<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998
REGISTRATION NO. 333-45815
811-08643
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2 /X/
AMERICAN EQUITY LIFE VARIABLE ACCOUNT
(Exact Name of Registrant)
AMERICAN EQUITY INVESTMENT
LIFE INSURANCE COMPANY
(Name of Depositor)
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
(Address of Principal Executive Office)
------------------------
DEBRA J. RICHARDSON
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
(Name and Address of Agent for Service of Process)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQUIRE
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
------------------------
Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
Securities being offered: Flexible Premium Variable Life Insurance Policies
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 Caption in Prospectus
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<C> <S>
1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution of the Policies
5. American Equity Investment Life Insurance Company; The Variable
Account
6. The Variable Account
7. Not Required
8. Not Required
9. Legal Proceedings
10. Summary; The Variable Account; Investment Options; Charges and
Deductions; Policy Benefits; Voting Rights; General Provisions
11. Summary; Investment Options
12. Summary; Investment Options
13. Summary; Charges and Deductions; Investment Options
14. Summary; Premiums
15. Premiums
16. Premiums; Investment Options
17. Summary; Charges and Deductions; Policy Benefits; Investment
Options
18. FBL Variable Insurance Series Fund; Premiums
19. General Provisions; Voting Rights
20. Not Applicable
21. Policy Benefits; General Provisions
22. Not Applicable
23. Safekeeping of the Variable Account's Assets
24. General Provisions
25. American Equity Investment Life Insurance Company
26. Not Applicable
27. American Equity Investment Life Insurance Company
28. Executive Officers and Directors of American Equity Investment Life
Insurance Company
29. American Equity Investment Life Insurance Company; State Regulation
and Ownership of the Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Distribution of the Policies
36. Not Required
37. Not Applicable
38. Summary; Distribution of the Policies
39. Summary; Distribution of the Policies
40. Not Applicable
41. American Equity Investment Life Insurance Company; Distribution of
the Policies
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 Caption in Prospectus
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<C> <S>
42. Not Applicable
43. Not Applicable
44. Premiums
45. Not Applicable
46. Policy Benefits
47. Investment Options
48. Not Applicable
49. Not Applicable
50. The Variable Account
51. Cover Page; Summary; Charges and Deductions; Policy Benefits;
Premiums
52. Investment Options
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. Not Required
</TABLE>
ii
<PAGE>
PROSPECTUS
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American Equity Life Variable Account
Flexible Premium Variable Life Insurance Policy
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This Prospectus describes a flexible premium variable life insurance policy (the
"Policy") issued by American Equity Investment Life Insurance Company (the
"Company"). This type of life insurance is also commonly called variable
universal life. The Policy is designed to provide lifetime insurance protection
to age 115. The Policy permits the policyowner to vary premium payments and
adjust the death proceeds payable under the Policy. The Policy has been designed
for maximum flexibility in meeting changing insurance needs.
The minimum specified amount for which a Policy will be issued is normally
$50,000. The Policy provides for the payment of the death proceeds upon the
death of the insured and for a net surrender value or net accumulated value that
can be obtained upon surrender or partial withdrawal of the Policy. Death
proceeds may, and accumulated value will, vary with the investment experience of
American Equity Life Variable Account (the "Variable Account"). THE POLICYOWNER
BEARS THE ENTIRE INVESTMENT RISK; THERE IS NO GUARANTEED MINIMUM ACCUMULATED
VALUE. The Policy also provides for loans using the Policy as collateral. The
Policy will remain in force so long as net accumulated value or net surrender
value is sufficient to pay certain monthly charges imposed in connection with
the Policy.
A policyowner may allocate net premiums under a Policy to one or more of the
subaccounts of the Variable Account. Each Subaccount invests exclusively in
shares of the corresponding Investment Options of EquiTrust Variable Insurance
Series Fund: Value Growth Portfolio, High Grade Bond Portfolio, High Yield Bond
Portfolio, Money Market Portfolio and Blue Chip Portfolio; T. Rowe Price Equity
Series, Inc.: Equity Income Portfolio, Mid-Cap Growth Portfolio, New America
Growth Portfolio and Personal Strategy Balanced Portfolio; T. Rowe Price
International Series, Inc.: International Stock Portfolio; or Dreyfus Variable
Investment Fund: Capital Appreciation Portfolio, Disciplined Stock Portfolio,
Growth and Income Portfolio, International Equity Portfolio and Small Cap
Portfolio. The accompanying prospectus for each Fund describes the investment
objectives and attendant risks of each Investment Option.
A policyowner may also allocate net premiums to the Declared Interest Option.
The Declared Interest Option is supported by the Company's General Account.
Accumulated value allocated to the Declared Interest Option is credited with
interest at a declared annual rate guaranteed to be at least 4.0%.
This Prospectus generally describes only the portion of the Policy involving the
Variable Account. For a brief summary of the Declared Interest Option, see "THE
DECLARED INTEREST OPTION."
A policy may be treated as a modified endowment contract depending upon the
amount of premiums paid in relation to the death benefit provided under such
Policy. If a contract is a modified endowment contract, any loan, partial
withdrawal, surrender and/or assignment of the policy could result in adverse
tax consequences and/or penalties. (See "FEDERAL TAX MATTERS.")
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns another flexible premium variable life insurance
policy.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR EACH
FUND'S INVESTMENT OPTIONS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
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Issued By
American Equity Investment Life Insurance Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
1-888-349-4650
THE DATE OF THIS PROSPECTUS IS JULY 1, 1998.
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
DEFINITIONS............................................................... 3
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SUMMARY OF THE POLICY..................................................... 5
The Policy...................................................... 5
The Variable Account............................................ 5
The Declared Interest Option.................................... 5
Premiums........................................................ 5
Policy Benefits................................................. 6
Charges......................................................... 7
Distribution of the Policies.................................... 9
Tax Treatment................................................... 9
Cancellation Privilege.......................................... 9
Illustrations................................................... 9
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AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY AND THE VARIABLE 9
ACCOUNT...................................................................
American Equity Investment Life Insurance Company............... 9
The Variable Account............................................ 10
Investment Options.............................................. 10
Addition, Deletion or Substitution of Investments............... 12
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THE POLICY................................................................ 13
Purpose of the Policy........................................... 13
Purchasing the Policy........................................... 14
Premiums........................................................ 14
Policy Lapse and Reinstatement.................................. 15
Examination of Policy (Cancellation Privilege).................. 16
Special Transfer Privilege...................................... 16
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POLICY BENEFITS........................................................... 17
Accumulated Value Benefits...................................... 17
Transfers....................................................... 19
Loan Benefits................................................... 20
Death Proceeds.................................................. 21
Accelerated Payments of Death Proceeds.......................... 24
Benefits at Maturity............................................ 25
Payment Options................................................. 25
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CHARGES AND DEDUCTIONS.................................................... 26
Premium Expense Charge.......................................... 26
Monthly Deduction............................................... 26
Transfer Charge................................................. 28
Partial Withdrawal Fee.......................................... 29
Surrender Charge................................................ 29
Variable Account Charges........................................ 29
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THE DECLARED INTEREST OPTION.............................................. 29
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GENERAL PROVISIONS........................................................ 31
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DISTRIBUTION OF THE POLICIES.............................................. 33
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FEDERAL TAX MATTERS....................................................... 33
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ADDITIONAL INFORMATION.................................................... 37
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FINANCIAL STATEMENTS...................................................... 41
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APPENDIX A................................................................ A-1
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APPENDIX B................................................................ B-1
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APPENDIX C................................................................ C-1
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</TABLE>
The Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE
TO AN INVESTMENT IN A MUTUAL FUND.
2
<PAGE>
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DEFINITIONS
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<TABLE>
<S> <C>
ACCUMULATED VALUE............. The total amount invested under the Policy. It is the sum of
the values of the Policy in each subaccount of the Variable
Account, the value of the Policy in the Declared Interest
Option and any outstanding Policy Debt.
ADMINISTRATIVE OFFICE......... The administrative offices of the Company at 5400 University
Avenue, West Des Moines, Iowa 50266.
ATTAINED AGE.................. The Insured's age on his or her last birthday on the Policy
Date plus the number of Policy Years since the Policy Date.
BENEFICIARY................... The person or entity named by the Policyowner in the
application or by later designation to receive the death
proceeds upon the death of the Insured.
BUSINESS DAY.................. Each day that the New York Stock Exchange is open for
trading, except the day after Thanksgiving, the day before
Christmas (in 1998) and any day on which the Home Office is
closed because of a weather-related or comparable type of
emergency and is unable to segregate orders and redemption
requests received on that day.
COMPANY....................... American Equity Investment Life Insurance Company located at
5000 Westown Parkway, Suite 440, West Des Moines, Iowa 50266
DECLARED INTEREST OPTION...... A part of the Company's General Account. Net Premiums may be
allocated, and Accumulated Value may be transferred, to the
Declared Interest Option. Accumulated Value in the Declared
Interest Option is credited with interest at a declared
annual rate guaranteed to be at least 4.0%.
DUE PROOF OF DEATH............ Proof of death that is satisfactory to the Company. Such
proof may consist of the following if acceptable to the
Company:
(a) A certified copy of the death certificate;
(b) A certified copy of a court decree reciting a
finding of death; or
(c) Any other proof satisfactory to the Company.
FUND.......................... An open-end diversified management investment company in
which the Variable Account invests.
GENERAL ACCOUNT............... The assets of the Company other than those allocated to the
Variable Account or any other separate account.
GRACE PERIOD.................. The 61-day period beginning on the date the Company sends
notice to the Policyowner that Net Accumulated Value or Net
Surrender Value is insufficient to cover the monthly
deduction.
INSURED....................... The person upon whose life the Policy is issued.
INVESTMENT OPTION............. A separate investment portfolio of a Fund.
ISSUE DATE.................... The date which the Policy is issued and mailed to the
Policyowner.
MATURITY DATE................. The Insured's Attained Age 115. It is the date on which the
Policy terminates and the Policy's Accumulated Value less
Policy Debt becomes payable to the Policyowner or the
Policyowner's estate.
MONTHLY DEDUCTION DAY......... The same date in each month as the Policy Date. The monthly
deduction is made on the Business Day coinciding with or
immediately following the Monthly Deduction Day. (See
"CHARGES AND DEDUCTIONS--Monthly Deduction.")
NET ASSET VALUE............... The total current value of each Subaccount's securities,
cash, receivables and other assets less liabilities.
NET ACCUMULATED VALUE......... The Accumulated Value of the Policy reduced by any
outstanding Policy Debt and increased by any unearned loan
interest.
NET PREMIUM................... The amount of premium remaining after the premium expense
charge (see "CHARGES AND DEDUCTIONS--Premium Expense
Charge") has been deducted. This amount will be allocated,
according to the Policyowner's instructions, among the
Subaccounts of the Variable Account and the Declared
Interest Option.
NET SURRENDER VALUE........... The Surrender Value minus any Policy Debt plus any unearned
loan interest.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
PARTIAL WITHDRAWAL FEE........ A fee assessed at the time of any partial withdrawal, equal
to the lesser of $25 or 2% of the amount withdrawn.
POLICY........................ The flexible premium variable life insurance policy offered
by the Company and described in this Prospectus, which term
includes the Policy described in this Prospectus, the Policy
application, any supplemental applications and any
endorsements.
POLICY ANNIVERSARY............ The same date in each year as the Policy Date.
POLICY DATE................... The date set forth on the Policy data page which is used to
determine Policy Years, Policy Months and Policy
Anniversaries. The Policy Date may, but will not always,
coincide with the effective date of insurance coverage under
the Policy. (See "THE POLICY--Purchasing the Policy.")
POLICY DEBT................... The sum of all outstanding Policy Loans and any due and
unpaid Policy Loan interest.
POLICY LOAN................... An amount borrowed by the Policyowner from the Company for
which the Policy serves as the sole security. Interest on
Policy Loans is payable in advance (for the remainder of the
Policy Year) upon taking a Policy Loan and upon each Policy
Anniversary thereafter (for the following Policy Year) until
the Policy Loan is repaid.
POLICY MONTH.................. A one-month period beginning on a Monthly Deduction Day and
ending on the day immediately preceding the next Monthly
Deduction Day.
POLICYOWNER................... The person who owns a Policy. The original Policyowner is
named in the application.
POLICY YEAR................... A twelve-month period that starts on the Policy Date or on a
Policy Anniversary.
SPECIFIED AMOUNT.............. The minimum death benefit payable under a Policy so long as
the Policy remains in force. The Specified Amount as of the
Policy Date is set forth on the data page in each Policy.
SUBACCOUNT.................... A subdivision of the Variable Account which invests
exclusively in shares of a designated Investment Option of a
Fund.
SURRENDER CHARGE.............. A charge assessed at the time of any surrender during the
first ten Policy Years and for ten years following an
increase in Specified Amount.
SURRENDER VALUE............... The Accumulated Value minus the Surrender Charge.
TARGET PREMIUM................ A premium amount specified by the Company. It is used to
calculate the premium expense charge during time periods
when the Company has declared a premium expense charge less
than the 7.0% guaranteed premium expense charge. The Company
may declare a lower percentage of premium expense charge on
premiums paid in excess of the Target Premium during a
Policy Year. It is also used to calculate compensation to
registered representatives.
UNIT VALUE.................... The value determined by dividing each Subaccount's Net Asset
Value by the number of units outstanding at the time of
calculation.
VALUATION PERIOD.............. The period between the close of business (3:00 p.m. central
time) on a Business Day and the close of business on the
next Business Day.
VARIABLE ACCOUNT.............. American Equity Life Variable Account, a separate investment
account established by the Company to receive and invest the
Net Premiums paid under the Policies.
</TABLE>
4
<PAGE>
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SUMMARY OF THE POLICY
- - --------------------------------------------------------------------------------
THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION SHOULD
BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE DESCRIPTION OF THE POLICY CONTAINED IN
THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN FORCE AND
THAT THERE IS NO OUTSTANDING POLICY DEBT.
- - --------------------------------------------------------------------------------
THE POLICY Under the Policy, subject to certain limitations, the
Policyowner has flexibility in determining the frequency
and amount of premiums. (See "THE POLICY-- Premiums.")
The amount and/or duration of the life insurance coverage
and the Accumulated Value of the Policy is not guaranteed
and may increase or decrease, depending upon the
investment experience of the assets supporting the
Policy. Accordingly, the Policyowner bears the investment
risk of any depreciation of, but reaps the benefit of any
appreciation in, the value of the underlying assets. As
long as the Policy remains in force, the Policy will
provide for death proceeds payable to the Beneficiary
upon the Insured's death, the accumulation of Accumulated
Value, withdrawal and surrender options and policy loan
privileges. The minimum Specified Amount for which a
Policy will be issued is normally $50,000, although the
Company may in its discretion issue Policies with
Specified Amounts of less than $50,000.
- - --------------------------------------------------------------------------------
THE VARIABLE ACCOUNT Net Premiums will first be allocated to the Declared
Interest Option as of the Issue Date. Once the Company
Receives a signed notice from the Policyowner that the
Policy has been received and accepted, the Accumulated
Value in the Declared Interest Option automatically will
be allocated, without charge, among the Subaccounts and
the Declared Interest Option in accordance with the
Policyowner's allocation instructions. Net Premiums
received after the Company receives the signed notice are
allocated, in accordance with the instructions of the
Policyowner, to the Variable Account, the Declared
Interest Option, or both. (See "THE
POLICY--Premiums--ALLOCATIONS OF NET PREMIUMS.") The
Variable Account consists of fifteen Subaccounts: the
Value Growth Subaccount, the High Grade Bond Subaccount,
the High Yield Bond Subaccount, the Money Market
Subaccount, the Blue Chip Subaccount, the Equity Income
Subaccount, the Mid-Cap Growth Subaccount, the New
America Growth Subaccount, the Personal Strategy Balanced
Subaccount, the International Stock Subaccount, the
Capital Appreciation Subaccount, the Disciplined Stock
Subaccount, the Growth and Income Subaccount, the
International Equity Subaccount and the Small Cap
Subaccount. Each Subaccount invests exclusively in shares
of the corresponding Investment Option.
