other registered investment companies (the underlying funds ). The fund will be diversified among a number of asset classes and its allocation among underlying funds will be based on an asset allocation model developed by Madison Asset Management, LLC ( Madison ), the fund s investment adviser. Under normal circumstances, the fund s total net assets will be allocated among various asset classes and underlying funds, including those whose shares trade on a stock exchange (exchange traded funds or ETFs ), with target allocations over time of approximately 35% equity investments (including foreign equity), and 65% fixed income investments. Underlying funds in which the fund invests may include funds advised by Madison and/or its affiliates, including the Madison Funds (the affiliated underlying funds ). Generally, Madison will not invest more than 75% of the fund s net assets, at the time of purchase, in affiliated underlying funds. Although actual allocations may vary, as of December 31, 2017, the fund's asset allocation was: - Bond Funds: 57.9% - Stock Funds: 24.1% - Foreign Stock Funds: 13.5% - Alternative Funds: 2.0% - Money Market Funds: 2.3% With regard to investments in debt securities, Madison s bias is toward securities with intermediate and short-term maturities. As of December 31, 2017, the weighted average duration of the fund s debt portfolio was 6.04 years. Madison may employ multiple analytical approaches to determine the appropriate asset allocation for the fund, including: Macroeconomic analysis. This approach analyzes high frequency economic and market data across the global markets in an effort to identify attractive investment opportunities in countries, regions and/or asset classes. Fundamental analysis. This approach reviews fundamental asset class valuation data to determine the absolute and relative attractiveness of existing and potential investment opportunities. Correlation analysis. This approach considers the degree to which returns in different asset classes do or do not move together, and the fund s aim to achieve a favorable overall risk and return profile. Scenario analysis. This approach analyzes historical and expected return data to model how individual asset classes and combinations of asset classes would affect the fund under different economic and market conditions. In addition, Madison has a flexible mandate which permits the fund, at the sole discretion of the manager, to materially reduce equity risk exposures when and if conditions are deemed to warrant such an action. The fund s investment strategy reflects Madison s general Participate and Protect investment philosophy. Madison s expectation is that investors in the fund will participate in market appreciation during bull markets and experience something less than full participation during bear markets compared with investors in portfolios holding more speculative and volatile securities; therefore, this investment philosophy is intended to represent a conservative investment strategy. There is no assurance that Madison s expectations regarding this investment strategy will be realized. Although the fund expects to pursue its investment objective utilizing its principal investment strategies regardless of market conditions, the fund may invest up to 100% in money market instruments. To the extent the fund engages in this temporary defensive position, the fund s ability to achieve its investment objective may be diminished. Principal Risks The specific risks of owning the fund are set forth below. You could lose money as a result of investing in the fund. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. The fund s share price and total return will fluctuate. You should consider your own investment goals, time horizon and risk tolerance before investing in the fund. Underlying Funds Risk. The fund is a fund of funds, meaning that it invests primarily in the shares of underlying funds, including ETFs. Thus, the fund s investment performance and its ability to achieve its investment goal are directly related to the performance of the underlying funds in which it invests. Each underlying fund s performance, in turn, depends on the particular securities in which that underlying fund invests and the expenses of that underlying fund. Accordingly, the fund is subject to the risks of the underlying funds in direct proportion to the allocation of its assets among the underlying funds. Asset Allocation Risk. The fund is subject to asset allocation risk, which is the risk that the selection of the underlying funds and the allocation of the fund s assets among the various asset classes and market segments will cause the fund to underperform other funds with a similar investment objective. 2

172 Market Risk. While the majority of the fund s assets will typically be invested in underlying funds that invest primarily in debt securities, to the extent that the fund invests in underlying funds that invest in equities, the fund is subject to market risk, which is the risk that the value of an investment may fluctuate in response to stock market movements. Interest Rate Risk. The fund, through the underlying funds, is subject to interest rate risk, which is the risk that the value of your investment will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the market value of income-bearing securities. When interest rates rise, bond prices fall; generally, the longer a bond s maturity, the more sensitive it is to this risk. The risks associated with increasing rates are heightened given that interest rates are near historical lows, but may be expected to increase in the future with unpredictable effects on the markets and the underlying fund's investments. Credit and Prepayment/Extension Risk. The fund, through the underlying funds, is also subject to credit risk, which is the risk that issuers of debt securities may be unable to meet their interest or principal payment obligations when due. There is also prepayment/extension risk, which is the chance that a rise/fall in interest rates will reduce/extend the life of a mortgage-backed security by increasing/decreasing mortgage prepayments, typically reducing the underlying fund s return. Non-Investment Grade Security Risk. The fund, through the underlying funds, may invest in non-investment grade securities (i.e., junk bonds). Issuers of non-investment grade securities are typically in weak financial health and their ability to pay interest and principal is uncertain. Compared to issuers of investment-grade bonds, they are more likely to encounter financial difficulties and to be materially affected by these difficulties when they do encounter them. Junk bond markets may react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news. Equity Risk. The fund, through the underlying funds, is subject to equity risk. Equity risk is the risk that securities held by the fund will fluctuate in value due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the fund participate, and the particular circumstances and performance of particular companies whose securities the fund holds. In addition, while broad market measures of common stocks have historically generated higher average returns than fixed income securities, common stocks have also experienced significantly more volatility in those returns. ETF Risks. The main risks of investing in ETFs are the same as investing in a portfolio of equity securities comprising the index on which the ETF is based, although lack of liquidity in an ETF could result in it being more volatile than the securities comprising the index. Additionally, the market prices of ETFs will fluctuate in accordance with both changes in the market value of their underlying portfolio securities and due to supply and demand for the instruments on the exchanges on which they are traded (which may result in their trading at a discount or premium to their net asset values). Index-based ETF investments may not replicate exactly the performance of their specific index because of transaction costs and because of the temporary unavailability of certain component securities of the index. Foreign Security and Emerging Market Risk. Investments of underlying funds that invest in foreign securities involve risks relating to currency fluctuations and to political, social and economic developments abroad, as well as risks resulting from differences between the regulations to which U.S. and foreign issuers and markets are subject. These risks may be greater in emerging markets. The investment markets of emerging countries are generally more volatile than markets of developed countries with more mature economies. Performance The following bar chart and table provide some indication of the risks of investing in the fund. The bar chart shows how the fund s investment results have varied from year to year. The table shows the fund s average annual total returns for various periods compared to a broad market index, as well as a custom index that reflects the fund s asset allocation targets. Neither the bar chart nor the table reflects charges deducted in connection with variable contracts. If these charges were reflected, returns would be less than those shown. The fund s past performance is not necessarily an indication of its future performance. Updated performance information current to the most recent month-end is available at no cost by visiting or by calling The investment adviser waived 0.10% of the 0.30% annualized management fee for the period June 30, 2006 through April 30, 2008, and for the period July 1, 2014 through December 31, If the management fee had not been waived, returns would have been lower. 3

173 Calendar Year Total Returns for Class I Shares Best Calendar Quarter: 2Q % Worst Calendar Quarter: 4Q % Average Annual Total Returns For Periods Ended December 31, Year 5 Years 10 Years Since Inception 5/1/2009 Class I Shares 10.17% 5.64% 4.39% N/A Class II Shares 9.90% 5.38% N/A 7.05% ICE BofAML U.S. Corporate, Government & Mortgage Index (reflects no deduction 3.63% 2.13% 4.06% 3.95% for sales charges, account fees, expenses or taxes) Conservative Allocation Fund Custom Index (reflects no deduction for sales charges, account fees, expenses or taxes) 10.00% 5.90% 5.23% 7.66% The Conservative Allocation Fund Custom Index consists of 65% Bloomberg Barclays U.S. Aggregate Bond Index, 24.5% Russell 3000 Index, and 10.5% MSCI ACWI ex-usa Index. Portfolio Management The investment adviser to the fund is Madison Asset Management, LLC. David Hottmann, CPA and CFA (Vice President, Portfolio Manager) and Patrick Ryan, CFA (Vice President, Portfolio Manager) co-manage the fund. Mr. Hottmann has served in this capacity since September 2009, and Mr. Ryan has served in this capacity since January Purchase and Sale of Fund Shares Class I and II shares of the fund are offered to separate accounts of CMFG Life Insurance Company (f/k/a CUNA Mutual Insurance Society) ( CMFG Life Accounts ), while Class I shares are also offered to certain of its pension plans ( CMFG Life Plans ). Investments in the fund by CMFG Life Accounts are made through variable annuity or variable life insurance contracts (collectively, variable contracts ). Purchase or redemption orders under the variable contracts and CMFG Life Plans will be invested or redeemed (without sales or redemption charges) in shares of the fund at the net asset value next determined after the fund receives the order. Please refer to the variable contract prospectus or plan documents for further information. Tax Information The fund generally distributes most or all of its net investment income and net capital gains. Net capital gain distributions, if any, are typically made in December. Net investment income distributions are declared and paid annually. Distributions that a CMFG Life Account or CMFG Life Plan receives from the fund should not be taxable, nor should gains realized upon the sale or redemption of fund shares, until such distributions or gains are withdrawn from the variable contract or CMFG Life Plan. Please refer to the variable contract prospectus or plan documents for further information. Payments to Broker-Dealers and Other Financial Intermediaries If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as financial adviser), the fund and the fund s distributor or its affiliates may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your individual financial adviser to recommend the fund over another investment. Ask your individual financial adviser or visit your financial intermediary s website for more information. 4

174 FUND SUMMARY MODERATE ALLOCATION FUND Investment Objective The Moderate Allocation Fund seeks capital appreciation, income and moderate market risk. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. Actual expenses may be greater or less than those shown. The expenses do not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Shareholder Fees: (fees paid directly from your investment) Class I Class II Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None None Maximum Deferred Sales Charge (as a percentage of amount redeemed) None None Redemption Fee Within 30 days of Purchase (as a percentage of amount redeemed) None None Annual Fund Operating Expenses: (expenses that you pay each year as a percentage of the value of your investment) Class I Class II Management Fees 0.30% 0.30% Distribution and/or Service (Rule 12b-1) Fees None 0.25% Other Expenses 0.02% 0.02% Acquired Fund Fees and Expenses % 0.51% Total Annual Fund Operating Expenses 0.83% 1.08% Less: Management Fee Waiver % -0.10% Net Annual Fund Operating Expenses (after fee waiver) % 0.98% 1 Acquired fund fees and expenses have been restated to reflect expenses expected to be incurred in the current fiscal year. 2 The investment adviser has contractually agreed to waive 0.10% of its management fee until at least April 30, The fee waiver may be terminated by the Board of Trustees of the fund at any time and for any reason; however, the Board has no intention of terminating this agreement in the next year. 3 Total annual fund operating expenses for the period ended December 31, 2017 do not match the financial statements because the financial statements do not include acquired fund fees and expenses. Example: The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the time periods indicated and then hold or redeem your shares at the end of the period. The example also assumes that your investment has a 5% return each year and that the fund s operating expenses remain the same (except that the Example incorporates the fee waiver described above for only the first year). Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 Year 3 Years 5 Years 10 Years Class I $75 $255 $451 $1,016 Class II ,308 The example does not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover may indicate higher transaction costs. These costs, which are not reflected in total annual fund operating expenses or in the expense examples above, affect the fund s performance. During the most recent fiscal year, the fund s portfolio turnover rate was 39% of the average value of its portfolio. 5

175 Principal Investment Strategies The fund invests primarily in shares of other registered investment companies (the underlying funds ). The fund will be diversified among a number of asset classes and its allocation among underlying funds will be based on an asset allocation model developed by Madison Asset Management, LLC ( Madison ), the fund s investment adviser. Under normal circumstances, the fund s total net assets will be allocated among various asset classes and underlying funds, including those whose shares trade on a stock exchange (exchange traded funds or ETFs ), with target allocations over time of approximately 60% equity investments (including foreign equity) and 40% fixed income investments. Underlying funds in which the fund invests may include funds advised by Madison and/or its affiliates, including the Madison Funds (the affiliated underlying funds ). Generally, Madison will not invest more than 75% of the fund s net assets, at the time of purchase, in affiliated underlying funds. Although actual allocations may vary, as of December 31, 2017, the fund's asset allocation was: - Stocks Funds: 39.7% - Bond Funds: 33.7% - Foreign Stock Funds: 23.3% - Alternative Funds: 2.0% - Money Market Funds: 1.2% With regard to investments in debt securities, Madison s bias is toward securities with intermediate and short-term maturities. As of December 31, 2017, the weighted average duration of the fund s debt portfolio was 6.68 years. Madison may employ multiple analytical approaches to determine the appropriate asset allocation for the fund, including: Macroeconomic analysis. This approach analyzes high frequency economic and market data across the global markets in an effort to identify attractive investment opportunities in countries, regions and/or asset classes. Fundamental analysis. This approach reviews fundamental asset class valuation data to determine the absolute and relative attractiveness of existing and potential investment opportunities. Correlation analysis. This approach considers the degree to which returns in different asset classes do or do not move together, and the fund s aim to achieve a favorable overall risk and return profile. Scenario analysis. This approach analyzes historical and expected return data to model how individual asset classes and combinations of asset classes would affect the fund under different economic and market conditions. In addition, Madison has a flexible mandate which permits the fund, at the sole discretion of the manager, to materially reduce equity risk exposures when and if conditions are deemed to warrant such an action. The fund s investment strategy reflects Madison s general Participate and Protect investment philosophy. Madison s expectation is that investors in the fund will participate in market appreciation during bull markets and experience something less than full participation during bear markets compared with investors in portfolios holding more speculative and volatile securities; therefore, this investment philosophy is intended to represent a conservative investment strategy. There is no assurance that Madison s expectations regarding this investment strategy will be realized. Although the fund expects to pursue its investment objective utilizing its principal investment strategies regardless of market conditions, the fund may invest up to 100% in money market instruments. To the extent the fund engages in this temporary defensive position, the fund s ability to achieve its investment objective may be diminished. Principal Risks The specific risks of owning the fund are set forth below. You could lose money as a result of investing in the fund. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. The fund s share price and total return will fluctuate. You should consider your own investment goals, time horizon and risk tolerance before investing in the fund. Underlying Funds Risk. The fund is a fund of funds, meaning that it invests primarily in the shares of underlying funds, including ETFs. Thus, the fund s investment performance and its ability to achieve its investment goal are directly related to the performance of the underlying funds in which it invests. Each underlying fund s performance, in turn, depends on the particular securities in which that underlying fund invests and the expenses of that underlying fund. Accordingly, the fund is subject to the risks of the underlying funds in direct proportion to the allocation of its assets among the underlying funds. Asset Allocation Risk. The fund is subject to asset allocation risk, which is the risk that the selection of the underlying funds and the allocation of the fund s assets among the various asset classes and market segments will cause the fund to underperform other funds with a similar investment objective. 6