Accumulated Value will, and death proceeds may, vary with
the investment experience of the Subaccounts, as well as
with the frequency and amount of premium payments, any
partial withdrawals and any charges imposed in connection
with the Policy. (See "POLICY BENEFITS--Accumulated Value
Benefits.")
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THE DECLARED INTEREST OPTION
As an alternative to the Variable Account, the
Policyowner may allocate or transfer all or a portion of
the Accumulated Value to the Declared Interest Option,
which guarantees a specified minimum rate of return. (See
"THE DECLARED INTEREST OPTION.")
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PREMIUMS The Company may require the Policyowner to pay an initial
premium that, when reduced by the premium expense charge
(see "CHARGES AND DEDUCTIONS-- Premium Expense Charge"),
will be sufficient to pay the monthly deduction for the
first Policy Month. Each Policyowner will determine a
planned periodic premium schedule. The Policyowner is not
required to pay premiums in accordance with the planned
periodic premium schedule. (See "THE
POLICY--Premiums--PLANNED PERIODIC PREMIUMS.") The
schedule will provide for a premium payment of a level
amount at a fixed interval over a specified period of
time. Failure to pay premiums in accordance with the
schedule will not itself cause the Policy to lapse. (See
"THE POLICY--Policy Lapse and Reinstatement--LAPSE.")
Subject to certain restrictions, unscheduled premium
payments may also be made. (See "THE POLICY--
Premiums--UNSCHEDULED PREMIUMS.")
5
<PAGE>
A Policy will lapse during the first three Policy Years
when Net Accumulated Value is insufficient on a Monthly
Deduction Day to cover the monthly deduction, or after
three Policy Years when Net Surrender Value is
insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "CHARGES AND DEDUCTIONS--Monthly
Deduction"), and a Grace Period expires without a
sufficient payment (see "THE POLICY--Policy Lapse and
Reinstatement--LAPSE"). With respect to premiums,
therefore, the Policy differs in two important ways from
a conventional life insurance policy. First, the failure
to pay a planned periodic premium will not in itself
automatically cause the Policy to lapse. Second, a Policy
can lapse even if planned periodic premiums or premiums
in other amounts have been paid.
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POLICY BENEFITS ACCUMULATED VALUE BENEFITS. The Policy provides for a
Accumulated Value. The Accumulated Value will reflect the
amount and frequency of premium payments, the investment
experience of the chosen subaccounts of the Variable
Account, the interest earned on the Accumulated Value in
the Declared Interest Option, any Policy Loans, any
partial surrenders and the charges imposed in connection
with the Policy. The entire investment risk for amounts
allocated to the Variable Account is borne by the
Policyowner; the Company does not guarantee a minimum
Accumulated Value. (See "POLICY BENEFITS--Accumulated
Value Benefits--CALCULATION OF ACCUMULATED VALUE.")
The Policyowner may, at any time, surrender a Policy and
receive the Net Surrender Value. Subject to certain
limitations, the Policyowner may also obtain a partial
withdrawal of Net Accumulated Value (minimum $500) at any
time prior to the Maturity Date. Partial withdrawals will
reduce both the Accumulated Value and death proceeds
payable under the Policy. (See "POLICY
BENEFITS--Accumulated Value Benefits--SURRENDER AND
WITHDRAWAL PRIVILEGES.") A charge will be assessed upon
surrender or partial withdrawal. (See "CHARGES AND
DEDUCTIONS--Partial Withdrawal Fee, and --Surrender
Charge.")
TRANSFERS. A Policyowner may transfer amounts (minimum
$100) among the subaccounts of the Variable Account an
unlimited number of times in a Policy Year; however, only
one transfer per Policy Year may be made between the
Declared Interest Option and the Variable Account. The
first transfer in a Policy Year is free; subsequent
transfers in that Policy Year will be assessed a charge
of $25. The transfer charge, unless paid in cash, will be
deducted from the amount transferred. (See "POLICY
BENEFITS--Transfers.") A transfer from the Variable
Account to the Declared Interest Option requested in
connection with the exercise of the special transfer
privilege under the Policy (see "THE POLICY--Special
Transfer Privilege") will not be considered a transfer
for purposes of the one-transfer limit or the $25 charge.
POLICY LOANS. So long as a Policy is in force and has a
positive Net Surrender Value, the Policyowner may borrow
up to 90% of the Policy's Net Surrender Value as of the
end of the Valuation Period during which the request for
the Policy Loan is received at the Home Office, less any
previously outstanding Policy Debt. (See "POLICY
BENEFITS-- Loan Benefits.") A loan taken from, or secured
by, a Policy may have federal income tax consequences.
(See "FEDERAL TAX MATTERS--Policy Proceeds.")
DEATH PROCEEDS. The Policies provide for the payment of
death proceeds following receipt by the Company (at its
Home Office) of Due Proof of Death of the Insured. The
Policy contains two death benefit options. Under Option
A, the death benefit is the greater of the sum of the
Specified Amount and the Policy's Accumulated Value, or
the Accumulated Value multiplied by the specified amount
factor for the Insured's Attained Age, as set forth in
the Policy. Under Option B, the death benefit is the
greater of the Specified Amount, or the Accumulated Value
multiplied by the specified amount factor for the
Insured's Attained Age, as set forth in the Policy. For
this purpose, all calculations are made as of the end of
the Business Day coinciding with or immediately following
the date of death.
Under either death benefit option, so long as the Policy
remains in force, the death benefit will not be less than
the Specified Amount of the Policy on the date of death.
6
<PAGE>
The death benefit may, however, exceed the Specified
Amount. The amount by which the death benefit exceeds the
Specified Amount depends upon the death benefit option
chosen and the Accumulated Value of the Policy. (See
"POLICY BENEFITS-- Death Proceeds.") To determine the
death proceeds, the death benefit will be reduced by any
outstanding Policy Debt and increased by any unearned
loan interest and any premiums paid after the date of
death. The proceeds may be paid in a lump sum or in
accordance with a payment option. (See "POLICY
BENEFITS--Payment Options.")
Anytime after the first Policy Year, the Policyowner may,
subject to certain restrictions, adjust the death benefit
payable under the Policy by increasing or decreasing the
Specified Amount. (See "POLICY BENEFITS--Death
Proceeds--CHANGE IN EXISTING COVERAGE.") In addition, the
Policyowner may, at any time, change the death benefit
option in effect. (See "POLICY BENEFITS--Death
Proceeds--CHANGE IN DEATH BENEFIT OPTION.")
BENEFITS AT MATURITY. If the Insured is alive and the
Policy is in force on the Maturity Date, the Policyowner
will be paid the Accumulated Value of the Policy as of
the end of the Business Day coinciding with or
immediately following the Maturity Date, reduced by any
outstanding Policy Debt.
- - --------------------------------------------------------------------------------
CHARGES PREMIUM EXPENSE CHARGE. The Net Premium equals the
premium paid less a premium expense charge. The premium
expense charge is 7.0% of each premium up to the Target
Premium (or 2% for each premium over the Target Premium)
and is used to compensate the Company for expenses
incurred in connection with the distribution of the
Policies and for premium taxes imposed by various states
and subdivisions thereof. (See "CHARGES AND
DEDUCTIONS--Premium Expense Charge.")
ACCUMULATED VALUE CHARGES. Accumulated Value will be
reduced each Policy Month on the Monthly Deduction Day by
a monthly deduction equal to the sum of a cost of
insurance charge, the cost of any additional insurance
benefits added by rider and a policy expense charge of
$5.00 per month (guaranteed not to exceed $7.00 per
month). In addition, during the first twelve Policy
Months and during the twelve Policy Months immediately
following an increase in Specified Amount, the monthly
deduction will include a first year monthly
administrative charge. This charge is $0.05 per $1,000 of
Specified Amount or increase in Specified Amount and is
guaranteed not to exceed $0.07 per $1,000 of Specified
Amount. Also, during the first twelve Policy Months, the
monthly deduction will include a first year monthly
expense charge of $5.00 per month (guaranteed not to
exceed $7.00 per month). The monthly deduction will vary
in amount from month to month. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.")
Upon partial withdrawal of a Policy, a fee of the lesser
of $25 or 2% of the amount withdrawn will be assessed. At
the time of surrender, a charge will apply during the
first ten Policy Years, as well as during the first ten
Policy Years following an increase in Specified Amount.
The surrender charge is an amount per $1,000 of Specified
Amount which varies by age, sex, underwriting category
and Policy Year. The surrender charge applicable to each
Policyowner will be listed in the Policy. (See "CHARGES
AND DEDUCTIONS--Partial Withdrawal Fee, and --Surrender
Charge.") During a Policy Year, a $25 charge may be
assessed for the second and subsequent transfers of
assets among the Subaccounts and between the Variable
Account and the Declared Interest Option. (See "CHARGES
AND DEDUCTIONS--Transfer Charge.")
CHARGES AGAINST THE VARIABLE ACCOUNT. A daily charge at
the rate of .0024548% of the average daily net assets of
each Subaccount will be imposed to compensate the Company
for certain mortality and expense risks incurred in
connection with the Policies. (See "CHARGES AND
DEDUCTIONS--Variable Account Charges.") This corresponds
to an effective annual rate of 0.90%. (This charge is
guaranteed not to exceed .0028618% of the average daily
net assets of each Subaccount, which corresponds to an
effective annual rate of 1.05%.)
7
<PAGE>
Currently, no charge is made to the Variable Account for
federal income taxes that may be attributable to the
Variable Account. The Company may, however, make such a
charge in the future.
INVESTMENT OPTION EXPENSES. In addition, because the
Variable Account purchases shares of the selected
Investment Options, the value of the net assets of the
Variable Account will reflect the investment advisory fee
and other expenses incurred by each Investment Option.
The fees and expenses for 1997 were as indicated in the
table below. (See "CHARGES AND DEDUCTIONS--Variable
Account Charges--INVESTMENT OPTION EXPENSES.")
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL EXPENSES
ADVISORY (AFTER WAIVER OR (AFTER WAIVER OR
INVESTMENT OPTION FEE REIMBURSEMENT) REIMBURSEMENT)
- - --------------------------------- ---------- ---------------- ----------------
<S> <C> <C> <C>
EquiTrust Variable Insurance
Series Fund*
Value Growth 0.45% 0.10% 0.55%(1)
High Grade Bond 0.30% 0.22% 0.52%
High Yield Bond 0.45% 0.12% 0.57%(1)
Money Market 0.25% 0.33% 0.48%(1)
Blue Chip 0.20% 0.13% 0.33%
T. Rowe Price Equity Series, Inc.
Equity Income 0.85% 0.00% 0.85%(2)
Mid-Cap Growth 0.85% 0.00% 0.85%(2)
New America Growth 0.85% 0.00% 0.85%(2)
Personal Strategy Balanced 0.90% 0.00% 0.90%(2)
T. Rowe Price International
Series, Inc.
International Stock 1.05% 0.00% 1.05%(2)
Dreyfus Variable Investment Fund
Capital Appreciation 0.75% 0.05% 0.80%(3)
Disciplined Stock 0.75% 0.27% 1.02%(3)
Growth and Income 0.75% 0.05% 0.80%(3)
International Equity 0.75% 0.31% 1.06%(3)
Small Cap 0.75% 0.03% 0.78%(3)
</TABLE>
* The annual investment option expenses for each
Investment Option of the Fund are net of certain
reimbursements by the Fund's investment adviser.
Operating expense (including the investment
advisory fee but excluding brokerage, interest,
taxes and extraordinary expenses) of an
Investment Option that exceed 1.50% of the
Investment Option's average daily net assets for
any fiscal year are reimbursed by the Fund's
investment adviser up to the amount of the
advisory fee. In addition, the investment
adviser has voluntarily agreed to reimburse each
Portfolio for expenses that exceed 0.65%. Absent
the reimbursements, the total expenses for the
Investment Options for the 1997 fiscal year
would have been: Value Growth 0.58%, High Grade
Bond 0.57%, High Yield Bond 0.65% and Money
Market 0.55%.
(1) Total annual investment option expenses have
been restated for the reduction in management
fees from 0.50% to 0.45% for the Value Growth
and High Yield Bond Investment Options and 0.30%
to 0.25% for the Money Market Investment Option,
effective May 1, 1997.
(2) Total annual investment option expenses are an
all-inclusive fee and pay for investment
management services and other operating costs.
(3) The investment adviser may waive receipt of its
fees and/or voluntarily assume certain expenses.
Total expenses were not reduced for the 1997
fiscal year.
8
<PAGE>
- - --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
The Policies will be distributed by registered
representatives of broker-dealers who have entered into
written selling agreements with EquiTrust Marketing
Services, Inc. ("EquiTrust Marketing"), the principal
underwriter of the Policies. EquiTrust Marketing
Services, Inc. (formerly FBL Marketing Services, Inc.) is
registered as a broker-dealer with the Securities and
Exchange Commission and is a member of the National
Association of Securities Dealers, Inc.
- - --------------------------------------------------------------------------------
TAX TREATMENT If a Policy is issued on the basis of a standard premium
class, while there is some uncertainty, the Company
believes that the Policy should qualify as a life
insurance contract for federal income tax purposes. If a
Policy is issued on a substandard basis, it is not clear
whether or not the Policy would qualify as a life
insurance contract for federal income tax purposes.
Assuming that a Policy qualifies as a life insurance
contract for federal income tax purposes, the Accumulated
Value under a Policy should be subject to the same
federal income tax treatment as Accumulated value under a
conventional fixed-benefit Policy. Under existing tax
law, the Policyowner is not deemed to be in constructive
receipt of Accumulated Values under a Policy until there
is a distribution from the Policy. Like death benefits
payable under conventional life insurance policies, death
proceeds payable under a Policy should be completely
excludable from the gross income of the Beneficiary. As a
result, the Beneficiary generally will not be taxed on
these proceeds. (See "FEDERAL TAX MATTERS.")
- - --------------------------------------------------------------------------------
CANCELLATION PRIVILEGE The Policyowner is granted a 20-day period following
receipt of the Policy in which to examine and return the
Policy. The Policyowner will receive the greater of
premiums paid or the Policy's Accumulated Value plus an
amount equal to any charges which have been deducted from
premiums, Accumulated Value and the Variable Account.
(See "THE POLICY--Examination of Policy (Cancellation
Privilege).")
- - --------------------------------------------------------------------------------
ILLUSTRATIONS Sample projections of hypothetical Policy values are
included starting at page A-1 of this Prospectus. These
projections of hypothetical values may be helpful in
understanding the long-term effects of different levels
of investment performance, charges and deductions,
electing one or the other death benefit option and
generally in comparing this Policy to other life
insurance policies. NONETHELESS, THE ILLUSTRATIONS ARE
BASED ON HYPOTHETICAL INVESTMENT RATES OF RETURN AND ARE
NOT A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
Actual rates of return may be more or less than those
reflected in the illustrations and, therefore, actual
values will be different from those illustrated.
This Prospectus describes only those aspects of the
Policy that relate to the Variable Account, except where
Declared Interest Option matters are specifically
mentioned. For a brief summary of the aspects of the
Policy relating to the Declared Interest Option, see "THE
DECLARED INTEREST OPTION."
- - --------------------------------------------------------------------------------
AMERICAN EQUITY INVESTMENT LIFE INSURANCE
COMPANY AND THE VARIABLE ACCOUNT
- - --------------------------------------------------------------------------------
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
The Company is a full service underwriter of annuity and
insurance products which was incorporated in the State of
Iowa on December 19, 1980. The Company markets its
products through a network of over 4,500 independent
agents in the states of Alabama, Arizona, Arkansas,
California, Colorado, Delaware, Florida, Georgia, Hawaii,
Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maryland, Michigan, Minnesota, Missouri,
Montana, Nebraska, Nevada, New Mexico, North Dakota,
Ohio, Oregon, Pennsylvania, South Carolina, South Dakota,
Texas, Utah, Washington, West Virginia, Wisconsin,
Wyoming and the District of Columbia.