176 Market Risk. The fund, through the underlying funds, is subject to market risk, which is the risk that the value of an investment may fluctuate in response to stock market movements. Certain of the underlying funds may invest in the equity securities of smaller companies, which may fluctuate more in value and be more thinly traded than the general market. Equity Risk. The fund, through the underlying funds, is subject to equity risk. Equity risk is the risk that securities held by the fund will fluctuate in value due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the fund participate, and the particular circumstances and performance of particular companies whose securities the fund holds. In addition, while broad market measures of common stocks have historically generated higher average returns than fixed income securities, common stocks have also experienced significantly more volatility in those returns. Interest Rate Risk. The fund, through the underlying funds, is subject to interest rate risk, which is the risk that the value of your investment will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the market value of income-bearing securities. When interest rates rise, bond prices fall; generally, the longer a bond s maturity, the more sensitive it is to this risk. The risks associated with increasing rates are heightened given that interest rates are near historical lows, but may be expected to increase in the future with unpredictable effects on the markets and the underlying fund's investments. Credit and Prepayment/Extension Risk. The fund, through the underlying funds, is also subject to credit risk, which is the risk that issuers of debt securities may be unable to meet their interest or principal payment obligations when due. There is also prepayment/extension risk, which is the chance that a rise/fall in interest rates will reduce/extend the life of a mortgage-backed security by increasing/decreasing mortgage prepayments, typically reducing the underlying fund s return. Non-Investment Grade Security Risk. The fund, through the underlying funds, may invest in non-investment grade securities (i.e., junk bonds). Issuers of non-investment grade securities are typically in weak financial health and their ability to pay interest and principal is uncertain. Compared to issuers of investment grade bonds, they are more likely to encounter financial difficulties and to be materially affected by these difficulties when they do encounter them. Junk bond markets may react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news. ETF Risks. The main risks of investing in ETFs are the same as investing in a portfolio of equity securities comprising the index on which the ETF is based, although lack of liquidity in an ETF could result in it being more volatile than the securities comprising the index. Additionally, the market prices of ETFs will fluctuate in accordance with both changes in the market value of their underlying portfolio securities and due to supply and demand for the instruments on the exchanges on which they are traded (which may result in their trading at a discount or premium to their net asset values). Index-based ETF investments may not replicate exactly the performance of their specific index because of transaction costs and because of the temporary unavailability of certain component securities of the index. Foreign Security and Emerging Market Risk. Investments in foreign securities involve risks relating to currency fluctuations and to political, social and economic developments abroad, as well as risks resulting from differences between the regulations to which U.S. and foreign issuers and markets are subject. These risks may be greater in emerging markets. The investment markets of emerging countries are generally more volatile than markets of developed countries with more mature economies. Performance The following bar chart and table provide some indication of the risks of investing in the fund. The bar chart shows how the fund s investment results have varied from year to year. The table shows the fund s average annual total returns for various periods compared to a broad market index, as well as a custom index that reflects the fund s asset allocation targets. Neither the bar chart nor the table reflects charges deducted in connection with variable contracts. If these charges were reflected, returns would be less than those shown. The fund s past performance is not necessarily an indication of its future performance. Updated performance information current to the most recent month-end is available at no cost by visiting or by calling The investment adviser waived 0.10% of the 0.30% annualized management fee for the period June 30, 2006 through April 30, 2008, and for the period July 1, 2014 through December 31, If the management fee had not been waived, returns would have been lower. 7

177 Calendar Year Total Returns for Class I Shares Best Calendar Quarter: 2Q % Worst Calendar Quarter: 4Q % Average Annual Total Returns For Periods Ended December 31, Year 5 Years 10 Years Since Inception 5/1/2009 Class I Shares 14.80% 8.58% 4.67% N/A Class II Shares 14.52% 8.31% N/A 9.44% S&P 500 Index (reflects no deduction for sales charges, account fees, expenses or taxes) 21.83% 15.79% 8.50% 16.15% Moderate Allocation Fund Custom Index (reflects no deduction for sales charges, account fees, expenses or taxes) 14.84% 8.61% 5.91% 10.22% The Moderate Allocation Fund Custom Index consists of 42% Russell 3000 Index, 40% Bloomberg Barclays U.S. Aggregate Bond Index and 18% MSCI ACWI ex-usa Index. Portfolio Management The investment adviser to the fund is Madison Asset Management, LLC. David Hottmann, CPA and CFA (Vice President, Portfolio Manager) and Patrick Ryan, CFA (Vice President, Portfolio Manager) co-manage the fund. Mr. Hottmann has served in this capacity since September 2009, and Mr. Ryan has served in this capacity since January Purchase and Sale of Fund Shares Class I and II shares of the fund are offered to separate accounts of CMFG Life Insurance Company (f/k/a CUNA Mutual Insurance Society) ( CMFG Life Accounts ), while Class I shares are also offered to certain of its pension plans ( CMFG Life Plans ). Investments in the fund by CMFG Life Accounts are made through variable annuity or variable life insurance contracts (collectively, variable contracts ). Purchase or redemption orders under the variable contracts and CMFG Life Plans will be invested or redeemed (without sales or redemption charges) in shares of the fund at the net asset value next determined after the fund receives the order. Please refer to the variable contract prospectus or plan documents for further information. Tax Information The fund generally distributes most or all of its net investment income and net capital gains. Net capital gain distributions, if any, are typically made in December. Net investment income distributions are declared and paid annually. Distributions that a CMFG Life Account or CMFG Life Plan receives from the fund should not be taxable, nor should gains realized upon the sale or redemption of fund shares, until such distributions or gains are withdrawn from the variable contract or CMFG Life Plan. Please refer to the variable contract prospectus or plan documents for further information. Payments to Broker-Dealers and Other Financial Intermediaries If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a financial adviser), the fund and the fund s distributor or its affiliates may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your individual financial adviser to recommend the fund over another investment. Ask your individual financial adviser or visit your financial intermediary s website for more information. 8

178 FUND SUMMARY AGGRESSIVE ALLOCATION FUND Investment Objective The Aggressive Allocation Fund seeks capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. Actual expenses may be greater or less than those shown. The expenses do not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Shareholder Fees: (fees paid directly from your investment) Class I Class II Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None None Maximum Deferred Sales Charge (as a percentage of amount redeemed) None None Redemption Fee Within 30 days of Purchase (as a percentage of amount redeemed) None None Annual Fund Operating Expenses: (expenses that you pay each year as a percentage of the value of your investment) Class I Class II Management Fees 0.30% 0.30% Distribution and/or Service (Rule 12b-1) Fees None 0.25% Other Expenses 0.02% 0.02% Acquired Fund Fees and Expenses % 0.51% Total Annual Fund Operating Expenses 0.83% 1.08% Less: Management Fee Waiver % -0.10% Net Annual Fund Operating Expenses (after fee waiver) % 0.98% 1 Acquired fund fees and expenses have been restated to reflect expenses expected to be incurred in the current fiscal year. 2 The investment adviser has contractually agreed to waive 0.10% of its management fee until at least April 30, The fee waiver may be terminated by the Board of Trustees of the fund at any time and for any reason; however, the Board has no intention of terminating this agreement in the next year. 3 Total annual fund operating expenses for the period ended December 31, 2017 do not match the financial statements because the financial statements do not include acquired fund fees and expenses. Example: The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the time periods indicated and then hold or redeem your shares at the end of the period. The example also assumes that your investment has a 5% return each year and that the fund s operating expenses remain the same (except that the Example incorporates the fee waiver described above for only the first year). Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 Year 3 Years 5 Years 10 Years Class I $75 $255 $451 $1,016 Class II ,308 The example does not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover may indicate higher transaction costs. These costs, which are not reflected in total annual fund operating expenses or in the expense examples above, affect the fund s performance. During the most recent fiscal year, the fund s portfolio turnover rate was 36% of the average value of its portfolio. 9

179 Principal Investment Strategies The fund invests primarily in shares of other registered investment companies (the underlying funds ). The fund will be diversified among a number of asset classes and its allocation among underlying funds will be based on an asset allocation model developed by Madison Asset Management, LLC ( Madison ), the fund s investment adviser. Under normal circumstances, the fund s total net assets will be allocated among various asset classes and underlying funds, including those whose shares trade on a stock exchange (exchange traded funds or ETFs ), with target allocations over time of approximately 80% equity investments (including foreign equity) and 20% fixed income investments. Underlying funds in which the fund invests may include funds advised by Madison and/or its affiliates, including the Madison Funds (the affiliated underlying funds ). Generally, Madison will not invest more than 75% of the fund s net assets, at the time of purchase, in affiliated underlying funds. Although actual allocations may vary, as of December 31, 2017, the fund s asset allocation was: - Stocks Funds: 51.5% - Foreign Stock Funds: 31.2% - Bond Funds: 13.7% - Alternative Funds: 2.0% - Money Market Funds: 1.4% With regard to investments in debt securities, Madison s bias is toward securities with intermediate and short-term maturities. As of December 31, 2017, the weighted average duration of the fund s debt portfolio was 7.42 years. Madison may employ multiple analytical approaches to determine the appropriate asset allocation for the fund, including: Macroeconomic analysis. This approach analyzes high frequency economic and market data across the global markets in an effort to identify attractive investment opportunities in countries, regions and/or asset classes. Fundamental analysis. This approach reviews fundamental asset class valuation data to determine the absolute and relative attractiveness of existing and potential investment opportunities. Correlation analysis. This approach considers the degree to which returns in different asset classes do or do not move together, and the fund s aim to achieve a favorable overall risk and return profile. Scenario analysis. This approach analyzes historical and expected return data to model how individual asset classes and combinations of asset classes would affect the fund under different economic and market conditions. In addition, Madison has a flexible mandate which permits the fund, at the sole discretion of the manager, to materially reduce equity risk exposures when and if conditions are deemed to warrant such an action. The fund s investment strategy reflects Madison s general Participate and Protect investment philosophy. Madison s expectation is that investors in the fund will participate in market appreciation during bull markets and experience something less than full participation during bear markets compared with investors in portfolios holding more speculative and volatile securities; therefore, this investment philosophy is intended to represent a conservative investment strategy. There is no assurance that Madison s expectations regarding this investment strategy will be realized. Although the fund expects to pursue its investment objective utilizing its principal investment strategies regardless of market conditions, the fund may invest up to 100% in money market instruments. To the extent the fund engages in this temporary defensive position, the fund s ability to achieve its investment objective may be diminished. Principal Risks The specific risks of owning the fund are set forth below. You could lose money as a result of investing in the fund. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. The fund s share price and total return will fluctuate. You should consider your own investment goals, time horizon and risk tolerance before investing in the fund. Underlying Funds Risk. The fund is a fund of funds, meaning that it invests primarily in the shares of underlying funds, including ETFs. Thus, the fund s investment performance and its ability to achieve its investment goal are directly related to the performance of the underlying funds in which it invests. Each underlying fund s performance, in turn, depends on the particular securities in which that underlying fund invests and the expenses of that underlying fund. Accordingly, the fund is subject to the risks of the underlying funds in direct proportion to the allocation of its assets among the underlying funds. Asset Allocation Risk. The fund is subject to asset allocation risk, which is the risk that the selection of the underlying funds and the allocation of the fund s assets among the various asset classes and market segments will cause the fund to underperform other funds with a similar investment objective. 10

180 Market Risk. The fund, through the underlying funds, is subject to market risk, which is the risk that the value of an investment may fluctuate in response to stock market movements. Certain of the underlying funds may invest in the equity securities of smaller companies, which may fluctuate more in value and be more thinly traded than the general market. Equity Risk. The fund, through the underlying funds, is subject to equity risk. Equity risk is the risk that securities held by the fund will fluctuate in value due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the fund participate, and the particular circumstances and performance of particular companies whose securities the fund holds. In addition, while broad market measures of common stocks have historically generated higher average returns than fixed income securities, common stocks have also experienced significantly more volatility in those returns. Interest Rate Risk. To the extent that the fund invests in underlying funds that invest in debt securities, the fund will be subject to interest rate risk, which is the risk that the value of your investment will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the market value of income-bearing securities. When interest rates rise, bond prices fall; generally, the longer a bond s maturity, the more sensitive it is to this risk. The risks associated with increasing rates are heightened given that interest rates are near historical lows, but may be expected to increase in the future with unpredictable effects on the markets and the underlying fund's investments. Credit and Prepayment/Extension Risk. The fund, through the underlying funds, is also subject to credit risk, which is the risk that issuers of debt securities may be unable to meet their interest or principal payment obligations when due. There is also prepayment/extension risk, which is the chance that a rise/fall in interest rates will reduce/extend the life of a mortgage-backed security by increasing/decreasing mortgage prepayments, typically reducing the underlying fund s return. Non-Investment Grade Security Risk. The fund, through the underlying funds, may invest in non-investment grade securities (i.e., junk bonds). Issuers of non-investment grade securities are typically in weak financial health and their ability to pay interest and principal is uncertain. Compared to issuers of investment grade bonds, they are more likely to encounter financial difficulties and to be materially affected by these difficulties when they do encounter them. Junk bond markets may react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news. ETF Risks. The main risks of investing in ETFs are the same as investing in a portfolio of equity securities comprising the index on which the ETF is based, although lack of liquidity in an ETF could result in it being more volatile than the securities comprising the index. Additionally, the market prices of ETFs will fluctuate in accordance with both changes in the market value of their underlying portfolio securities and due to supply and demand for the instruments on the exchanges on which they are traded (which may result in their trading at a discount or premium to their net asset values). Index-based ETF investments may not replicate exactly the performance of their specific index because of transaction costs and because of the temporary unavailability of certain component securities of the index. Foreign Security and Emerging Market Risk. Investments in foreign securities involve risks relating to currency fluctuations and to political, social and economic developments abroad, as well as risks resulting from differences between the regulations to which U.S. and foreign issuers and markets are subject. These risks may be greater in emerging markets. The investment markets of emerging countries are generally more volatile than markets of developed countries with more mature economies. Performance The following bar chart and table provide some indication of the risks of investing in the fund. The bar chart shows how the fund s investment results have varied from year to year. The table shows the fund s average annual total returns for various periods compared to a broad market index, as well as a custom index that reflects the fund s asset allocation targets. Neither the bar chart nor the table reflects charges deducted in connection with variable contracts. If these charges were reflected, returns would be less than those shown. The fund s past performance is not necessarily an indication of its future performance. Updated performance information current to the most recent month-end is available at no cost by visiting or by calling The investment adviser waived 0.10% of the 0.30% annualized management fee for the period June 30, 2006 through April 30, 2008, and for the period July 1, 2014 through December 31, If the management fee had not been waived, returns would have been lower. 11

181 Calendar Year Total Returns for Class I Shares Best Calendar Quarter: 2Q % Worst Calendar Quarter: 4Q % Average Annual Total Returns For Periods Ended December 31, Year 5 Years 10 Years Since Inception 5/1/2009 Class I Shares 18.52% 10.90% 4.62% N/A Class II Shares 18.22% 10.62% N/A 11.44% S&P 500 Index (reflects no deduction for sales charges, account fees, expenses or taxes) 21.83% 15.79% 8.50% 16.15% Aggressive Allocation Fund Custom Index (reflects no deduction for sales charges, account fees, expenses or taxes) 18.83% 10.78% 6.32% 12.23% The Aggressive Allocation Fund Custom Index consists of 56% Russell 3000 Index, 24% MSCI ACWI ex-usa Index and 20% Bloomberg Barclays U.S. Aggregate Bond Index. Portfolio Management The investment adviser to the fund is Madison Asset Management, LLC. David Hottmann, CPA and CFA (Vice President, Portfolio Manager) and Patrick Ryan, CFA (Vice President, Portfolio Manager) co-manage the fund. Mr. Hottmann has served in this capacity since September 2009, and Mr. Ryan has served in this capacity since January Purchase and Sale of Fund Shares Class I and II shares of the fund are offered to separate accounts of CMFG Life Insurance Company (f/k/a CUNA Mutual Insurance Society) ( CMFG Life Accounts ), while Class I shares are also offered to certain of its pension plans ( CMFG Life Plans ). Investments in the fund by CMFG Life Accounts are made through variable annuity or variable life insurance contracts (collectively, variable contracts ). Purchase or redemption orders under the variable contracts and CMFG Life Plans will be invested or redeemed (without sales or redemption charges) in shares of the fund at the net asset value next determined after the fund receives the order. Please refer to the variable contract prospectus or plan documents for further information. Tax Information The fund generally distributes most or all of its net investment income and net capital gains. Net capital gain distributions, if any, are typically made in December. Net investment income distributions are declared and paid annually. Distributions that a CMFG Life Account or CMFG Life Plan receives from the fund should not be taxable, nor should gains realized upon the sale or redemption of fund shares, until such distributions or gains are withdrawn from the variable contract or CMFG Life Plan. Please refer to the variable contract prospectus or plan documents for further information. Payments to Broker-Dealers and Other Financial Intermediaries If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a financial adviser), the fund and the fund s distributor or its affiliates may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your individual financial adviser to recommend the fund over another investment. Ask your individual financial adviser or visit your financial intermediary s website for more information. 12