9
<PAGE>
- - --------------------------------------------------------------------------------
THE VARIABLE ACCOUNT The Variable Account was established by the Company as a
separate account on January 12, 1998. The Variable
Account will receive and invest the Net Premiums paid
under the Policies. In addition, the Variable Account may
receive and invest net premiums for any other variable
life insurance policies issued in the future by the
Company.
Although the assets in the Variable Account are the
property of the Company, the assets in the Variable
Account attributable to the Policies generally are not
chargeable with liabilities arising out of any other
business which the Company may conduct. The assets of the
Variable Account are available to cover the general
liabilities of the Company only to the extent that the
Variable Account's assets exceed its liabilities arising
under the Policies and any other policies supported by
the Variable Account. The Company has the right to
transfer to the General Account any assets of the
Variable Account which are in excess of such reserves and
other policy liabilities.
The Variable Account currently is divided into fifteen
Subaccounts but may, in the future, include additional
subaccounts. Each Subaccount invests exclusively in
shares of a single corresponding Investment Option.
Income and realized and unrealized gains or losses from
the assets of each Subaccount are credited to or charged
against, that Subaccount without regard to income, gains
or losses from any other Subaccount.
The Variable Account has been registered as a unit
investment trust under the Investment Company Act of 1940
and meets the definition of a separate account under the
federal securities laws. Registration with the Securities
and Exchange Commission does not involve supervision of
the management or investment practices or policies of the
Variable Account or the Company by the Commission. The
Variable Account is also subject to the laws of the State
of Iowa which regulate the operations of insurance
companies domiciled in Iowa.
- - --------------------------------------------------------------------------------
INVESTMENT OPTIONS The Variable Account invests in shares of the Investment
Options. The Investment Options currently include the
Value Growth Portfolio, High Grade Bond Portfolio, High
Yield Bond Portfolio, Money Market Portfolio and Blue
Chip Portfolio of EquiTrust Variable Insurance Series
Fund; the Equity Income Portfolio, Mid-Cap Growth
Portfolio, New America Portfolio and Personal Strategy
Balanced Portfolio of T. Rowe Price Equity Series, Inc.
and International Stock Portfolio of T. Rowe Price
International Series, Inc.; and the Capital Appreciation
Portfolio, Disciplined Stock Portfolio, Growth and Income
Portfolio, International Equity Portfolio and Small Cap
Portfolio of Dreyfus Variable Investment Fund. The
Variable Account may, in the future, provide for
additional investment options. Each Investment Option has
its own investment objectives and the income and losses
for each Investment Option will be determined separately.
The investment objectives and policies of each Investment
Option are summarized below. There is no assurance that
any Investment Option will achieve its stated objectives.
More detailed information, including a description of
risks, may be found in the prospectus for each Investment
Option, which must accompany or precede this Prospectus
and which should be read carefully and retained for
future reference.
EQUITRUST VARIABLE INSURANCE SERIES FUND
EquiTrust Investment Management Services, Inc. is the
investment adviser to the Fund. The Fund is comprised of
six portfolios, the following five of which are available
under the Contract:
VALUE GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation. The Portfolio pursues
its objective by investing primarily in equity
securities of companies that the investment adviser
believes have a potential to earn a high return on
equity and/or in equity securities that the
investment adviser believes are undervalued by the
market place. Such equity securities may include
common stock, preferred stock and securities
convertible or exchangeable into common stock.
10
<PAGE>
HIGH GRADE BOND PORTFOLIO. This Portfolio seeks as
high a level of current income as is consistent with
a high grade portfolio of debt securities. The
Portfolio will pursue this objective by investing
primarily in debt securities rated AAA, AA or A by
Standard & Poor's Corporation and/or Aaa, Aa or A by
Moody's Investors Service, Inc., and in securities
issued or guaranteed by the United States government
or its agencies or instrumentalities.
HIGH YIELD BOND PORTFOLIO. This Portfolio seeks, as a
primary objective, as high a level of current income
as is consistent with investment in a portfolio of
fixed-income securities rated in the lower categories
of established rating services. As a secondary
objective, the Portfolio seeks capital appreciation
when consistent with its primary objective. The
Portfolio pursues these objectives by investing
primarily in fixed-income securities rated Baa or
lower by Moody's Investors Service, Inc. and/or BBB
or lower by Standard & Poor's Corporation, or in
unrated securities of comparable quality. AN
INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK. (See the Fund Prospectus
"PRINCIPAL RISK FACTORS--Special Considerations--High
Yield Bonds.")
MONEY MARKET PORTFOLIO. This Portfolio seeks maximum
current income consistent with liquidity and
stability of principal. The Portfolio will pursue
this objective by investing in high quality
short-term money market instruments. AN INVESTMENT IN
THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
BLUE CHIP PORTFOLIO. This Portfolio seeks growth of
capital and income. The Portfolio pursues this
objective by investing primarily in common stocks of
well-capitalized, established companies. Because this
Portfolio may be invested heavily in particular
stocks or industries, an investment in this Portfolio
may entail relatively greater risk of loss.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Associates, Inc. is the investment adviser
to the Fund.
EQUITY INCOME PORTFOLIO. This Portfolio seeks to
provide substantial dividend income and long-term
capital appreciation by investing primarily in
established companies considered by the adviser to
have favorable prospects for both increasing
dividends and capital appreciation.
MID-CAP GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation by investing primarily
in common stocks of medium-sized (mid-cap) growth
companies which offer the potential for above-average
earnings growth.
NEW AMERICA GROWTH PORTFOLIO. This Portfolio seeks
long-term capital growth by investing primarily in
common stocks of U.S. growth companies operating in
service industries.
PERSONAL STRATEGY BALANCED PORTFOLIO. This Portfolio
seeks the highest total return over time consistent
with an emphasis on both capital appreciation and
income.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
Rowe Price-Fleming International, Inc. is the investment
adviser to the Fund.
INTERNATIONAL STOCK PORTFOLIO. This Portfolio seeks
to provide capital appreciation through investments
primarily in established companies based outside the
United States.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Corporation serves as the investment adviser
to the Fund. Fayez Sarofim and Co. serves as the
sub-investment adviser to the Capital Appreciation
Portfolio. The Fund consists of thirteen portfolios, the
following of which are available under the Contract.
11
<PAGE>
CAPITAL APPRECIATION PORTFOLIO. This Portfolio seeks
long-term capital growth, consistent with the
preservation of capital; current income is a
secondary investment objective. This Portfolio
invests primarily in the common stocks of domestic
and foreign companies.
DISCIPLINED STOCK PORTFOLIO. This Portfolio seeks to
provide investment results that are greater than the
total return performance of publicly-traded common
stocks in the aggregate, as represented by the
Standard & Poor's 500 Composite Stock Price Index.
GROWTH AND INCOME PORTFOLIO. This Portfolio seeks to
provide long-term capital growth, current income and
growth of income, consistent with reasonable
investment risk by investing in stocks, bonds and
money market instruments of domestic and foreign
issuers.
INTERNATIONAL EQUITY PORTFOLIO. This Portfolio seeks
to maximize capital growth through investments in
equity securities of foreign issuers.
SMALL CAP PORTFOLIO. This Portfolio seeks maximum
capital appreciation by investing in companies, both
domestic and foreign, considered by the adviser to be
emerging smaller-sized companies which are believed
to be characterized by new or innovative products,
services or processes which should enhance prospects
for growth in future earnings.
The Funds currently sell shares: (a) to the Variable
Account as well as to separate accounts of insurance
companies that may or may not be affiliated with the
Company or each other; and (b) to separate accounts to
serve as the underlying investment for both variable
insurance policies and variable annuity contracts. The
Company currently does not foresee any disadvantages to
Policyowners arising from the sale of shares to support
variable annuity contracts and variable life insurance
policies, or from shares being sold to separate accounts
of insurance companies that may or may not be affiliated
with the Company. However, the Company intends to monitor
events in order to identify any material irreconcilable
conflicts that might possibly arise. In that event, it
would determine what action, if any, should be taken in
response to those events or conflicts. In addition, if
the Company believes that a Fund's response to any of
those events or conflicts insufficiently protects
Policyowners, it will take appropriate action on its own,
including withdrawing the Variable Account's investment
in that Fund. (See the Fund prospectuses for more
detail.)
The Company may receive compensation from an affiliate(s)
of one or more of the Funds based upon an annual
percentage of the average assets held in the Investment
Options by the Company. These amounts are intended to
compensate the Company for administrative and other
services provided by the Company to the Funds and/or
affiliate(s).
Each Fund is registered with the Securities and Exchange
Commission as an open-end, diversified management
investment company. Such registration does not involve
supervision of the management or investment practices or
policies of the Fund by the Securities and Exchange
Commission.
- - --------------------------------------------------------------------------------
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to compliance
with applicable law, to make additions to, deletions from
or substitutions for the shares of the Investment Options
that are held by the Variable Account or that the
Variable Account may purchase. If the shares of an
Investment Option are no longer available for investment
or if, in its judgment, further investment in any
Investment Option should become inappropriate in view of
the purposes of the Variable Account, the Company
reserves the right to dispose of the shares of any
Investment Option and to substitute shares of another
Investment Option. The Company will not substitute any
shares attributable to a Policyowner's Accumulated Value
in the Variable Account without notice to and prior
approval of the Securities and Exchange Commission, to
the extent required by the Investment Company Act of 1940
or other applicable law. Nothing contained in
12
<PAGE>
this Prospectus shall prevent the Variable Account from
purchasing other securities for other series or classes
of policies, or from permitting a conversion between
series or classes of policies on the basis of requests
made by Policyowners.
The Company also reserves the right to establish
additional subaccounts of the Variable Account, each of
which would invest in shares of a new Investment Option
with a specified investment objective. New subaccounts
may be established when, in the sole discretion of the
Company, marketing, tax or investment conditions warrant,
and any new subaccounts may be made available to existing
Policyowners on a basis to be determined by the Company.
Subject to obtaining any approvals or consents required
by applicable law, the assets of one or more Subaccounts
may be transferred to any other Subaccount(s), or one or
more Subaccounts may be eliminated or combined with any
other Subaccount(s) if, in the sole discretion of the
Company, marketing, tax or investment conditions warrant.
In the event of any such substitution or change, the
Company may, by appropriate endorsement, make such
changes in these and other policies as may be necessary
or appropriate to reflect such substitution or change. If
deemed by the Company to be in the best interests of
persons having voting rights under the Policies, the
Variable Account may be operated as a management company
under the Investment Company Act of 1940, may be
deregistered under that Act in the event such
registration is no longer required, or, subject to
obtaining any approvals or consents required by
applicable law, may be combined with other Company
separate accounts. To the extent permitted by applicable
law, the Company may also transfer the assets of the
Variable Account associated with the Policies to another
separate account. In addition, the Company may, when
permitted by law, restrict or eliminate any voting rights
of Policyowners or other persons who have voting rights
as to the Variable Account. (See "ADDITIONAL
INFORMATION--Voting Rights.")
- - --------------------------------------------------------------------------------
THE POLICY
- - --------------------------------------------------------------------------------
PURPOSE OF THE POLICY The Policy is designed to provide the Policyowner with
both lifetime insurance protection and significant
flexibility in connection with the amount and frequency
of premium payments and the level of death proceeds
payable under a Policy. Unlike conventional life
insurance, the Policyowner is not required to pay
scheduled premiums to keep a Policy in force, but may,
subject to certain limitations, vary the frequency and
amount of premium payments. Moreover, the Policy allows a
Policyowner to adjust the level of death proceeds payable
under a Policy, without having to purchase a new policy,
by increasing or decreasing the Specified Amount. Thus,
as insurance needs or financial conditions change, the
Policyowner has the flexibility to adjust death proceeds
and vary premium payments.
The Policy varies from conventional fixed-benefit life
insurance in a number of additional respects. Because the
death proceeds may, and the Accumulated Value will, vary
with the investment experience of the chosen Subaccounts,
the Policyowner bears the investment risk of any
depreciation of, but reaps the benefit of any
appreciation in, the value of the underlying assets. As a
result, whether or not a Policy continues in force may
depend in part upon the investment experience of the
chosen Subaccounts. The failure to pay a planned periodic
premium will not necessarily cause the Policy to lapse,
but the Policy could lapse even if planned periodic
premiums have been paid, depending upon the investment
experience of the Variable Account.
Life Insurance is not a short-term investment.
Prospective policyowners should consider their need for
insurance coverage and the Policy's long-term investment
potential. A prospective policyowner who already has life
insurance coverage should consider whether or not
changing or adding to existing coverage would be
advantageous. Generally, it is not advisable to purchase
another policy to replace an existing policy.
13
<PAGE>
- - --------------------------------------------------------------------------------
PURCHASING THE POLICY Before it will issue a Policy, the Company must receive a
completed application, including payment of the initial
premium, at its Administrative Office. A Policy
ordinarily will be issued only for Insureds who are 0 to
80 years of age at their last birthday and who supply
satisfactory evidence of insurability to the Company.
Acceptance is subject to the Company's underwriting rules
and the Company may, in its sole discretion, reject any
application or premium for any reason. The minimum
Specified Amount for which a Policy will be issued is
normally $50,000, although the Company may, in its
discretion, issue Policies with Specified Amounts of less
than $50,000.
The Policy Date will be the later of (i) the date of the
initial application, or (ii) if additional medical or
other information is required pursuant to the Company's
underwriting rules, the date all such additional
information is received by the Company at its
Administrative Office. The Policy Date may also be any
other date mutually agreed to by the Company and the
Policyowner. If the later of (i) and (ii) above is the
29th, 30th or 31st of any month, the Policy Date will be
the 28th of such month. The Policy Date is the date used
to determine Policy Years, Policy Months and Policy
Anniversaries. The Policy Date may, but will not always,
coincide with the effective date of insurance coverage
under the Policy.
The effective date of insurance coverage under the Policy
will be the later of (i) the Policy Date, (ii) if an
amendment to the initial application is required pursuant
to the Company's underwriting rules, the date the Insured
signs the last such amendment, or (iii) the date on which
the full initial premium is received by the Company at
its Administrative Office.
- - --------------------------------------------------------------------------------
PREMIUMS Subject to certain limitations, a Policyowner has
flexibility in determining the frequency and amount of
premiums.
PREMIUM FLEXIBILITY. Unlike conventional insurance
policies, the Policy frees the Policyowner from the
requirement that premiums be paid in accordance with a
rigid and inflexible premium schedule. The Company may
require the Policyowner to pay an initial premium that,
when reduced by the premium expense charge (see "CHARGES
AND DEDUCTIONS--Premium Expense Charge"), will be
sufficient to pay the monthly deduction for the first
Policy Month. Thereafter, subject to the minimum and
maximum premium limitations described below, a
Policyowner may also make unscheduled premium payments at
any time prior to the Maturity Date.
PLANNED PERIODIC PREMIUMS. Each Policyowner will
determine a planned periodic premium schedule that
provides for the payment of a level premium over a
specified period of time on a quarterly, semi-annual or
annual basis. The Company may, at its discretion, permit
planned periodic payments to be made on a monthly basis.
Periodic reminder notices ordinarily will be sent to the
Policyowner for each planned periodic premium. Depending
on the duration of the planned periodic premium schedule,
the timing of planned payments could affect the tax
status of the Policy. (See "FEDERAL TAX MATTERS.")
The Policyowner is not required to pay premiums in
accordance with the planned periodic premium schedule.
Furthermore, the Policyowner has considerable flexibility
to alter the amount, frequency and the time period over
which planned periodic premiums are paid; however, no
planned periodic payment may be less than $100 without
the Company's consent. Changes in the planned premium
schedule may have federal income tax consequences. (See
"FEDERAL TAX MATTERS.")
The payment of a planned periodic premium will not
guarantee that the Policy remains in force. Instead, the
duration of the Policy depends upon the Policy's
Accumulated Value. Thus, even if planned periodic
premiums are paid by the Policyowner, the Policy will
nevertheless lapse if, during the first three Policy
Years, Net Accumulated Value or, after three Policy
Years, Net Surrender Value is insufficient
14
<PAGE>
on a Monthly Deduction Day to cover the monthly deduction
(see "CHARGES AND DEDUCTIONS--Monthly Deduction") and a
Grace Period expires without a sufficient payment (see
"THE POLICY--Policy Lapse and Reinstatement--LAPSE").
UNSCHEDULED PREMIUMS. Each unscheduled premium payment
must be at least $100; however, the Company may, in its
discretion, waive this minimum requirement. The Company
reserves the right to limit the number and amount of
unscheduled premium payments. An unscheduled premium
payment may have federal income tax consequences. (See
"FEDERAL TAX MATTERS.")
PREMIUM LIMITATIONS. In no event may the total of all
premiums paid, both planned periodic and unscheduled,
exceed the applicable maximum premium limitation imposed
by federal tax laws. Because the maximum premium
limitation is in part dependent upon the Specified Amount
for each Policy, changes in the Specified Amount may
affect this limitation. If at any time a premium is paid
which would result in total premiums exceeding the
applicable maximum premium limitation, the Company will
accept only that portion of the premium which will make
total premiums equal the maximum. Any part of the premium
in excess of that amount will be returned and no further
premiums will be accepted until allowed by the applicable
maximum premium limitation.
PAYMENT OF PREMIUMS. Payments made by the Policyowner
will be treated first as payment of any outstanding
Policy Debt unless the Policyowner indicates that the
payment should be treated otherwise. Where no indication
is made, any portion of a payment that exceeds the amount
of any outstanding Policy Debt will be treated as a
premium payment.
NET PREMIUMS. The Net Premium is the amount available for
investment. The Net Premium equals the premium paid less
the premium expense charge. (See "CHARGES AND
DEDUCTIONS--Premium Expense Charge.")
ALLOCATION OF NET PREMIUMS. In the application for a
Policy, the Policyowner can allocate Net Premiums or
portions thereof to the Subaccounts, to the Declared
Interest Option, or both. Notwithstanding the allocation
in the application, the Net Premiums will first be
allocated to the Declared Interest Option as of the Issue
Date. When the Company receives, at its Administrative
Office, a notice signed by the Policyowner that the
Policy has been received and accepted, the Policy's
Accumulated Value in the Declared Interest Option
automatically will be allocated, without charge, among
the Subaccounts and the Declared Interest Option in
accordance with the Policyowner's percentage allocation
in the application. The Policyowner does not waive his
cancellation privilege by sending the signed notice of
receipt and acceptance of the Policy to the Company (see
"THE POLICY--Examination of Policy (Cancellation
Privilege)").
Net Premiums received after the date the Company receives
the signed notice will be allocated in accordance with
the Policyowner's percentage allocation in the
application or the most recent written instructions of
the Policyowner. The minimum percentage of each premium
that may be allocated to any subaccount of the Variable
Account or to the Declared Interest Option is 10%; no
fractional percentages will be permitted. The allocation
for future Net Premiums may be changed without charge, at
any time while the Policy is in force, by providing the
Company with written notice on a form acceptable to the
Company signed by the Policyowner. The change will take
effect on the date the written notice is received at the
Administrative Office and will have no effect on prior
cash values.
- - --------------------------------------------------------------------------------
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the
failure to make a planned periodic premium payment will
not itself cause a Policy to lapse. Lapse will only occur
during the first three Policy Years when Net Accumulated
Value is insufficient on a Monthly Deduction Day to cover
the monthly deduction, or after three Policy Years when
Net Surrender Value is insufficient on a Monthly
Deduction Day to cover the monthly deduction (see
"CHARGES AND DEDUCTIONS--Monthly Deduction"), and a Grace
Period expires without a sufficient payment. Insurance
coverage will continue
15
<PAGE>
during the Grace Period, but the Policy will be deemed to
have no Accumulated Value for purposes of Policy Loans
and surrenders during such Grace Period. The death
proceeds payable during the Grace Period will equal the
amount of the death proceeds payable immediately prior to
the commencement of the Grace Period, reduced by any due
and unpaid monthly deductions.
To avoid lapse and termination of the Policy without
value, the Company must receive from the Policyowner
during the Grace Period a premium payment that, when
reduced by the premium expense charge (see "CHARGES AND
DEDUCTIONS-- Premium Expense Charge"), will be at least
equal to three times the monthly deduction due on the
Monthly Deduction Day immediately preceding the Grace
Period (see "CHARGES AND DEDUCTIONS--Monthly Deduction").
A Grace Period of 61 days will commence on the date the
Company sends a notice of any insufficiency to the
Policyowner.
REINSTATEMENT. Prior to the Maturity Date, a lapsed
Policy may be reinstated at any time within five years of
the Monthly Deduction Day immediately preceding the Grace
Period which expired without payment of the required
premium. Reinstatement is effected by submitting the
following items to the Company:
1. A written application for reinstatement signed
by the Policyowner and the Insured;
2. Evidence of insurability satisfactory to the
Company;
3. A premium that, after the deduction of the
premium expense charge, is at least sufficient
to keep the Policy in force for three months;
and
4. An amount equal to the monthly cost of insurance
for the two Policy Months prior to lapse.
(State law may limit the premium to be paid on
reinstatement to an amount less than that described.) To
the extent that the first year monthly administrative
charge was not deducted for a total of twelve Policy
Months prior to lapse, such charge will continue to be
deducted following reinstatement of the Policy until such
charge has been assessed, both before and after the
lapse, for a total of 12 Policy Months. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.") The Company will not
reinstate a Policy surrendered for its Net Surrender
Value. The lapse of a Policy with loans outstanding may
have adverse tax consequences (see "FEDERAL TAX
MATTERS--Policy Proceeds").
The effective date of the reinstated Policy will be the
Monthly Deduction Day coinciding with or next following
the date the Company approves the application for
reinstatement.
- - --------------------------------------------------------------------------------
EXAMINATION OF POLICY (CANCELLATION PRIVILEGE)
The Policyowner may cancel the Policy by delivering or
mailing written notice or sending a telegram to the
Company at its Administrative Office, and returning the
Policy to the Company at its Administrative Office before
midnight of the twentieth day after the Policyowner
receives the Policy. Notice given by mail and return of
the Policy by mail are effective on being postmarked,
properly addressed and postage prepaid.
With respect to all Policies, the Company will refund,
within seven days after receipt of satisfactory notice of
cancellation and the returned Policy at its
Administrative Office, the greater of premiums paid or
the Policy's Accumulated Value plus an amount equal to
any charges which have been deducted from premiums,
Accumulated Value and the Variable Account.
- - --------------------------------------------------------------------------------
SPECIAL TRANSFER PRIVILEGE
A Policyowner may, at any time prior to the Maturity Date
while the Policy is in force, convert the Policy to a
flexible premium fixed-benefit life insurance policy by
requesting that all of the Accumulated Value in the
Variable Account be transferred to the Declared Interest
Option. The Policyowner may exercise this special
transfer privilege once each Policy Year. Once a
Policyowner exercises the special transfer privilege, all
future premium payments automatically will be credited to
the Declared Interest Option, until such time as the
Policyowner requests a change in allocation. No charge
will be imposed for any transfers resulting from the
exercise of the special transfer privilege.
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POLICY BENEFITS
- - --------------------------------------------------------------------------------
While a Policy is in force, it provides for certain
benefits prior to the Maturity Date. Subject to certain
limitations, the Policyowner may at any time obtain all
or a portion of the Net Accumulated Value by surrendering
or taking a partial withdrawal from the Policy. (See
"POLICY BENEFITS--Accumulated Value Benefits--SURRENDER
AND WITHDRAWAL PRIVILEGES.") In addition, the Policyowner
has certain policy loan privileges under the Policies.
(See "POLICY BENEFITS--Loan Benefits--POLICY LOANS.") The
Policy also provides for the payment of death proceeds
upon the death of the Insured under one of two death
benefit options selected by the Policyowner (see "POLICY
BENEFITS--Death Proceeds--DEATH BENEFIT OPTIONS"), and
benefits upon the maturity of a Policy (see "POLICY
BENEFITS--Benefits at Maturity").
- - --------------------------------------------------------------------------------
ACCUMULATED VALUE BENEFITS
SURRENDER AND WITHDRAWAL PRIVILEGES. At any time prior to
the Maturity Date while the Policy is in force, a
Policyowner may surrender the Policy or make a partial
withdrawal by sending a written request to the Company at
its Administrative Office. A surrender charge will apply
to any surrender during the first ten Policy Years, as
well as during the first ten years following an increase
in Specified Amount. A Partial Withdrawal Fee to cover
the cost of processing a withdrawal will be payable upon
each partial withdrawal. (See "CHARGES AND
DEDUCTIONS--Partial Withdrawal Fee, and --Surrender
Charge.") Surrender and withdrawal proceeds ordinarily
will be mailed to the Policyowner within seven days after
the Company receives a signed request for a surrender at
its Administrative Office, although payments may be
postponed under certain circumstances. (See "GENERAL
PROVISIONS--Postponement of Payments.")
SURRENDERS. The amount payable upon surrender of the
Policy is the Net Surrender Value at the end of the
Valuation Period during which the request is received.
This amount may be paid in a lump sum or under one of the
payment options specified in the Policy, as requested by
the Policyowner. (See "POLICY BENEFITS--Payment
Options.") Upon surrender, all insurance in force will
terminate. For a discussion of the tax consequences
associated with Surrenders, see "FEDERAL TAX MATTERS."
PARTIAL WITHDRAWALS. A Policyowner may obtain a portion
of the Policy's Net Surrender Value. The amount requested
for partial withdrawal must be at least $500 and cannot
exceed the lesser of (1) the Net Surrender Value less
$500, or (2) 90% of the Net Surrender Value. The Partial
Withdrawal Fee will be deducted from the remaining
Accumulated Value. The Policyowner may request that the
proceeds of a partial withdrawal be paid in a lump sum or
under one of the payment options specified in the Policy.
(See "POLICY BENEFITS--Payment Options.")
A partial withdrawal (together with the Partial
Withdrawal Fee) will be allocated among the Subaccounts
and the Declared Interest Option in accordance with the
written instructions of the Policyowner. If no such
instructions are received with the request for partial
withdrawal, the partial withdrawal will be allocated
among the Subaccounts and the Declared Interest Option in
the same proportion that the Accumulated Value in each of
the Subaccounts and the Accumulated Value in the Declared
Interest Option, reduced by any outstanding Policy Debt,
bears to the total Accumulated Value on the date the
request is received at the Administrative Office.
Partial withdrawals will affect both the Policy's
Accumulated Value and the death proceeds payable under
the Policy. The Policy's Accumulated Value will be
reduced by the amount of the partial withdrawal. If the
death benefit payable under either death benefit option
both before and after the partial withdrawal is equal to
the Accumulated Value multiplied by the specified amount
factor set forth in the Policy, a partial withdrawal will
result in a reduction in death proceeds equal to the
amount of the partial withdrawal, multiplied by the
specified amount factor then in effect. If the death
benefit is not so affected by the specified amount
factor, the reduction in death proceeds will be equal to
the partial withdrawal. (See "POLICY BENEFITS--Death
Proceeds.")
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<PAGE>
Partial withdrawals will reduce the Policy's Specified
Amount by the amount of Accumulated Value withdrawn if
Option B is in effect at the time of the withdrawal. If
Option A is in effect at the time of the withdrawal,
there will be no effect on Specified Amount. (See "POLICY
BENEFITS--Death Proceeds--DEATH BENEFIT OPTIONS.") The
Specified Amount remaining in force after a partial
withdrawal may not be less than the minimum Specified
Amount for the Policy in effect on the date of the
partial withdrawal, as published by the Company. As a
result, the Company will not process any partial
withdrawal that would reduce the Specified Amount below
this minimum. If increases in the Specified Amount
previously have occurred, a partial withdrawal will first
reduce the Specified Amount of the most recent increase,
then the next most recent increases successively, then
the coverage under the original application. Thus, a
partial withdrawal may either increase or decrease the
amount of the cost of insurance charge, depending upon
the particular circumstances. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction--COST OF INSURANCE.") For a
discussion of the tax consequences associated with
partial withdrawals, see "FEDERAL TAX MATTERS."
NET ACCUMULATED VALUE. Net Accumulated Value equals the
Policy's Accumulated Value reduced by any outstanding
Policy Debt and increased by any unearned loan interest.
CALCULATION OF ACCUMULATED VALUE. The Policy provides for
the accumulation of Accumulated Value. Accumulated Value
will be determined on each Business Day. A Policy's
Accumulated Value will reflect a number of factors,
including Net Premiums paid, partial withdrawals, Policy
Loans, charges assessed in connection with the Policy,
the interest earned on the Accumulated Value in the
Declared Interest Option and the investment performance
of the Subaccounts to which the Accumulated Value is
allocated. There is no guaranteed minimum Accumulated
Value. The Accumulated Value of the Policy is equal to
the sum of the Accumulated Values in each Subaccount,
plus the Accumulated Value in the Declared Interest
Option, including amounts transferred to the Declared
Interest Option to secure outstanding Policy Debt.
As of the Issue Date, the Policy's Accumulated Value
equals the initial Net Premium less the monthly deduction
made on the Policy Date.
On the Business Day coinciding with or immediately
following the date the Company receives notice that the
Policy has been received and accepted by the Policyowner,
the Policy's Accumulated Value (all of which is in the
Declared Interest Option) will be transferred
automatically among the Subaccounts and the Declared
Interest Option in accordance with such percentage
allocation instructions. At the end of each Valuation
Period thereafter, the Accumulated Value in a Subaccount
will equal:
(1) The total Subaccount units represented by
the accumulated value at the end of the
preceding valuation period, multiplied by
the Subaccount's unit value for the current
valuation period; PLUS
(2) Any Net Premiums received during the current
Valuation Period which are allocated to the
Subaccount; PLUS
(3) All Accumulated Values transferred to the
Subaccount from the Declared Interest Option
or from another Subaccount during the
current Valuation Period; MINUS
(4) All Accumulated Values transferred from the
Subaccount to another Subaccount or to the
Declared Interest Option during the current
Valuation Period, including amounts
transferred to the Declared Interest Option
to secure Policy Debt; MINUS
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<PAGE>
(5) All partial withdrawals (and any portion of
the Partial Withdrawal Fee) deducted from
the Subaccount during the current Valuation
Period; MINUS
(6) The portion of any monthly deduction charged
to the Subaccount during the current
Valuation Period to cover the Policy Month
following the Monthly Deduction Day.
The Policy's total Accumulated Value in the Variable
Account equals the sum of the Policy's Accumulated Value
in each Subaccount.
UNIT VALUE. Each Subaccount has a Unit Value. When Net
Premiums are allocated to, or other amounts are
transferred into, a Subaccount, a number of units are
purchased based on the Unit Value of the Subaccount as of
the end of the Valuation Period during which the transfer
is made. Likewise, when amounts are transferred out of a
Subaccount, units are redeemed on the same basis. On any
day, a Policy's Accumulated Value in a Subaccount is
equal to the number of units held in such Subaccount,
multiplied by the Unit Value of such Subaccount on that
date.
For each Subaccount, the Unit Value was initially set at
$10 when the Subaccount first purchased shares of the
designated Investment Option. The Unit Value for each
subsequent valuation period is calculated by dividing (a)
by (b) where:
(a) is (1) the Net Asset Value of the Subaccount
at the end of the preceding Valuation
Period, plus (2) the investment income and
capital gains, realized or unrealized,
credited to the net assets of that
Subaccount during the Valuation Period for
which the Unit Value is being determined,
minus (3) the capital losses, realized or
unrealized, charged against those assets
during the Valuation Period, minus (4) any
amount charged against the Subaccount for
taxes, or any amount set aside during the
Valuation Period by the Company as a
provision for taxes attributable to the
operation or maintenance of that Subaccount;
and minus (5) a charge equal to .0024548% of
the average daily net assets of the
Subaccount for each day in the Valuation
Period. This corresponds to an effective
annual rate of 0.90% of the average daily
net assets of the Subaccount for mortality
and expense risks incurred in connection
with the Policies. (This charge is
guaranteed not to exceed .0028618% of the
average daily net assets on each Subaccount,
which corresponds to an effective annual
rate of 1.05%.)