182 FUND SUMMARY CORE BOND FUND Investment Objective The Core Bond Fund seeks to generate a high level of current income, consistent with the prudent limitation of investment risk. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. Actual expenses may be greater or less than those shown. The expenses do not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Shareholder Fees: (fees paid directly from your investment) Class I Class II Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None None Maximum Deferred Sales Charge (as a percentage of amount redeemed) None None Redemption Fee Within 30 days of Purchase (as a percentage of amount redeemed) None None Annual Fund Operating Expenses: (expenses that you pay each year as a percentage of the value of your investment) Class I Class II Management Fees 0.55% 0.55% Distribution and/or Service (Rule 12b-1) Fees None 0.25% Other Expenses 0.02% 0.02% Total Annual Fund Operating Expenses 0.57% 0.82% Example: The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the time periods indicated and then hold or redeem your shares at the end of the period. The example also assumes that your investment has a 5% return each year and that the fund s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 Year 3 Years 5 Years 10 Years Class I $58 $183 $318 $714 Class II ,014 The example does not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover may indicate higher transaction costs. These costs, which are not reflected in total annual fund operating expenses or in the expense examples above, affect the fund s performance. During the most recent fiscal year, the fund s portfolio turnover rate was 16% of the average value of its portfolio. Principal Investment Strategies Under normal market conditions, the fund invests at least 80% of its net assets (including borrowings for investment purposes) in bonds. To keep current income relatively stable and to limit share price volatility, the fund emphasizes investment grade securities and maintains an intermediate (typically 3-7 year) average portfolio duration, with the goal of being between % of the market benchmark duration (for this purpose, the benchmark used is the Bloomberg Barclays U.S. Aggregate Bond Index, the duration of which as of December 31, 2017 was 5.97 years). Duration is an approximation of the expected change in a debt security s price given a 1% move in interest rates, using the following formula: [change in debt security value = (change in interest rates) x (duration) x (-1)]. By way of example, assume XYZ company issues a five year bond which has a duration of 4.5 years. If interest rates were to instantly increase by 1%, the bond would be expected to decrease in value by approximately 4.5%. The fund is managed so that, under normal market conditions, the weighted average life of the fund will be 10 years or less. The weighted average life of the fund as of December 31, 2017 was 7.48 years. The fund strives to add incremental return in the portfolio by making strategic decisions relating to credit risk, sector exposure and yield curve positioning. The fund generally holds individual securities in its portfolio at any given time and may invest in the following instruments: 13

183 Corporate debt securities: securities issued by domestic and foreign (including emerging market) corporations which have a rating within the four highest categories and, to a limited extent (up to 20% of its assets), in securities not rated within the four highest categories (i.e., junk bonds ). The fund s investment adviser, Madison Asset Management, LLC ( Madison ), will only invest in lower-grade securities when it believes that the creditworthiness of the issuer is stable or improving, and when the potential return of investing in such securities justifies the higher level of risk; U.S. Government debt securities: securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities; Foreign government debt securities: securities issued or guaranteed by a foreign (including emerging market) government or its agencies or instrumentalities, payable in U.S. dollars, which have a rating within the four highest categories; Non-rated debt securities: securities issued or guaranteed by corporations, financial institutions, and others which, although not rated by a national rating service, are considered by Madison to have an investment quality equivalent to those categories in which the fund is permitted to invest (including up to 20% of the fund s assets in junk bonds); and Asset-backed, mortgage-backed and commercial mortgage-backed securities: securities issued or guaranteed by special purpose corporations and financial institutions which represent direct or indirect participation in, or are collateralized by, an underlying pool of assets. The types of assets that can be securitized include, among others, residential or commercial mortgages, credit card receivables, automobile loans, and other assets. Madison may alter the composition of the fund with regard to quality and maturity and may sell securities prior to maturity. Under normal market conditions, however, turnover for the fund is generally not expected to exceed 100%. Sales of fund securities may result in capital gains. This can occur any time Madison sells a bond at a price that was higher than the purchase price, even if Madison does not engage in active or frequent trading. Madison s intent when it sells bonds is to lock in any gains already achieved by that investment or, alternatively, prevent additional or potential losses that could occur if Madison continued to hold the bond. Turnover may also occur when Madison finds an investment that could generate a higher return than the investment currently held. However, increasing portfolio turnover at a time when Madison s assessment of market performance is incorrect could lower investment performance. The fund pays implied brokerage commissions when it purchases or sells bonds, which is the difference between the bid and ask price. As a result, as portfolio turnover increases, the cumulative effect of this may hurt fund performance. Under normal market conditions, the fund will not engage in active or frequent trading of its bonds. However, it is possible that Madison will determine that market conditions require a significant change to the composition of the fund s portfolio. For example, if interest rates begin to rise, Madison may attempt to sell bonds in anticipation of further rate increases before they lose more value. Also, if the fund experiences large swings in shareholder purchases and redemptions, Madison may be required to sell bonds more frequently in order to generate the cash needed to pay redeeming shareholders. Madison reserves the right to invest a portion of the fund s assets in short-term debt securities (i.e., those with maturities of one year or less) and to maintain a portion of fund assets in uninvested cash. However, Madison does not intend to hold more than 35% of the fund s assets in such investments, unless Madison determines that market conditions warrant a temporary defensive investment position. Under such circumstances, up to 100% of the fund may be so invested. To the extent the fund engages in this temporary defensive position, the fund s ability to achieve its investment objective may be diminished. Short-term investments may include investment grade certificates of deposit, commercial paper and repurchase agreements. Madison might hold substantial cash reserves in seeking to reduce the fund s exposure to bond price depreciation during a period of rising interest rates and to maintain desired liquidity while awaiting more attractive investment conditions in the bond market. The fund s investment strategy reflects Madison s general Participate and Protect investment philosophy. Madison s expectation is that investors in the fund will participate in market appreciation during bull markets and experience something less than full participation during bear markets compared with investors in portfolios holding more speculative and volatile securities; therefore, this investment philosophy is intended to represent a conservative investment strategy. There is no assurance that Madison s expectations regarding this investment strategy will be realized. Principal Risks The specific risks of owning the fund are set forth below. You could lose money as a result of investing in the fund. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. The fund s share price and total return will fluctuate. You should consider your own investment goals, time horizon and risk tolerance before investing in the fund. Interest Rate Risk. As with most income funds, the fund is subject to interest rate risk, which is the risk that the value of your investment will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the market value of income bearing securities. When interest rates rise, bond prices fall; generally, the longer the bond s maturity, the more sensitive it is to this risk. The risks associated with increasing rates are heightened given that interest rates are still very low despite recent rate increases, but may be expected to increase in the future with unpredictable effects on the markets and the fund's investments. 14