(b) is the number of units outstanding at the
end of the preceding Valuation Period.
The Unit Value for a Valuation Period applies for each
day in the period. The assets in the Variable Account
will be valued at their fair market value in accordance
with accepted accounting practices and applicable laws
and regulations.
- - --------------------------------------------------------------------------------
TRANSFERS Policyowners may transfer amounts among the Subaccounts
an unlimited number of times in a Policy Year; however,
only one transfer per Policy Year may be made between the
Declared Interest Option and the Variable Account.
Transfers are made by written request to the
Administrative Office or, if the Policyowner has elected
the "Telephone Transfer Authorization" on the
supplemental application, by calling the Administrative
Office toll-free at 888-349-4650. The amount of the
transfer must be at least $100 or the total Accumulated
Value in the Subaccount or in the Declared Interest
Option (reduced, in the case of the Declared Interest
Option, by any outstanding Policy Debt), if less than
$100. The Company may, at its discretion, waive the $100
minimum requirement. The transfer will be effective as of
the end of the Valuation Period during which the request
is received at the Administrative Office.
The first transfer in each Policy Year will be made
without charge; each time amounts are subsequently
transferred in that Policy Year, a transfer charge of $25
may be assessed. The transfer charge, unless paid in
cash, will be deducted from the amount transferred. Once
a Policy is issued, the amount of the transfer charge is
guaranteed for the life of the Policy. (See "CHARGES AND
DEDUCTIONS--Transfer Charge.")
For purposes of these limitations and charges, all
transfers effected on the same day will be considered a
single transfer.
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<PAGE>
- - --------------------------------------------------------------------------------
LOAN BENEFITS POLICY LOANS. So long as the Policy remains in force and
has a positive Net Surrender Value, a Policyowner may
borrow money from the Company at any time using the
Policy as the sole security for the Policy Loan. A loan
taken from, or secured by, a Policy may have federal
income tax consequences. (See "FEDERAL TAX MATTERS.")
The maximum amount that may be borrowed at any time is
90% of the Net Surrender Value as of the end of the
Valuation Period during which the request for the Policy
Loan is received at the Administrative Office. The
Company's claim for repayment of Policy Debt has priority
over the claims of any assignee or other person.
During any time that there is outstanding Policy Debt,
payments made by the Policyowner will be treated first as
payment of outstanding Policy Debt, unless the
Policyowner indicates that the payment should be treated
otherwise. Where no indication is made, any portion of a
payment that exceeds the amount of any outstanding Policy
Debt will be treated as a premium payment.
ALLOCATION OF POLICY LOAN. When a Policy Loan is made, an
amount equal to the Policy Loan will be segregated within
the Declared Interest Option as security for the Policy
Loan. If, immediately prior to the Policy Loan, the
Accumulated Value in the Declared Interest Option less
Policy Debt outstanding is less than the amount of such
Policy Loan, the difference will be transferred from the
subaccounts of the Variable Account, which have
Accumulated Value, in the same proportions that the
Policy's Accumulated Value in each Subaccount bears to
the Policy's total Accumulated Value in the Variable
Account. Accumulated Values will be determined as of the
end of the Valuation Period during which the request for
the Policy Loan is received at the Administrative Office.
Loan proceeds will normally be mailed to the Policyowner
within seven days after receipt of a written request.
Postponement of a Policy Loan may take place under
certain circumstances. (See "GENERAL
PROVISIONS--Postponement of Payments.")
Amounts segregated within the Declared Interest Option as
security for Policy Debt will bear interest at an
effective annual rate set by the Company. (See "POLICY
BENEFITS--Loan Benefits--EFFECT ON INVESTMENT
PERFORMANCE.")
LOAN INTEREST CHARGED. The interest rate charged on
Policy Loans is not fixed. The maximum annual loan
interest rate will be no greater than the "Published
Monthly Average of the Composite Yield on Seasoned
Corporate Bonds" as published by Moody's Investors
Service, Inc. or any successor thereto for the calendar
month ending two months before the date on which the rate
is determined; or 5.5%. The Company may at any time elect
to change the interest rate. The Company will send notice
of any change in rate to the Policyowner. The new rate
will take effect on the Policy Anniversary coinciding
with or next following the date the rate is changed.
Interest is payable in advance at the time any Policy
Loan is made (for the remainder of the Policy Year) and
on each Policy Anniversary thereafter (for the entire
Policy Year) so long as there is Policy Debt outstanding.
Interest payable at the time a Policy Loan is made will
be subtracted from the loan proceeds. Thereafter,
interest not paid when due will be added to the existing
Policy Debt and bear interest at the same rate charged
for Policy Loans. The amount equal to unpaid interest
will be segregated within the Declared Interest Option in
the same manner that amounts for Policy Loans are
segregated within the Declared Interest Option. (See
"POLICY BENEFITS-- Loan Benefits--ALLOCATION OF POLICY
LOAN.")
Because interest is charged in advance, any interest that
has not been earned will be added to the death benefit
payable at the Insured's death and to the Accumulated
Value upon complete surrender, and will be credited to
the Accumulated Value in the Declared Interest Option
upon repayment of Policy Debt.
EFFECT ON INVESTMENT PERFORMANCE. Amounts transferred
from the Variable Account as security for Policy Debt
will no longer participate in the investment performance
of the Variable Account. All amounts held in the Declared
Interest Option as security for
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<PAGE>
Policy Debt will be credited with interest on each
Monthly Deduction Day at an effective annual rate equal
to the greater of 4.0% or the current effective loan
interest rate minus no more than 3.0%, as determined and
declared by the Company. No additional interest will be
credited to these amounts. The interest credited will
remain in the Declared Interest Option unless and until
transferred by the Policyowner to the Variable Account,
but will not be segregated within the Declared Interest
Option as security for Policy Debt.
From time to time, the Company may allow, by Company
practice, a loan spread of 0% on the gain in a Policy in
effect a minimum of ten years.
Even though Policy Debt may be repaid in whole or in part
at any time prior to the Maturity Date if the Policy is
still in force, Policy Loans will affect the Accumulated
Value of a Policy and may affect the death proceeds
payable. The effect could be favorable or unfavorable
depending upon whether the investment performance of the
Subaccount(s) from which the Accumulated Value was
transferred is less than or greater than the interest
rates actually credited to the Accumulated Value
segregated within the Declared Interest Option as
security for Policy Debt while Policy Debt is
outstanding. In comparison to a Policy under which no
Policy Loan was made, Accumulated Value will be lower
where such interest rates credited were less than the
investment performance of the Subaccount(s), but will be
greater where such interest rates were greater than the
performance of the Subaccount(s). In addition, death
proceeds will reflect a reduction of the death benefit by
any outstanding Policy Debt.
POLICY DEBT. Policy Debt equals the sum of all unpaid
Policy Loans and any due and unpaid policy loan interest.
Policy Debt is not included in Net Accumulated Value,
which is equal to Accumulated Value less Policy Debt. If,
during the first three Policy Years, Net Accumulated
Value or, after three Policy Years, Net Surrender Value
is insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "Charges and Deductions--Monthly
Deduction"), the Company will notify the Policyowner. To
avoid lapse and termination of the Policy without value
(see "THE POLICY--Policy Lapse and
Reinstatement--LAPSE"), the Policyowner must, during the
Grace Period, make a premium payment that, when reduced
by the premium expense charge (see "CHARGES AND
DEDUCTIONS--Premium Expense Charge"), will be at least
equal to three times the monthly deduction due on the
Monthly Deduction Day immediately preceding the Grace
Period (see "CHARGES AND DEDUCTIONS--Monthly Deduction").
Therefore the greater the Policy Debt under a Policy, the
more likely it would be to lapse.
REPAYMENT OF POLICY DEBT. Policy Debt may be repaid in
whole or in part any time during the Insured's life and
before the Maturity Date so long as the Policy is in
force. Any Policy Debt not repaid is subtracted from the
death benefit payable at the Insured's death, from
Surrender Value upon surrender or from the maturity
benefit. Any payments made by a Policyowner will be
treated first as the repayment of any outstanding Policy
Debt, unless the Policyowner indicates otherwise. Upon
repayment of Policy Debt, the portion of the Accumulated
Value in the Declared Interest Option securing the repaid
portion of the Policy Debt will no longer be segregated
within the Declared Interest Option as security for
Policy Debt, but will remain in the Declared Interest
Option unless and until transferred to the Variable
Account by the Policyowner.
For a discussion of the tax consequences associated with
Policy Loans and lapses, see "FEDERAL TAX MATTERS."
- - --------------------------------------------------------------------------------
DEATH PROCEEDS So long as the Policy remains in force, the Policy
provides for the payment of death proceeds upon the death
of the Insured. Proceeds will be paid to the primary
Beneficiary or a contingent Beneficiary. One or more
primary Beneficiaries or contingent Beneficiaries may be
named. If no Beneficiary survives the Insured, the death
proceeds will be paid to the Policyowner or his estate.
Death proceeds may be paid in a lump sum or under a
payment option. (See "POLICY BENEFITS--Payment Options.")
To determine the death proceeds, the death benefit will
be reduced by any
21
<PAGE>
outstanding Policy Debt and increased by any unearned
loan interest and any premiums paid after the date of
death. Proceeds will ordinarily be mailed within seven
days after receipt by the Company of Due Proof of Death.
Payment may, however, be postponed under certain
circumstances. (See "GENERAL PROVISIONS-- Postponement of
Payments.") The Company pays interest on those proceeds,
at an annual rate of no less than 3.0% or any rate
required by law, from the date of death to the date
payment is made.
DEATH BENEFIT OPTIONS. Policyowners designate in the
initial application one of two death benefit options
offered under the Policy. The amount of the death benefit
payable under a Policy will depend upon the option in
effect at the time of the Insured's death. Under Option
A, the death benefit will be equal to the greater of (i)
the sum of the current Specified Amount and the
Accumulated Value, or (ii) the Accumulated Value
multiplied by the specified amount factor. Accumulated
Value will be determined as of the end of the Business
Day coinciding with or immediately following the date of
death. The specified amount factor is 2.50 for an Insured
Attained Age 40 or below on the date of death. For
Insureds with an Attained Age over 40 on the date of
death, the factor declines with age as shown in the
Specified Amount Factor Table in Appendix B. Accordingly,
under Option A, the death proceeds will always vary as
the Accumulated Value varies (but will never be less than
the Specified Amount). Policyowners who prefer to have
favorable investment performance and additional premiums
reflected in increased death benefits generally should
select Option A.
Under Option B, the death benefit will be equal to the
greater of the current Specified Amount or the
Accumulated Value (determined as of the end of the
Business Day coinciding with or immediately following the
date of death) multiplied by the specified amount factor.
The specified amount factor is the same as under Option
A. Accordingly, under Option B the death benefit will
remain level at the Specified Amount unless the
Accumulated Value multiplied by the specified amount
factor exceeds the current Specified Amount, in which
case the amount of the death benefit will vary as the
Accumulated Value varies. Policyowners who are satisfied
with the amount of their insurance coverage under the
Policy and who prefer to have favorable investment
performance and additional premiums reflected in higher
Accumulated Value, rather than increased death benefits,
generally should select Option B.
Examples illustrating Option A and Option B can be found
in Appendix B.
CHANGE IN DEATH BENEFIT OPTION. The death benefit option
in effect may be changed at any time by sending a written
request for the change to the Company at its
Administrative Office. The effective date of such a
change will be the Monthly Deduction Day coinciding with
or immediately following the date the change is approved
by the Company. A change in death benefit options may
have federal income tax consequences. (See "FEDERAL TAX
MATTERS.")
If the death benefit option is changed from Option A to
Option B, the current Specified Amount will not change.
If the benefit option is changed from Option B to Option
A, the current Specified Amount will be reduced by an
amount equal to the Accumulated Value on the effective
date of the change. A change in the death benefit option
may not be made if it would result in a Specified Amount
which is less than the minimum Specified Amount in effect
on the effective date of the change or if after the
change the Policy would no longer qualify as life
insurance under federal tax law.
No charges will be imposed in connection with a change in
death benefit option; however, a change in death benefit
option will affect the cost of insurance charges. (See
"CHARGES AND DEDUCTIONS--Monthly Deduction--COST OF
INSURANCE.")
CHANGE IN EXISTING COVERAGE. After a Policy has been in
force for one Policy Year, a Policyowner may adjust the
existing insurance coverage by increasing or decreasing
the Specified Amount. To make a change, the Policyowner
must send a written request to the Company at its Home
Office. Any change in the Specified Amount may affect the
cost of insurance rate and the net amount at risk, both
of which will affect a
22
<PAGE>
Policyowner's cost of insurance charge. (See "CHARGES AND
DEDUCTIONS-- Monthly Deduction--COST OF INSURANCE RATE,
and --NET AMOUNT AT RISK.") If decreases in the Specified
Amount cause the premiums paid to exceed the maximum
premium limitations imposed by federal tax law (see "THE
POLICY--Premiums-- PREMIUM LIMITATIONS"), the decrease
will be limited to the extent necessary to meet these
requirements. A change in existing coverage may have
federal income tax consequences. (See "FEDERAL TAX
MATTERS--Tax Treatment of Policy Benefits.")
Any decrease in the Specified Amount will become
effective on the Monthly Deduction Day coinciding with or
immediately following the date the request is approved by
the Company. The decrease will first reduce the Specified
Amount provided by the most recent increase, then the
next most recent increases successively, then the
Specified Amount under the original application. The
Specified Amount following a decrease can never be less
than the minimum Specified Amount for the Policy in
effect on the date of the decrease. A Specified Amount
decrease will not reduce the Surrender Charge.
To apply for an increase, evidence of insurability
satisfactory to the Company must be provided. Any
approved increase will become effective on the Monthly
Deduction Day coinciding with or immediately following
the date the request is approved by the Company. An
increase will not become effective, however, if the
Policy's Accumulated Value on the effective date would
not be sufficient to cover the deduction for the
increased cost of the insurance for the next Policy
Month. A Specified Amount increase is subject to its own
Surrender Charge.
CHANGES IN INSURANCE PROTECTION. A Policyowner may
increase or decrease the pure insurance protection
provided by a Policy--the difference between the death
benefit and the Accumulated Value--in one of several ways
as insurance needs change. These ways include increasing
or decreasing the Specified Amount of insurance, changing
the level of premium payments and, to a lesser extent,
partially withdrawing Accumulated Value. Although the
consequences of each of these methods will depend upon
the individual circumstances, they may be summarized as
follows:
(a) A decrease in the Specified Amount will,
subject to the applicable specified amount
factor limitations (see "POLICY
BENEFITS--Death Proceeds-- DEATH BENEFIT
OPTIONS"), decrease the pure insurance
protection and the cost of insurance charges
under the Policy without generally reducing
the Accumulated Value.
(b) An increase in the Specified Amount may
increase the amount of pure insurance
protection, depending on the amount of
Accumulated Value and the resultant
applicable specified amount factor. If the
insurance protection is increased, the cost
of insurance charge generally will increase
as well.
(c) If Option B is elected, an increased level
of premium payments will increase the
Accumulated Value and reduce the pure
insurance protection, until the Accumulated
Value multiplied by the applicable specified
amount factor exceeds the Specified Amount.
Increased premiums should also increase the
amount of funds available to keep the Policy
in force.
(d) If Option B is elected, a reduced level of
premium payments generally will increase the
amount of pure insurance protection,
depending on the applicable specified amount
factor. It also will result in a reduced
amount of Accumulated Value and will
increase the possibility that the Policy
will lapse.
(e) A partial withdrawal will reduce the death
benefit. (See "POLICY BENEFITS--Accumulated
Value Benefits--SURRENDER AND WITHDRAWAL
PRIVILEGES.") However, it only affects the
amount of pure insurance protection if the
death benefit payable is based on the
specified amount factor, because otherwise
the decrease in the benefit is offset by the
amount of Accumulated Value withdrawn. The
primary use of a partial withdrawal is to
withdraw cash and reduce Accumulated Value.
23
<PAGE>
In comparison, an increase in the death benefit due to
the operation of the specified amount factor occurs
automatically and is intended to help assure that the
Policy remains qualified as life insurance under federal
tax law. The calculation of the death benefit based upon
the specified amount factor occurs only when the
Accumulated Value of a Policy reaches a certain
proportion of the Specified Amount (which may or may not
occur). Additional premium payments, favorable investment
performance and large initial premiums tend to increase
the likelihood of the specified amount factor becoming
operational after the first few Policy Years. Such
increases will be temporary, however, if the investment
performance becomes unfavorable and/or premium payments
are stopped or decreased.
- - --------------------------------------------------------------------------------
ACCELERATED PAYMENTS OF DEATH PROCEEDS
In the event that the Insured becomes terminally ill (as
defined below), the Policyowner (if residing in a state
that has approved such an endorsement) may, by written
request and subject to the conditions stated below, have
the Company pay all or a portion of the accelerated death
benefit immediately to the Policyowner. If not attached
to the Policy beforehand, the Company will issue an
accelerated death benefit endorsement (the "Endorsement")
providing for this right.
For this purpose, an Insured is terminally ill when a
physician (as defined by the Endorsement) certifies that
he or she has a life expectancy of 12 months or less.
The accelerated death benefit is equal to the Policy's
death benefit as described on page 6, up to a maximum of
$250,000 (the $250,000 maximum applies in aggregate to
all policies issued by the Company on the Insured), less
an amount representing a discount for 12 months at the
interest rate charged for loans under the Policy. The
accelerated death benefit does not include the amount of
any death benefit payable under a rider that covers the
life of someone other than the Insured.
In the event that there is a loan outstanding under the
Policy on the date that the Policyowner requests a
payment under the Endorsement, the accelerated death
benefit is reduced by a portion of the outstanding loan
in the same proportion that the requested payment under
the Endorsement bears to the total death benefit under
the Policy. If the amount requested by the Policyowner to
be paid under the Endorsement is less than the total
death benefit under the Policy and the Specified Amount
of the Policy is equal to or greater than the minimum
Specified Amount, the Policy will remain in force with
all values and benefits under the Policy being reduced in
the same proportion that the new Policy benefit bears to
the Policy benefit before exercise of the Endorsement.
There are several other restrictions associated with the
Endorsement. These are: (1) the Endorsement is not valid
if the Policy is within five years of being matured, (2)
the consent of any irrevocable beneficiary or assignee is
required to exercise the Endorsement, (3) the Company
reserves the right, in its sole discretion, to require
the consent of the Insured or of any beneficiary,
assignee, spouse or other party of interest before
permitting the exercise of the Endorsement, (4) the
Company reserves the right to obtain the concurrence of a
second medical opinion as to whether any Insured is
terminally ill and (5) the Endorsement is not effective
where (a) the Insured or the Policyowner would be
otherwise required by law to use the Endorsement to meet
the claims of creditors, or (b) the Insured would be
otherwise required by any government agency to exercise
the Endorsement in order to apply for, obtain or keep a
government benefit or entitlement.
The Endorsement will terminate at the earlier of the end
of the grace period for which any premium is unpaid, upon
receipt in the Administrative Office of a written request
from the Policyowner to cancel the Endorsement or upon
termination of the Policy.
Pursuant to the recently enacted Health Insurance
Portability and Accountability Act of 1996, the Company
believes that for federal income tax purposes, an
accelerated death benefit payment received under an
accelerated death benefit endorsement should be fully
excludable from the gross income of the beneficiary, as
long as the
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<PAGE>
beneficiary is the insured under the Policy. However, the
Policyowner should consult a qualified tax adviser about
the consequences of adding this Endorsement to a Policy
or requesting an accelerated death benefit payment under
this Endorsement.
- - --------------------------------------------------------------------------------
BENEFITS AT MATURITY If the Insured is alive and the Policy is in force on the
Maturity Date, the Company will pay to the Policyowner
the Policy's Accumulated Value as of the end of the
Business Day coinciding with or immediately following the
Maturity Date, reduced by any outstanding Policy Debt.
(See "POLICY BENEFITS--Loan Benefits--REPAYMENT OF POLICY
DEBT.") Benefits at maturity may be paid in a lump sum or
under a payment option. The Maturity Date is Attained Age
115.
- - --------------------------------------------------------------------------------
PAYMENT OPTIONS Death proceeds and Accumulated Value paid at maturity, or
upon surrender or partial withdrawal of a Policy, may be
paid in whole or in part under a payment option. There
are currently five payment options available. Payments
may also be made under any new payment option available
at the time proceeds become payable. In addition,
proceeds may be paid in any other manner acceptable to
the Company.
An option may be designated in the application or by
notifying the Company in writing at its Administrative
Office. During the life of the Insured, the Policyowner
may select a payment option; in addition, during that
time the Policyowner may change a previously selected
option by sending written notice to the Company
requesting the cancellation of the prior option and the
designation of a new option. If the Policyowner has not
chosen an option prior to the Insured's death, the
Beneficiary may choose an option. The Beneficiary may
change a payment option by sending a written request to
the Company, provided that a prior option chosen by the
Policyowner is not in effect.
If no option is chosen, the Company will pay the proceeds
of the Policy in one sum. The Company will also pay the
proceeds in one sum if, (i) the proceeds are less than
$2,000; (ii) periodic payments would be less than $50; or
(iii) the payee is an assignee, estate, trustee,
partnership, corporation or association.
Amounts paid under a payment option are paid pursuant to
a payment contract and will not depend upon the
investment performance of the Variable Account. Proceeds
applied under a payment option earn interest at a rate
guaranteed to be no less than 3.0% compounded yearly. The
Company may be crediting higher interest rates on the
effective date of the payment contract. The Company may,
but is not obligated to, declare additional interest to
be applied to such funds.
If a payee dies, any remaining payments will be paid to a
contingent payee. At the death of the last payee, the
commuted value of any remaining payments will be paid to
the last payee's estate. A payee may not withdraw funds
under a payment option unless the Company has agreed to
such withdrawal in the payment contract. The Company
reserves the right to defer a withdrawal for up to six
months and to refuse to allow partial withdrawals of less
than $250.
Payments under Options 2, 3, 4 or 5 will begin as of the
date of the Insured's death, on surrender or on the
Maturity Date. Payments under Option 1 will begin at the
end of the first interest period after the date proceeds
are otherwise payable.
OPTION 1--INTEREST INCOME. Periodic payments of
interest earned from the proceeds will be paid.
Payments can be annual, semi-annual, quarterly or
monthly, as selected by the payee, and will begin at
the end of the first period chosen. Proceeds left
under this plan will earn interest at a rate
determined by the Company, in no event less than 3.0%
compounded yearly. The payee may withdraw all or part
of the proceeds at any time.
OPTION 2--INCOME FOR A FIXED TERM. Periodic payments
will be made for a fixed term not longer than 30
years. Payments can be annual, semi-annual, quarterly
or monthly. Guaranteed amounts payable under the plan
will earn interest at a rate determined by the
Company, in no event less than 3.0% compounded
yearly.
25
<PAGE>
OPTION 3--LIFE INCOME WITH TERM CERTAIN. Equal
periodic payments will be made for a guaranteed
minimum period elected. If the payee lives longer
than the minimum period, payments will continue for
his or her life. The minimum period can be 0, 5, 10,
15 or 20 years. Guaranteed amounts payable under this
plan will earn interest at a rate determined by the
Company, in no event less than 3.0% compounded
yearly.
OPTION 4--INCOME OF A FIXED AMOUNT. Equal periodic
payments of a definite amount will be paid. Payments
can be annual, semi-annual, quarterly or monthly. The
amount paid each period must be at least $20 for each
$1,000 of proceeds. Payments will continue until the
proceeds are exhausted. The last payment will equal
the amount of any unpaid proceeds. Unpaid proceeds
will earn interest at a rate determined by the
Company, in no event less than 3.0% compounded
yearly.
OPTION 5--JOINT AND TWO-THIRDS SURVIVOR MONTHLY LIFE
INCOME. Equal monthly payments will be made for as
long as two payees live. The guaranteed amount
payable under this plan will earn interest at a
minimum rate of 3.0% compounded yearly. When one
payee dies, payments of two-thirds of the original
monthly payment will be made to the surviving payee.
Payments will stop when the surviving payee dies.
ALTERNATE PAYMENT OPTION. In lieu of one of the above
options, the accumulated value, net surrender value
or death benefit, as applicable, may be settled under
any other payment option made available by the
Company or requested and agreed to by the Company.
- - --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- - --------------------------------------------------------------------------------
Charges will be deducted in connection with the Policy to
compensate the Company for providing the insurance
benefits set forth in the Policy and any additional
benefits added by rider, for distributing and
administering the Policy, for applicable taxes and for
assuming certain risks in connection with the Policy. The
nature and amount of these charges are described more
fully below.
- - --------------------------------------------------------------------------------
PREMIUM EXPENSE CHARGE Prior to allocation of Net Premiums among the Subaccounts
and the Declared Interest Option, premiums paid will be
reduced by a premium expense charge. The premium less the
premium expense charge equals the Net Premium.
The premium expense charge is 7.0% of each premium up to
the Target Premium (or 2% for each premium over the
Target Premium) and is intended to compensate the Company
for expenses incurred in distributing the Policy,
including agent sales commissions, the cost of printing
prospectuses and sales literature, and advertising costs
and to compensate for the amount the Company considers
necessary to pay all taxes on premiums received by
insurance companies imposed by various states and
subdivisions thereof. Premium taxes charged by the
various states currently range from 1% to 3%.
The premium expense charge in any Policy Year is not
necessarily related to actual distribution expenses in
that year. Instead, the Company expects to incur the
majority of distribution expenses in the early Policy
Years and to recover any deficiency over the life of the
Policy and from the Company's general assets, including
amounts derived from the mortality and expense risk
charge.
- - --------------------------------------------------------------------------------
MONTHLY DEDUCTION Charges will be deducted monthly from the Accumulated
Value of each Policy ("monthly deduction") to compensate
the Company for the cost of insurance coverage and any
additional benefits added by rider (See "GENERAL
PROVISIONS-- Additional Insurance Benefits"), for
underwriting and start-up expenses in connection with
issuing a Policy and for certain administrative costs.
The monthly deduction will be deducted on the Policy Date
and on each Monthly Deduction Day. (If the Monthly
Deduction Day falls on Thanksgiving, the Friday following
Thanksgiving or the weekend following Thanksgiving; or on
the 27th or 28th day of February, 1999, the monthly
deduction will be deducted on the preceding Business
26
<PAGE>
Day.) It will be deducted from the Declared Interest
Option and each Subaccount in the same proportion that
the Policy's Net Accumulated Value in the Declared
Interest Option and the Policy's Accumulated Value in
each Subaccount bear to the total Net Accumulated Value
of the Policy. For purposes of making deductions from the
Declared Interest Option and the Subaccounts, Accumulated
Values will be determined as of the end of the Business
Day coinciding with or immediately following the Monthly
Deduction Day. (If the Monthly Deduction Day falls on
Thanksgiving, the Friday following Thanksgiving or the
weekend following Thanksgiving; or on the 27th or 28th
day of February, 1999, Accumulated Values will be
determined as of the end of the preceding Business Day.)
Because portions of the monthly deduction, such as the
cost of insurance, can vary from month to month, the
monthly deduction itself will vary in amount from month
to month.
The monthly deduction will be made on the Business Day
coinciding with or immediately following each Monthly
Deduction Day and will equal:
(a) the cost of insurance for the Policy; plus
(b) the cost of any optional insurance benefits
added by rider; plus
(c) the monthly policy expense charge.
During the first twelve Policy Months and during the
twelve Policy Months immediately following an increase in
Specified Amount, the monthly deduction will include a
first year monthly administrative charge.
COST OF INSURANCE. This charge is designed to compensate
the Company for the anticipated cost of paying death
proceeds to Beneficiaries of those Insureds who die prior
to the Maturity Date. The cost of insurance is determined
on a monthly basis, and is determined separately for the
initial Specified Amount and for any subsequent increases
in Specified Amount. The Company will determine the
monthly cost of insurance charge by dividing the
applicable cost of insurance rate, or rates, by 1,000 and
multiplying the result by the net amount at risk for each
Policy Month.
NET AMOUNT AT RISK. Under Option A the net amount at risk
for a Policy Month is equal to (a) divided by (b), and
under Option B the net amount at risk for a Policy Month
is equal to (a) divided by (b), minus (c), where:
(a) is the Specified Amount;
(b) is 1.0032737;(1) and
(c) is the Accumulated Value.
The Specified Amount and the Accumulated Value will be
determined as of the end of the Business Day coinciding
with or immediately following the Monthly Deduction Day.
The net amount at risk is determined separately for the
initial Specified Amount and any increases in Specified
Amount. In determining the net amount at risk for each
Specified Amount, the Accumulated Value will be first
considered a part of the initial Specified Amount. If the
Accumulated Value exceeds the initial Specified Amount,
it will be considered to be a part of any increase in the
Specified Amount in the same order as the increases
occurred.
COST OF INSURANCE RATE. The cost of insurance rate for
the initial Specified Amount will be based on the
Insured's sex, premium class and Attained Age. For any
increase in Specified Amount, the cost of insurance rate
will be based on the Insured's sex, premium class and age
at last birthday on the effective date of the increase.
Actual cost of insurance rates may change and will be
determined by the Company based on its expectations as to
future mortality experience. However, the actual cost of
insurance rates will never be greater than the guaranteed
maximum cost of insurance rates set
- - --------------
(1)Dividing by 1.0032737 reduces the net amount at risk, solely for the purposes
of computing the cost of insurance, by taking into account assumed monthly
earnings at an annual rate of 4.0%.
27
<PAGE>
forth in the Policy. These guaranteed rates are based on
the 1980 Commissioners' Standard Ordinary Non-Smoker and
Smoker Mortality Table. Current cost of insurance rates
are generally less than the guaranteed maximum rates. Any
change in the cost of insurance rates will apply to all
persons of the same age, sex and premium class whose
Policies have been in force the same length of time.
The cost of insurance rates generally increase as the
Insured's Attained Age increases. The premium class of an
Insured also will affect the cost of insurance rate. The
Company currently places Insureds into a standard premium
class or into premium classes involving a higher
mortality risk. In an otherwise identical Policy,
Insureds in the standard premium class will have a lower
cost of insurance rate than those in premium classes
involving higher mortality risk. The standard premium
class is also divided into two categories: tobacco and
non-tobacco. (The Company may offer preferred classes in
addition to the standard tobacco and non-tobacco
classes.) Non-tobacco-using Insureds will generally have
a lower cost of insurance rate than similarly situated
Insureds who use tobacco, and preferred Insureds will
generally have a lower cost of insurance rate than
similarly situated standard Insureds.
The cost of insurance rate is determined separately for
the initial Specified Amount and for the amount of any
increase in Specified Amount. In calculating the cost of
insurance charge, the rate for the premium class on the
Policy Date will be applied to the net amount at risk for
the initial Specified Amount; for each increase in
Specified Amount, the rate for the premium class
applicable to the increase will be used. However, if the
death benefit is calculated as the Cash Value times the
specified amount factor, the rate for the premium class
for the most recent increase that required evidence of
insurability will be used for the amount of death benefit
in excess of the total Specified Amount.
ADDITIONAL INSURANCE BENEFITS. The monthly deduction will
include charges for any additional benefits provided by
rider. (See "GENERAL PROVISIONS--Additional Insurance
Benefits.")
MONTHLY POLICY EXPENSE CHARGE. The Company has primary
responsibility for the administration of the Policy and
the Variable Account. Policy expenses include premium
billing and collection, recordkeeping, processing death
benefit claims, cash withdrawals, surrenders and Policy
changes, and reporting and overhead costs. As
reimbursement for policy expenses related to the
maintenance of each Policy and the Variable Account, the
Company assesses a monthly policy expense charge against
each Policy. This charge currently is $5.00 per Policy
Month and is guaranteed not to exceed $7 per Policy
Month.