184 Call Risk. If a bond issuer calls a bond held by the fund (i.e., pays it off at a specified price before it matures), the fund could have to reinvest the proceeds at a lower interest rate. It may also experience a loss if the bond is called at a price lower than what the fund paid for the bond. Risk of Default. Although the fund s investment adviser monitors the condition of bond issuers, it is still possible that unexpected events could cause the issuer to be unable to pay either principal or interest on its bond. This could cause the bond to go into default and lose value. Some federal agency securities are not backed by the full faith and credit of the United States, so in the event of default, the fund would have to look to the agency issuing the bond for ultimate repayment. Mortgage-Backed Securities Risk. The fund may own obligations backed by mortgages issued by a government agency or through a government-sponsored program. If the mortgage holders prepay principal during a period of falling interest rates, the fund could be exposed to prepayment risk. In that case, the fund would have to reinvest the proceeds at a lower interest rate. The security itself may not increase in value with the corresponding drop in rates since the prepayment acts to shorten the maturity of the security. Liquidity Risk. The fund is also subject to liquidity risk, which means there may be little or no trading activity for the debt securities in which the fund invests, and that may make it difficult for the fund to value accurately and/or sell those securities. In addition, liquid debt securities in which the fund invests are subject to the risk that during certain periods their liquidity will shrink or disappear suddenly and without warning as a result of adverse economic, regulatory or market conditions, or adverse investor perceptions. If the fund experiences rapid, large redemptions during a period in which a substantial portion of its debt securities are illiquid, the fund may be forced to sell those securities at a discount, which could result in significant fund and shareholder losses. Credit Risk and Prepayment/Extension Risk. The fund is subject to credit risk, which is the risk that issuers of debt securities may be unable to meet their interest or principal payment obligations when due. There is also prepayment/extension risk, which is the chance that a fall/rise in interest rates will reduce/extend the life of a mortgage-backed security by increasing/decreasing mortgage prepayments, typically reducing the fund s return. Non-Investment Grade Security Risk. To the extent that the fund invests in non-investment grade securities, the fund is also subject to above-average credit, market and other risks. Issuers of non-investment grade securities (i.e., junk bonds) are typically in weak financial health and their ability to pay interest and principal is uncertain. Compared to issuers of investment grade bonds, they are more likely to encounter financial difficulties and to be materially affected by these difficulties when they do encounter them. Junk bond markets may react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news. Derivatives Risk. The risk that loss may result from investments in options, forwards, futures, swaps and other derivatives instruments. These instruments may be illiquid, difficult to price and leveraged so that small changes in the value of the underlying instruments may produce disproportionate losses to the fund. Derivatives are also subject to counterparty risk, which is the risk that the other party to the transaction will not fulfill its contractual obligations. Foreign Security and Emerging Market Risk. Investments in foreign securities involve risks relating to currency fluctuations and to political, social and economic developments abroad, as well as risks resulting from differences between the regulations to which U.S. and foreign issuers and markets are subject. These risks may be greater in emerging markets. The investment markets of emerging countries are generally more volatile than markets of developed countries with more mature economies. Performance The following bar chart and table provide some indication of the risks of investing in the fund. The bar chart shows how the fund s investment results have varied from year to year. The table shows the fund s average annual total returns for various periods compared to a broad measure of market performance. Neither the bar chart nor the table reflects charges deducted in connection with variable contracts. If these charges were reflected, returns would be less than those shown. The fund s past performance is not necessarily an indication of its future performance. Updated performance information current to the most recent month-end is available at no cost by visiting or by calling

185 Calendar Year Total Returns for Class I Shares Best Calendar Quarter: 3Q % Worst Calendar Quarter: 4Q % Average Annual Total Returns For Periods Ended December 31, Year 5 Years 10 Years Since Inception 5/1/2009 Class I Shares 3.11% 1.66% 3.33% N/A Class II Shares 2.85% 1.41% N/A 3.17% Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for sales charges, account fees, expenses or taxes) 3.54% 2.10% 4.01% 3.96% Portfolio Management The investment adviser to the fund is Madison Asset Management, LLC. Paul Lefurgey, CFA (Chairman, Executive Committee and Director of Fixed Income Investments), Greg Poplett, CFA (Vice President, Portfolio Manager), and Michael Sanders, CFA (Vice President, Portfolio Manager), co-manage the fund. Mr. Lefurgey has served in this capacity since July 2009, Mr. Poplett have served in this capacity since June 2013, and Mr. Sanders has served in this capacity since September Purchase and Sale of Fund Shares Class I and II shares of the fund are offered to separate accounts of CMFG Life Insurance Company (f/k/a CUNA Mutual Insurance Society) ( CMFG Life Accounts ), while Class I shares are also offered to certain of its pension plans ( CMFG Life Plans ). Investments in the fund by CMFG Life Accounts are made through variable annuity or variable life insurance contracts (collectively, variable contracts ). Purchase or redemption orders under the variable contracts and CMFG Life Plans will be invested or redeemed (without sales or redemption charges) in shares of the fund at the net asset value next determined after the fund receives the order. Please refer to the variable contract prospectus or plan documents for further information. Tax Information The fund generally distributes most or all of its net investment income and net capital gains. Net capital gain distributions, if any, are typically made in December. Net investment income distributions are declared and paid annually. Distributions that a CMFG Life Account or CMFG Life Plan receives from the fund should not be taxable, nor should gains realized upon the sale or redemption of fund shares, until such distributions or gains are withdrawn from the variable contract or CMFG Life Plan. Please refer to the variable contract prospectus or plan documents for further information. Payments to Broker-Dealers and Other Financial Intermediaries If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a financial adviser), the fund and the fund s distributor or its affiliates may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your individual financial adviser to recommend the fund over another investment. Ask your individual financial adviser or visit your financial intermediary s website for more information. 16

186 FUND SUMMARY HIGH INCOME FUND Investment Objective The High Income Fund seeks high current income. The fund also seeks capital appreciation, but only when consistent with its primary goal. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. Actual expenses may be greater or less than those shown. The expenses do not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Shareholder Fees: (fees paid directly from your investment) Class I Class II Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None None Maximum Deferred Sales Charge (as a percentage of amount redeemed) None None Redemption Fee Within 30 days of Purchase (as a percentage of amount redeemed) None None Annual Fund Operating Expenses: (expenses that you pay each year as a percentage of the value of your investment) Class I Class II Management Fees 0.75% 0.75% Distribution and/or Service (Rule 12b-1) Fees None 0.25% Other Expenses 0.02% 0.02% Acquired Fund Fees and Expenses 0.02% 0.02% Total Annual Fund Operating Expenses % 1.04% 1 Total annual fund operation expenses for the period ended December 31, 2017 do not match the financial statements because the financial statements do not include acquired fund fees and expenses. Example: The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the time periods indicated and then hold or redeem your shares at the end of the period. The example also assumes that your investment has a 5% return each year and that the fund s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 Year 3 Years 5 Years 10 Years Class I $81 $252 $439 $978 Class II ,271 The example does not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover may indicate higher transaction costs. These costs, which are not reflected in total annual fund operating expenses or in the expense examples above, affect the fund s performance. During the most recent fiscal year, the fund s portfolio turnover rate was 39% of the average value of its portfolio. Principal Investment Strategies The fund invests primarily in lower-rated, higher-yielding income bearing securities, such as junk bonds. Because the performance of these securities has historically been strongly influenced by economic conditions, the fund may rotate securities selection by business sector according to the economic outlook. Under normal market conditions, the fund invests at least 80% of its net assets (including borrowings for investment purposes) in bonds rated lower than investment grade (BBB/Baa) and their unrated equivalents or other high-yielding securities. Types of bonds and other securities include, but are not limited to, domestic and foreign (including emerging market) corporate bonds, debentures, notes, convertible securities, preferred stocks, municipal obligations, government obligations and mortgage-backed securities. Up to 25% of the fund s assets may be invested in the securities of issuers in any one industry, and up to 50% of the fund s assets may be invested in restricted securities (a restricted security is one that has a contractual restriction on resale or cannot be resold publicly until it is registered under the Securities Act of 1933, as amended). The dollar weighted average life of the fund as of December 31, 2017 was 3.69 years. 17

187 In selecting the fund s investments, the portfolio managers employ a multi-faceted, bottom up investment approach that utilizes proprietary analytical tools which are integral to assessing the potential risk and relative value of each investment and also assist in identifying companies that are likely to have the ability to meet their interest and principal payments on their debt securities. Investment candidates are analyzed in depth at a variety of risk levels. Investments are not made on the basis of one single factor. Rather, investments are made based on the careful consideration of a variety of factors, including: Analyses of business risks (including leverage risk) and macro risks (including interest rate trends, capital market conditions and default rates); Assessment of the industry s attractiveness and competitiveness; Evaluation of the business, including core strengths and competitive weaknesses; Qualitative evaluation of the management team, including in-person meetings or conference calls with key managers; and Quantitative analyses of the company s financial statements. Although the fund expects to pursue its investment objective utilizing its principal investment strategies regardless of market conditions, the fund may invest up to 100% in money market instruments. To the extent the fund engages in this temporary defensive position, the fund s ability to achieve its investment objective may be diminished. Principal Risks The specific risks of owning the fund are set forth below. You could lose money as a result of investing in the fund. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. The fund s share price and total return will fluctuate. You should consider your own investment goals, time horizon and risk tolerance before investing in the fund. Interest Rate/Credit Risks. The fund is subject to interest rate risk and above-average credit risk, which are risks that the value of your investment will fluctuate in response to changes in interest rates or an issuer will not honor a financial obligation. Investors should expect greater fluctuations in share price, yield and total return compared to bond funds holding bonds and other income bearing securities with higher credit ratings and/or shorter maturities. These fluctuations, whether positive or negative, may be sharp and unanticipated. The risks associated with increasing rates are heightened given that interest rates are near historical lows, but may be expected to increase in the future with unpredictable effects on the markets and the fund's investments. Liquidity Risk. The fund is also subject to liquidity risk, which means there may be little or no trading activity for the debt securities in which the fund invests, and that may make it difficult for the fund to value accurately and/or sell those securities. In addition, liquid debt securities in which the fund invests are subject to the risk that during certain periods their liquidity will shrink or disappear suddenly and without warning as a result of adverse economic, regulatory or market conditions, or adverse investor perceptions. If the fund experiences rapid, large redemptions during a period in which a substantial portion of its debt securities are illiquid, the fund may be forced to sell those securities at a discount, which could result in significant fund and shareholder losses. Liquidity risk may be higher for this fund than those of income funds that hold U.S. government securities as part of their portfolios because the liquidity of U.S. government securities has historically continued in times of recent market stress. This fund normally holds few or no U.S. government securities. Non-Investment Grade Security Risk. Issuers of non-investment grade securities (i.e., junk bonds) are typically in weak financial health and compared to issuers of investment-grade bonds, they are more likely to encounter financial difficulties and to be materially affected by these difficulties when they do encounter them. Because the fund invests a significant portion of its assets in these securities, the fund may be subject to greater levels of credit and liquidity risk than a fund that does not invest in such securities. These securities are considered predominately speculative with respect to the issuer's continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce the fund's ability to sell these securities (see Liquidity Risk above). If the issuer of a security is in default with respect to interest or principal payments, the fund may lose its entire investment. Because of the risks involved in investing in non-investment grade securities, an investment in a fund that invests in such securities should be considered speculative. Foreign Security and Emerging Market Risk. Investments in foreign securities involve risks relating to currency fluctuations and to political, social and economic developments abroad, as well as risks resulting from differences between the regulations to which U.S. and foreign issuers and markets are subject. These risks may be greater in emerging markets. The investment markets of emerging countries are generally more volatile than markets of developed countries with more mature economies. Prepayment/Extension Risk. The fund may also invest in mortgage-backed securities that are subject to prepayment/extension risks, which is the chance that a fall/rise in interest rates will reduce/extend the life of a mortgage-backed security by increasing/ decreasing mortgage prepayments, typically reducing the fund s return. 18

188 Performance The following bar chart and table provide some indication of the risks of investing in the fund. The bar chart shows how the fund s investment results have varied from year to year. The table shows the fund s average annual total returns for various periods compared to a broad measure of market performance. Neither the bar chart nor the table reflects charges deducted in connection with variable contracts. If these charges were reflected, returns would be less than those shown. The fund s past performance is not necessarily an indication of its future performance. Updated performance information current to the most recent month-end is available at no cost by visiting or by calling The performance data presented below for periods prior to January 1, 2016, are the performance of the previous subadviser. Calendar Year Total Returns for Class I Shares Best Calendar Quarter: 3Q % Worst Calendar Quarter: 4Q % Average Annual Total Returns For Periods Ended December 31, Year 5 Years 10 Years Since Inception 5/1/2009 Class I Shares 6.32% 4.53% 6.43% N/A Class II Shares 6.06% 4.27% N/A 7.53% ICE BofAML U.S. High Yield Constrained Index (reflects no deduction for sales charges, account fees, expenses or taxes) 7.48% 5.81% 7.96% 10.99% Portfolio Management The investment adviser to the fund is Madison Asset Management, LLC. Michael Sanders, CFA (Vice President, Portfolio Manager) and Allen Olson, CFA (Vice President, Portfolio Manager), co-manage the fund. Messrs. Sanders and Olson have served in this capacity since January Purchase and Sale of Fund Shares Class I and II shares of the fund are offered to separate accounts of CMFG Life Insurance Company (f/k/a CUNA Mutual Insurance Society) ( CMFG Life Accounts ), while Class I shares are also offered to certain of its pension plans ( CMFG Life Plans ). Investments in the fund by CMFG Life Accounts are made through variable annuity or variable life insurance contracts (collectively, variable contracts ). Purchase or redemption orders under the variable contracts and CMFG Life Plans will be invested or redeemed (without sales or redemption charges) in shares of the fund at the net asset value next determined after the fund receives the order. Please refer to the variable contract prospectus or plan documents for further information. Tax Information The fund generally distributes most or all of its net investment income and net capital gains. Net capital gain distributions, if any, are typically made in December. Net investment income distributions are declared and paid annually. Distributions that a CMFG Life Account or CMFG Life Plan receives from the fund should not be taxable, nor should gains realized upon the sale or redemption of fund shares, until such distributions or gains are withdrawn from the variable contract or CMFG Life Plan. Please refer to the variable contract prospectus or plan documents for further information. Payments to Broker-Dealers and Other Financial Intermediaries If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a financial advisor), the fund, the fund s investment adviser and/or the fund s principal distributor may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other financial intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary s website for more information. 19

189 FUND SUMMARY DIVERSIFIED INCOME FUND Investment Objective The Diversified Income Fund seeks a high total return through the combination of income and capital appreciation. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. Actual expenses may be greater or less than those shown. The expenses do not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Shareholder Fees: (fees paid directly from your investment) Class I Class II Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None None Maximum Deferred Sales Charge (as a percentage of amount redeemed) None None Redemption Fee Within 30 days of Purchase (as a percentage of amount redeemed) None None Annual Fund Operating Expenses: (expenses that you pay each year as a percentage of the value of your investment) Class I Class II Management Fees 0.70% 0.70% Distribution and/or Service (Rule 12b-1) Fees None 0.25% Other Expenses 0.02% 0.02% Total Annual Fund Operating Expenses 0.72% 0.97% Example: The following example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the time periods indicated and then hold or redeem your shares at the end of the period. The example also assumes that your investment has a 5% return each year and that the fund s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 Year 3 Years 5 Years 10 Years Class I $74 $230 $401 $894 Class II ,190 The example does not reflect any expenses, fees or charges paid under your variable contract or retirement plan. If these expenses, fees or charges were included, your costs would be higher. Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover may indicate higher transaction costs. These costs, which are not reflected in total annual fund operating expenses or in the expense examples above, affect the fund s performance. During the most recent fiscal year, the fund s portfolio turnover rate was 16% of the average value of its portfolio. Principal Investment Strategies The fund seeks income by investing in a broadly diversified array of securities including bonds, common stocks, real estate securities, foreign market bonds and stocks and money market instruments. Bonds, stock and cash components will vary, reflecting the portfolio managers judgments of the relative availability of attractively yielding and priced stocks and bonds; however, under normal market conditions, the fund s portfolio managers generally attempt to target a 40% bond and 60% stock investment allocation. Nevertheless, bonds (including investment grade, non-investment grade securities (i.e., "junk" bonds), and mortgage- or asset-backed) may constitute up to 80% of the fund s assets, stocks (including common stocks, preferred stocks and convertible bonds) may constitute up to 70% of the fund s assets, real estate securities may constitute up to 25% of the fund s assets, foreign (including American Depositary Receipts ("ADRs") and emerging market) stocks and bonds may constitute up to 25% of the fund s assets, and money market instruments may constitute up to 25% of the fund s assets. Although the fund is permitted to invest up to 80% of its assets in lower credit quality bonds, under normal circumstances, the fund intends to limit the investment in lower credit quality bonds to less than 50% of the fund s assets. 20