FIRST YEAR MONTHLY ADMINISTRATIVE CHARGE. Monthly
administrative charges will be deducted from Accumulated
Value as part of the monthly deduction during the first
twelve Policy Months and during the twelve Policy Months
immediately following an increase in Specified Amount.
The charge will compensate the Company for first year
underwriting, processing and start-up expenses incurred
in connection with the Policy and the Variable Account.
These expenses include the cost of processing
applications, conducting medical examinations,
determining insurability and the Insured's premium class,
and establishing policy records. The first year monthly
administrative charge currently is $0.05 per $1,000 of
Specified Amount, or increase in Specified Amount and is
guaranteed not to exceed $0.07 per $1,000 of Specified
Amount.
FIRST YEAR MONTHLY EXPENSE CHARGE. A monthly expense
charge will be deducted from Accumulated Value as part of
the monthly deduction during the first twelve Policy
Months. This charge currently is $5 per Policy Month and
is guaranteed not to exceed $7 per Policy Month.
- - --------------------------------------------------------------------------------
TRANSFER CHARGE A transfer charge of $25 may be imposed for the second
and each subsequent transfer during a Policy Year to
compensate the Company for the costs in effectuating the
transfer. The transfer charge, unless paid in cash, will
be deducted from the amount transferred. Once a Policy is
issued, the amount of this charge is guaranteed for the
28
<PAGE>
life of the Policy. The transfer charge will not be
imposed on transfers that occur as a result of Policy
Loans, the exercise of the special transfer privilege or
the initial allocation of Accumulated Value among the
Subaccounts and the Declared Interest Option following
acceptance of the Policy by the Policyowner.
Currently there is no charge for changing the net premium
allocation instructions.
- - --------------------------------------------------------------------------------
PARTIAL WITHDRAWAL FEE Upon partial withdrawal of a Policy, a fee equal to the
lesser of $25 or 2% of the amount withdrawn will be
assessed to compensate the Company for costs incurred in
accomplishing the withdrawal. The fee will be deducted
from Accumulated Value.
- - --------------------------------------------------------------------------------
SURRENDER CHARGE At the time of surrender, a Surrender Charge will apply
during the first ten Policy Years, as well as during the
first ten years following an increase in Specified
Amount. The Surrender Charge is an amount per $1,000 of
Specified Amount, declining to $0 in the eleventh year.
The Surrender Charge varies by age, sex, underwriting
category and Policy Year. The Surrender Charge is level
within each Policy Year. (See "Appendix C--Maximum
Surrender Charges.") At the time of a requested decrease
in Specified Amount, the full original Surrender Charge
stays in place. For issue ages below 76, the Surrender
Charge may be waived after the first Policy Year if the
insured is terminally ill or stays in a qualified nursing
care center for 90 days.
At the time of a partial withdrawal, no Surrender Charge
applies.
- - --------------------------------------------------------------------------------
VARIABLE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE. The Company deducts a
daily mortality and expense risk charge from each
Subaccount at an effective annual rate of 0.90% of the
average daily net assets of the Subaccounts and is
guaranteed not to exceed 1.05% of the average daily net
assets of the Subaccounts.
The mortality risk assumed by the Company is that
Insureds may die sooner than anticipated and therefore,
the Company may pay an aggregate amount of life insurance
proceeds greater than anticipated. The expense risk
assumed is that expenses incurred in issuing and
administering the Policies will exceed the amounts
realized from the administrative charges assessed against
the Policies.
FEDERAL TAXES. Currently no charge is made to the
Variable Account for federal income taxes that may be
attributable to the Variable Account. The Company may,
however, make such a charge in the future. Charges for
other taxes, if any, attributable to the Account may also
be made. (See "FEDERAL TAX MATTERS--Taxation of the
Company.")
INVESTMENT OPTION EXPENSES. The value of net assets of
the Variable Account will reflect the investment advisory
fee and other expenses incurred by each Investment
Option. The investment advisory fee and other expenses
applicable to each Investment Option are listed in the
"SUMMARY OF THE POLICY" and described in the prospectus
for each Fund's Investment Option.
- - --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- - --------------------------------------------------------------------------------
Policyowners may allocate Net Premiums and transfer
Accumulated Value to the Declared Interest Option.
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS,
INTERESTS IN THE DECLARED INTEREST OPTION HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE
DECLARED INTEREST OPTION HAS NOT BEEN REGISTERED AS AN
INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940. ACCORDINGLY, NEITHER THE DECLARED INTEREST OPTION
NOR ANY INTERESTS THEREIN ARE SUBJECT TO THE PROVISIONS
OF THESE ACTS AND, AS A RESULT, THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE
DISCLOSURES IN THIS PROSPECTUS RELATING TO THE DECLARED
INTEREST OPTION. DISCLOSURES REGARDING THE DECLARED
INTEREST OPTION MAY, HOWEVER, BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES
LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF
STATEMENTS MADE IN PROSPECTUSES.
29
<PAGE>
- - --------------------------------------------------------------------------------
GENERAL DESCRIPTION The Declared Interest Option is supported by the General
Account. The General Account consists of all assets owned
by the Company other than those in the Variable Account
and other separate accounts. Subject to applicable law,
the Company has sole discretion over the investment of
the assets of the General Account.
A Policyowner may elect to allocate Net Premiums to the
Declared Interest Option, the Variable Account, or both.
The Policyowner may also transfer Accumulated Value from
the Subaccounts to the Declared Interest Option, or from
the Declared Interest Option to the Subaccounts. The
allocation or transfer of funds to the Declared Interest
Option does not entitle a Policyowner to share in the
investment experience of the General Account. Instead,
the Company guarantees that Accumulated Value in the
Declared Interest Option will accrue interest at an
effective annual rate of at least 4.0%, independent of
the actual investment experience of the General Account.
- - --------------------------------------------------------------------------------
THE POLICY This Prospectus describes a flexible premium variable
life insurance policy. This Prospectus is generally
intended to serve as a disclosure document for the
aspects of the Policy involving the Variable Account. For
complete details regarding the Declared Interest Option,
see the Policy itself.
- - --------------------------------------------------------------------------------
DECLARED INTEREST OPTION ACCUMULATED VALUE
Net premiums allocated to the Declared Interest Option
are credited to the Policy. The Company bears the full
investment risk for these amounts. The Company guarantees
that interest credited to each Policyowner's Accumulated
Value in the Declared Interest Option will not be less
than an effective annual rate of 4.0%. The Company may,
in its sole discretion, credit a higher rate of interest,
although it is not obligated to credit interest in excess
of 4.0% per year, and might not do so. Any interest
credited on the Policy's Accumulated Value in the
Declared Interest Option in excess of the guaranteed rate
of 4.0% per year will be determined in the sole
discretion of the Company and may be changed at any time
by the Company, in its sole discretion. The Policyowner
assumes the risk that the interest credited may not
exceed the guaranteed minimum rate of 4.0% per year. The
interest credited to the Policy's Accumulated Value in
the Declared Interest Option that equals Policy Debt may
be greater than 4.0%, but will in no event be greater
than the current effective loan interest rate minus no
more than 3.0%. From time to time, the Company may allow,
by Company practice, a loan spread of 0% on the gain in a
Policy in effect a minimum of ten years. The Accumulated
Value in the Declared Interest Option will be calculated
no less frequently than each Monthly Deduction Day.
The Company guarantees that, at any time prior to the
Maturity Date, the Accumulated Value in the Declared
Interest Option will not be less than the amount of the
Net Premiums allocated or Accumulated Value transferred
to the Declared Interest Option, plus interest at the
rate of 4.0% per year, plus any excess interest which the
Company credits, less the sum of all policy charges
allocable to the Declared Interest Option and any amounts
deducted from the Declared Interest Option in connection
with partial withdrawals or transfers to the Variable
Account.
- - --------------------------------------------------------------------------------
TRANSFERS, PARTIAL WITHDRAWALS, SURRENDERS AND POLICY LOANS
Amounts may be transferred between the Subaccounts and
the Declared Interest Option. A transfer charge of $25
may be imposed in connection with the transfer unless
such transfer is the first transfer requested by the
Policyowner during such Policy Year. Unless paid in cash,
the transfer charge will be deducted from the amount
transferred. A Policyowner may make only one transfer
between the Variable Account and the Declared Interest
Option in each Policy Year. No more than 50% of the Net
Accumulated Value in the Declared Interest Option may be
transferred from the Declared Interest Option unless the
balance in the Declared Interest Option immediately after
the transfer will be less than $1,000. If the balance in
the Declared Interest Option after a transfer would be
less than $1,000, the full Net Accumulated Value in the
Declared Interest Option may be transferred. A
Policyowner may also make partial withdrawals, surrenders
and obtain Policy Loans from the Declared Interest Option
at any time prior to the Policy's Maturity Date.
Transfers, partial withdrawals and surrenders from, and
payments of Policy Loans allocated to, the Declared
Interest Option may be delayed for up to six months.
30
<PAGE>
- - --------------------------------------------------------------------------------
GENERAL PROVISIONS
- - --------------------------------------------------------------------------------
THE CONTRACT The Policy is issued in consideration of the statements
in the application and the payment of the initial
premium. The Policy, the application, and any
supplemental applications and endorsements make up the
entire contract. In the absence of fraud, the statements
made in an application or supplemental application will
be treated as representations and not as warranties. No
statement will void the Policy or be used in defense of a
claim unless contained in the application or any
supplemental application.
- - --------------------------------------------------------------------------------
INCONTESTABILITY The Policy is incontestable, except for fraudulent
statements made in the application or supplemental
applications, after it has been in force during the
lifetime of the Insured for two years from the Policy
Date or date of reinstatement. Any increase in Specified
Amount will be incontestable only after it has been in
force during the lifetime of the Insured for two years
from the effective date of the increase.
- - --------------------------------------------------------------------------------
CHANGE OF PROVISIONS The Company reserves the right to change the Policy, in
the event of future changes in the federal tax law, to
the extent required to maintain the Policy's
qualification as life insurance under federal tax law.
Except as provided in the foregoing paragraph, no one can
change any part of the Policy except the Policyowner and
the President, a Vice President, the Secretary, an
Assistant Secretary or a designated officer of the
Company. Both must agree to any change and such change
must be in writing. No agent may change the Policy or
waive any of its provisions.
- - --------------------------------------------------------------------------------
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex was misstated in the
application, each benefit and any amount to be paid under
the Policy will be adjusted to reflect the correct age
and sex.
- - --------------------------------------------------------------------------------
SUICIDE EXCLUSION If the Policy is in force and the Insured commits
suicide, while sane or insane, within one year from the
Policy Date, life insurance proceeds payable under the
Policy will be limited to all premiums paid, reduced by
any outstanding Policy Debt and any partial withdrawals,
and increased by any unearned loan interest. If the
Policy is in force and the Insured commits suicide, while
sane or insane, within one year from the effective date
of any increase in Specified Amount, any increase in the
death benefit resulting from the requested increase in
specified amount will not be paid. Instead, the Company
will refund to the Policyowner an amount equal to the
total cost of insurance applied to the increase.
- - --------------------------------------------------------------------------------
ANNUAL REPORT At least once each year, an annual report will be sent to
each Policyowner. The report will show the current death
benefit, the Accumulated Value in each Subaccount and in
the Declared Interest Option, outstanding Policy Debt and
premiums paid, partial withdrawals made and charges
assessed since the last report. The report will also
include any other information required by state law or
regulation. Further, the Company will send the
Policyowner the reports required by the Investment
Company Act of 1940.
- - --------------------------------------------------------------------------------
NON-PARTICIPATION The Policy does not participate in the Company's profits
or surplus earnings. No dividends are payable.
- - --------------------------------------------------------------------------------
OWNERSHIP OF ASSETS The Company shall have the exclusive and absolute
ownership and control over assets, including the assets
of the Variable Account.
- - --------------------------------------------------------------------------------
WRITTEN NOTICE Any written notice should be sent to the Company at its
Administrative Office. The notice should include the
policy number and the Insured's full name. Any notice
sent by the Company to a Policyowner will be sent to the
address shown in the application unless an appropriate
address change form has been filed with the Company.
- - --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
The Company will usually mail the proceeds of complete
surrenders, partial withdrawals and Policy Loans within
seven days after the Policyowner's signed request is
received at the Administrative Office. The Company will
usually mail death proceeds within seven days after
receipt of Due Proof of Death and maturity benefits
31
<PAGE>
within seven days of the Maturity Date. However, payment
of any amount upon surrender or partial withdrawal,
payment of any Policy Loan, and payment of death proceeds
or benefits at maturity may be postponed whenever:
a) the New York Stock Exchange is closed other
than customary weekend and holiday closings,
or trading on the New York Stock Exchange is
restricted as determined by the Securities
and Exchange Commission;
b) the Securities and Exchange Commission by
order permits postponement for the
protection of Policyowners; or
c) an emergency exists, as determined by the
Securities and Exchange Commission, as a
result of which disposal of the securities
is not reasonably practicable or it is not
reasonably practicable to determine the
value of the net assets of the Variable
Account.
Transfers may also be postponed under these
circumstances.
Payments under the Policy which are derived from any
amount paid to the Company by check or draft may be
postponed until such time as the Company is satisfied
that the check or draft has cleared the bank upon which
it is drawn.
- - --------------------------------------------------------------------------------
CONTINUANCE OF INSURANCE
The insurance under a Policy will continue until the
earlier of:
a) the end of the Grace Period following the
Monthly Deduction Day on which the Net
Accumulated Value during the first three
Policy Years, or Net Surrender Value after
three Policy Years, is less than the monthly
deduction for the following Policy Month;
b) the date the Policyowner surrenders the
Policy for its entire Net Accumulated Value;
c) the death of the Insured; or
d) the Maturity Date.
Any rider to a Policy will terminate on the date
specified in the rider.
- - --------------------------------------------------------------------------------
OWNERSHIP The Policy belongs to the Policyowner. The original
Policyowner is the person named as owner in the
application. Ownership of the Policy may change according
to the ownership option selected as part of the original
application or by a subsequent endorsement to the Policy.
During the Insured's lifetime, all rights granted by the
Policy belong to the Policyowner, except as otherwise
provided for in the Policy.
Special ownership rules may apply if the Insured is under
legal age (as defined by state law in the state in which
the Policy is delivered) on the Policy Date.
The Policyowner may assign the Policy as collateral
security. The Company assumes no responsibility for the
validity or effect of any collateral assignment of the
Policy. No assignment will bind the Company unless in
writing and until received by the Company at its
Administrative Office. The assignment is subject to any
payment or action taken by the Company before it received
the assignment at the Administrative Office.
- - --------------------------------------------------------------------------------
THE BENEFICIARY The primary Beneficiaries and contingent Beneficiaries
are designated by the Policyowner in the application. If
changed, the primary Beneficiary or contingent
Beneficiary is as shown in the latest change filed with
the Company. One or more primary or contingent
Beneficiaries may be named in the application. In such
case, the proceeds will be paid in equal shares to the
survivors in the appropriate beneficiary class, unless
requested otherwise by the Policyowner.
Unless a payment option is chosen, the proceeds payable
at the Insured's death will be paid in a lump sum to the
primary Beneficiary. If the primary Beneficiary dies
before the Insured, the proceeds will be paid to the
contingent Beneficiary. If no Beneficiary survives the
Insured, the proceeds will be paid to the Policyowner or
the Policyowner's estate.
32
<PAGE>
- - --------------------------------------------------------------------------------
CHANGING THE POLICYOWNER OR BENEFICIARY
During the Insured's life, the Policyowner and the
Beneficiary may be changed. To make a change, written
request must be sent to the Company at its Administrative
Office. The request and the change must be in a form
satisfactory to the Company and must actually be received
and recorded by the Company. The change will take effect
as of the date the request is signed by the Policyowner.
The change will be subject to any payment made before the
change is recorded by the Company. The Company may
require return of the Policy for endorsement.