190 With regard to the fixed income component of the fund, while there is no maturity strategy utilized, the fund is managed with the goal of being between % of the market benchmark duration. The weighted average life of the fund s bond portfolio as of December 31, 2017 was 7.92 years. Duration is an approximation of the expected change in a debt security s price given a 1% move in interest rates, using the following formula: [change in debt security value = (change in interest rates) x (duration) x (-1)]. By way of example, assume XYZ company issues a five year bond which has a duration of 4.5 years. If interest rates were to instantly increase by 1%, the bond would be expected to decrease in value by approximately 4.5%. As of December 31, 2017, the duration of the fund s bond portfolio was 5.70 years, and the duration of the benchmark index (which, for this purpose, is the ICE BofAML U.S. Corporate, Government & Mortgage Index), was 6.44 years. The balance between the two strategies of the fund -- i.e., fixed income investing and equity investing -- is determined after reviewing the risks associated with each type of investment, with the goal of meaningful risk reduction as market conditions demand. The fund may also invest in exchange traded funds ( ETFs ) that are registered investment companies and may also write (sell) covered call options, when deemed appropriate by the portfolio managers, in order to generate additional income through the collection of option premiums. With regard to the equity portion of the fund, the fund generally holds individual securities in its portfolio at any given time. This reflects the belief of the fund's investment adviser, Madison Asset Management, LLC ("Madison"), that your money should be invested in Madison's top investment ideas, and that focusing on Madison's best investment ideas is the best way to achieve the fund s investment objective. The fund typically sells a stock when the fundamental expectations for producing competitive yields at an acceptable level of price risk no longer apply, the price exceeds its intrinsic value or other stocks appear more attractive. The fund s investment strategy reflects Madison's general Participate and Protect investment philosophy. Madison s expectation is that investors in the fund will participate in market appreciation during bull markets and experience something less than full participation during bear markets compared with investors in portfolios holding more speculative and volatile securities; therefore, this investment philosophy is intended to represent a conservative investment strategy. There is no assurance that Madison s expectations regarding this investment strategy will be realized. Although the fund expects to pursue its investment objective utilizing its principal investment strategies regardless of market conditions, the fund may invest up to 100% in money market instruments. To the extent the fund engages in this temporary defensive position, the fund s ability to achieve its investment objective may be diminished. Principal Risks The specific risks of owning the fund are set forth below. You could lose money as a result of investing in the fund. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. The fund s share price and total return will fluctuate. You should consider your own investment goals, time horizon and risk tolerance before investing in the fund. Market Risk. The share price of the fund reflects the value of the securities it holds. If a security s price falls, the share price of the fund will go down (unless another security s price rises by an offsetting amount). If the fund s share price falls below the price you paid for your shares, you could lose money when you redeem your shares. Equity Risk. The fund is subject to equity risk. Equity risk is the risk that securities held by the fund will fluctuate in value due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the fund participate, and the particular circumstances and performance of particular companies whose securities the fund holds. In addition, while broad market measures of common stocks have historically generated higher average returns than fixed income securities, common stocks have also experienced significantly more volatility in those returns. Interest Rate Risk. The fund is subject to interest rate risk, which is the risk that the value of your investment will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the market value of income-bearing securities. When interest rates rise, bond prices fall; generally, the longer a bond s maturity, the more sensitive it is to this risk. The risks associated with increasing rates are heightened given that interest rates are near historical lows, but may be expected to increase in the future with unpredictable effects on the markets and the fund's investments. Credit Risk. The fund is subject to credit risk, which is the risk that issuers of debt securities may be unable to meet their interest or principal payment obligations when due. Non-Investment Grade Security Risk. Issuers of non-investment grade securities (i.e., junk bonds) are typically in weak financial health and, compared to issuers of investment-grade bonds, they are more likely to encounter financial difficulties and to be materially affected by these difficulties when they do encounter them. Because the fund may invest a significant portion of its assets in these securities, the fund may be subject to greater levels of credit and liquidity risk than a fund that does not invest in such securities. These securities are considered predominately speculative with respect to the issuer's continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce the fund's ability to sell these securities. If the issuer of a security is in default with respect to interest 21

191 or principal payments, the fund may lose its entire investment. Because of the risks involved in investing in non-investment grade securities, an investment in a fund that invests in such securities should be considered speculative. Foreign Security and Emerging Market Risk. Investments in foreign securities involve risks relating to currency fluctuations and to political, social and economic developments abroad, as well as risks resulting from differences between the regulations to which U.S. and foreign issuers and markets are subject. These risks may be greater in emerging markets. The investment markets of emerging countries are generally more volatile than markets of developed countries with more mature economies. Performance The following bar chart and table provide some indication of the risks of investing in the fund. The bar chart shows how the fund s investment results have varied from year to year. The table shows the fund s average annual total returns for various periods compared to broad measures of market performance, as well as a custom index. Neither the bar chart nor the table reflects charges deducted in connection with variable contracts. If these charges were reflected, returns would be less than those shown. The fund s past performance is not necessarily an indication of its future performance. Updated performance information current to the most recent month-end is available at no cost by visiting or by calling Calendar Year Total Returns for Class I Shares Average Annual Total Returns For Periods Ended December 31, 2017 Best Calendar Quarter: 3Q % Worst Calendar Quarter: 4Q % 1 Year 5 Years 10 Years Since Inception 5/1/2009 Class I Shares 13.31% 8.98% 6.80% N/A Class II Shares 13.03% 8.71% N/A 9.82% S&P 500 Index (reflects no deduction for sales charges, account fees, expenses or taxes) 21.83% 15.79% 8.50% 16.15% ICE BofAML U.S. Corporate, Government & Mortgage Index (reflects no deduction for sales 3.63% 2.13% 4.06% 3.95% charges, account fees, expenses or taxes) Custom Blended Index (reflects no deduction for sales charges, account fees, expenses or taxes) 12.42% 8.90% 6.58% 10.11% The Diversified Income Fund Custom Index consists of 50% ICE BofAML U.S. Corporate Government & Mortgage Index and 50% of the S&P 500 Index. Portfolio Management The investment adviser to the fund is Madison Asset Management, LLC. John Brown, CFA (Vice President, Portfolio Manager), Paul Lefurgey, CFA (Chairman, Executive Committee and Director of Fixed Income Investments), Chris Nisbet, CFA (Vice President, Portfolio Manager), and Drew Justman, CFA (Vice President, Portfolio Manager) co-manage the fund. Mr. Brown has served in this capacity since 1998, Mr. Lefurgey has served in this capacity since May 2013, Mr. Nisbet has served in this capacity since June 2013, and Mr. Justman has served in this capacity since May