- - --------------------------------------------------------------------------------
ADDITIONAL INSURANCE
BENEFITS Subject to certain requirements, one or more of the
following additional insurance benefits may be added to a
Policy by rider: (i) Cost of Living Increase; (ii) Waiver
of Charges; (iii) Other Adult Universal Life Insurance;
(iv) Children's Term Insurance and (v) Guaranteed
Insurability Option. The cost of any additional insurance
benefits will be deducted as part of the monthly
deduction. (See "CHARGES AND DEDUCTIONS--Monthly
Deduction.") Detailed information concerning available
riders may be obtained from the agent selling the Policy.
- - --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
- - --------------------------------------------------------------------------------
The Policies will be sold by individuals who in addition
to being licensed as life insurance agents for the
Company, are registered representatives of broker-dealers
who have entered into written selling agreements with
EquiTrust Marketing (formerly FBL Marketing Services,
Inc.), the principal underwriter of the Policies.
EquiTrust Marketing is registered with the Securities and
Exchange Commission under the Securities Exchange Act of
1933 as a broker-dealer and is a member of the National
Association of Securities Dealers. EquiTrust Marketing
Services, Inc. is engaged in the sale and distribution or
other variable life policies and variable annuity
contracts.
The maximum sales commission payable to broker-dealers
will be 115% of premiums up to the first-year Target
Premium and 3% of excess premium in the first year and
renewal premiums. These commissions (and other
distribution expenses, such as production incentive
bonuses, agent's insurance and pensions benefits, agency
management compensation and bonuses and expense
allowances) are paid by the Company. They do not result
in any additional charges against the Policy that are not
described above under "CHARGES AND DEDUCTIONS."
- - --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
- - --------------------------------------------------------------------------------
INTRODUCTION The following discussion is general and is not intended
as tax advice. Any person concerned about these tax
considerations should consult a competent tax adviser.
This discussion is based on the Company's understanding
of the present federal income tax laws as they are
currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of
continuation of these current laws and interpretations,
and various changes have been proposed that would alter
these laws in ways that would have significant adverse
impacts. It should be further understood that the
following discussion is not exhaustive and does not
purport to be complete or to cover all situations and
that special rules not described in this Prospectus may
be applicable in certain situations. Moreover, no attempt
has been made to consider any applicable state or other
tax laws.
- - --------------------------------------------------------------------------------
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as
amended (the "Code") includes a definition of a life
insurance contract for federal tax purposes. The
Secretary of the Treasury (the "Treasury") is authorized
to prescribe regulations interpreting and implementing
section 7702 and has issued proposed regulations on
certain aspects of section 7702. If a Policy were
determined not to be a life insurance contract for
purposes of section 7702, such Policy would not provide
most of the tax advantages normally provided by a life
insurance policy.
With respect to a Policy issued exclusively on the basis
of a standard premium class, while there is some
uncertainty due to the limited guidance on section 7702,
the Company believes that in light of the proposed
regulations such a Policy should meet
33
<PAGE>
the section 7702 definition of a life insurance contract.
However, with respect to a Policy issued in whole or in
part on a substandard basis (i.e., a premium class
involving higher than standard mortality risk), it is not
clear whether or not such a Policy would satisfy section
7702, particularly if the Policyowner pays the full
amount of premiums permitted under the Policy. If it is
subsequently determined that a Policy does not satisfy
section 7702, the Company will take whatever steps are
appropriate and necessary to attempt to cause such a
Policy to comply with section 7702, including possibly
refunding any premiums paid that exceed the limitations
allowable under section 7702 (together with interest or
other earnings on any such premiums refunded as required
by law). For these reasons, the Company reserves the
right to modify the Policy as necessary to attempt to
qualify it as a life insurance contract under section
7702.
Section 817(h) of the Code authorizes the Treasury to set
standards by regulation or otherwise for the investments
of the Account to be "adequately diversified" in order
for the Policy to be treated as a life insurance contract
for federal tax purposes. The Variable Account, through
each Fund, intends to comply with the diversification
requirements prescribed in Regulations section 1.817-5,
which affect how each Fund's assets may be invested.
Although the investment adviser of EquiTrust Variable
Insurance Series Fund is an affiliate of the Company, the
Company does not have control over the Fund or its
investments. Nonetheless, the Company believes that each
Investment Option in which the Variable Account owns
shares will be operated in compliance with the
requirements prescribed by the Treasury.
In certain circumstances, owners of variable life
insurance contracts may be considered the owners, for
federal income tax purposes, of the assets of the
separate account used to support their contracts. In
those circumstances, income and gains from the separate
account assets would be includable in the variable
contract owner's gross income. The IRS has stated in
published rulings that a variable contract owner will be
considered the owner of separate account assets if the
contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment
control over the assets. The Treasury Department also
announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in
which investor control of the investments of a segregated
asset account may cause the investor (I.E., the
Policyowner), rather than the insurance company, to be
treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by
way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular
subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but
different in certain respects from, those described by
the IRS in rulings in which it was determined that policy
owners were not owners of separate account assets. For
example, a Policyowner has additional flexibility in
allocating premium payments and policy values. These
differences could result in a Policyowner being treated
as the owner of a pro rata portion of the assets of the
Variable Account. In addition, the Company does not know
what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has
stated it expects to issue. The Company therefore
reserves the right to modify the Policy as necessary to
attempt to prevent a Policyowner from being considered
the owner of a pro rata share of the assets of the
Variable Account.
The following discussion assumes that the Policy will
qualify as a life insurance contract for federal income
tax purposes.
- - --------------------------------------------------------------------------------
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. The Company believes that the proceeds and
cash value increases of a Policy should be treated in a
manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the
gross income of the Beneficiary under section 101(a)(l)
of the Code.
34
<PAGE>
A change in a Policy's Specified Amount, the payment of
an unscheduled premium, a Policy loan, a partial
withdrawal, a surrender, a lapse with outstanding
indebtedness, a change in death benefit options, the
exchange of a Policy for a fixed-benefit policy (see "THE
POLICY--Special Transfer Privilege") and the assignment
of a Policy or the exercise of the right to change
Policyowners (see "GENERAL PROVISIONS-- Changing the
Policyowner or Beneficiary") may have tax consequences
depending upon the circumstances. In addition, federal
estate and state and local estate, inheritance, and other
tax consequences of ownership or receipt of Policy
proceeds depend upon the circumstances of each
Policyowner or Beneficiary. A competent tax adviser
should be consulted for further information.
Pursuant to the recently enacted Health Insurance
Portability and Accountability Act of 1996, the Company
believes that for federal income tax purposes, an
accelerated death benefit payment received under an
accelerated death benefit endorsement should be fully
excludable from the gross income of the beneficiary, as
long as the beneficiary is the insured under the Policy.
However, the Policyowner should consult a qualified tax
adviser about the consequences of adding this Endorsement
to a Policy or requesting an accelerated death benefit
payment under this Endorsement.
The Company further believes that an exchange of a
fixed-benefit policy issued by the Company for a Policy
as provided under "THE POLICY--Exchange Privilege"
generally should be treated as a non-taxable exchange of
life insurance policies within the meaning of section
1035 of the Code. However, in certain circumstances, the
exchanging owner may receive a cash distribution that
might have to be recognized as income to the extent there
was gain in the fixed-benefit policy. Moreover, to the
extent a fixed-benefit policy with an outstanding loan is
exchanged for an unencumbered Policy, the exchanging
owner could recognize income at the time of the exchange
up to the amount of such loan (including any due and
unpaid interest on such loan). An exchanging owner should
consult a tax adviser as to whether an exchange of a
fixed-benefit policy for the Policy will have tax
consequences to such owner.
The Policies may be used in various arrangements,
including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary
depending on the particular facts and circumstances of
each individual arrangement. Therefore, if it is
contemplated that a Policy may be used in any arrangement
the value of which depends in part on its tax
consequences, a qualified tax adviser should be consulted
regarding the tax attributes of the particular
arrangement.
Generally, the Policyowner will not be deemed to be in
constructive receipt of the cash value, including
increments thereof, under the Policy until there is a
distribution. The tax consequences of distributions from,
and loans taken from or secured by, a Policy depend on
whether the Policy is classified as a "modified endowment
contract."
Whether a Policy is or is not a modified endowment
contract, upon a complete surrender or lapse of a Policy,
or when benefits are paid at such Policy's maturity date,
if the amount received plus the amount of indebtedness
exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to
tax.
MODIFIED ENDOWMENT CONTRACTS. A Policy may be treated as
a modified endowment contract depending upon the amount
of premiums paid in relation to the death benefit
provided under such Policy. The premium limitation rules
for determining whether a Policy is a modified endowment
contract are extremely complex. In general, however, a
Policy will be a modified endowment contract if the
accumulated premiums paid at any time during the first
seven policy years exceeds the sum of the net level
premiums which would have been paid on or before such
time if the Policy provided for paid-up future benefits
after the payment of seven level annual premiums. In
addition, if a Policy is "materially changed," it may
cause such Policy to be treated as a modified endowment
contract. The material change rules for
35
<PAGE>
determining whether a Policy is a modified endowment
contract are also extremely complex. In general, however,
the determination whether a Policy will be a modified
endowment contract after a material change generally
depends upon the relationship among the death benefit at
the time of such change, the cash value at the time of
such change and the additional premiums paid in the seven
policy years starting with the date on which the material
change occurs.
Due to the Policy's flexibility, classification of a
Policy as a modified endowment contract will depend upon
the circumstances of each Policy. Accordingly, a
prospective Policyowner should contact a competent tax
adviser before purchasing a Policy to determine the
circumstances under which the Policy would be a modified
endowment contract. In addition, a Policyowner should
contact a competent tax adviser before paying any
unscheduled premiums or changing the planned premium
schedule or making any other change to, including an
exchange of, a Policy to determine whether such premium
or change would cause the Policy (or the new Policy in
the case of an exchange) to be treated as a modified
endowment contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS. Policies classified as modified
endowment contracts are subject to the following tax
rules: First, all distributions, including distributions
upon surrender and benefits paid at maturity, from such a
Policy are treated as ordinary income subject to tax up
to the amount equal to the excess (if any) of the cash
value immediately before the distribution over the
investment in the Policy (described below) at such time.
Second, loans taken from, or secured by, such a Policy
are treated as distributions from such a Policy and taxed
accordingly. In this regard, the Internal Revenue Service
could take the position that capitalized interest on such
loans are to be treated as a taxable distribution. Third,
a 10 percent additional tax is imposed on the portion of
any distribution from, or loan taken from or secured by,
such a Policy that is included in income except where the
distribution or loan is made on or after the Policyowner
attains age 59 1/2, is attributable to the Policyowner's
becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or
life expectancy) of the Policyowner or the joint lives
(or joint life expectancies) of the Policyowner and the
Policyowner's Beneficiary.
If a Policy becomes a modified endowment contract after
it is issued, distributions made during the policy year
in which it becomes a modified endowment contract,
distributions in any subsequent policy year and
distributions within two years before the Policy becomes
a modified endowment contract will be subject to the tax
treatment described above. This means that a distribution
from a Policy that is not a modified endowment contract
could later become taxable as a distribution from a
modified endowment contract.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS. Distributions from a Policy that is
not classified as a modified endowment contract are
generally treated as first recovering the investment in
the policy (described below) and then, only after the
return of all such investment in the policy, as
distributing taxable income. An exception to this general
rule occurs in the case of a partial withdrawal, a
decrease in the Specified Amount, or any other change
that reduces benefits under the Policy in the first 15
years after the Policy is issued and that results in a
cash distribution to the Policyowner in order for the
Policy to continue complying with the section 7702
definitional limits. In that case, such distribution will
be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed
in section 7702.
Loans from, or secured by, a Policy that is not a
modified endowment contract are not treated as
distributions. Instead, such loans are treated as
indebtedness of the Policyowner.
Finally, neither distributions (including distributions
upon surrender or lapse) nor loans from, or secured by, a
Policy that is not a modified endowment contract are
subject to the 10 percent additional tax.
36
<PAGE>
POLICY LOAN INTEREST. Interest paid on any loan under a
Policy may not be deductible. Therefore, a Policyowner
should consult a competent tax adviser before deducting
any Policy loan interest.
INVESTMENT IN THE POLICY. Investment in the policy means
(i) the aggregate amount of any premiums or other
consideration paid for a Policy, minus (ii) the aggregate
amount received under the Policy which is excluded from
the gross income of the Policyowner (except that the
amount of any loan from, or secured by, a Policy that is
a modified endowment contract, to the extent such amount
is excluded from gross income, will be disregarded), plus
(iii) the amount of any loan from, or secured by, a
Policy that is a modified endowment contract to the
extent that such amount is included in the gross income
of the Policyowner.
MULTIPLE POLICIES. All modified endowment contracts that
are issued by the Company (or its affiliates) to the same
Policyowner during any calendar year are treated as one
modified endowment contract for purposes of determining
the amount includable in gross income under section
72(e).
- - --------------------------------------------------------------------------------
TAXATION OF THE COMPANYAt the present time, the Company makes no charge to the
Variable Account, or to the Policy for any Federal, state
or local taxes (other than state premium taxes) that it
incurs that may be attributable to such Account or to the
Policies. The Company, however, reserves the right in the
future to make a charge for any such tax or other
economic burden resulting from the application of the tax
laws that it determines to be properly attributable to
the Variable Account or to the Policies.
- - --------------------------------------------------------------------------------
EMPLOYMENT-RELATED BENEFIT PLANS
The Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an
employer's deferred compensation plan could not, under
Title VII of the Civil Rights Act of 1964, vary between
men and women on the basis of sex. In addition,
legislative, regulatory or decisional authority of some
states may prohibit use of sex-distinct mortality tables
under certain circumstances. The Policy described in this
Prospectus contains guaranteed cost of insurance rates
and guaranteed purchase rates for certain payment options
that distinguish between men and women. Accordingly,
employers and employee organizations should consider, in
consultation with legal counsel, the impact of NORRIS,
and Title VII generally, on any employment-related
insurance or benefit program for which a Policy may be
purchased.
- - --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
The Company holds the assets of the Variable Account. The
assets are kept physically segregated and held separate
and apart from the General Account. The Company maintains
records of all purchases and redemptions of shares by
each Investment Option for each corresponding Subaccount.
Additional protection for the assets of the Variable
Account is afforded by a blanket fidelity bond issued by
TransAmerica in the amount of $2,500,000 covering all the
officers and employees of the Company.
- - --------------------------------------------------------------------------------
VOTING RIGHTS To the extent required by law, the Company will vote the
Fund shares held in the Variable Account at regular and
special shareholder meetings of the Funds in accordance
with instructions received from persons having voting
interests in the corresponding Subaccounts. If, however,
the Investment Company Act of 1940 or any regulation
thereunder should be amended or if the present
interpretation thereof should change, and, as a result,
the Company determines that it is permitted to vote the
Fund shares in its own right, it may elect to do so.
The number of votes which a Policyowner has the right to
instruct are calculated separately for each Subaccount
and are determined by dividing a Policy's Accumulated
Value in a Subaccount by the net asset value per share of
the corresponding Investment Option in which the
Subaccount invests. Fractional shares will be counted.
The number of votes of the Investment Option which the
Policyowner has the right to instruct will be determined
as of the date coincident with the date established by
that Investment Option for determining shareholders
eligible to vote at such meeting of the Fund. Voting
instructions will be solicited by written
37
<PAGE>
communications prior to such meeting in accordance with
procedures established by each Fund. Each person having a
voting interest in a Subaccount will receive proxy
materials, reports and other materials relating to the
appropriate Investment Option.
The Company will vote Fund shares attributable to
Policies as to which no timely instructions are received
(as well as any Fund shares held in the Variable Account
which are not attributable to Policies) in proportion to
the voting instructions which are received with respect
to all Policies participating in each Investment Option.
Voting instructions to abstain on any item to be voted
upon will be applied on a PRO RATA basis to reduce the
votes eligible to be cast on a matter.
Fund shares may also be held by separate accounts of
other affiliated and unaffiliated insurance companies.
The Company expects that those shares will be voted in
accordance with instructions of the owners of insurance
policies and contracts issued by those other insurance
companies. Voting instructions given by owners of other
insurance policies will dilute the effect of voting
instructions of Policyowners.
DISREGARD OF VOTING INSTRUCTIONS. The Company may, when
required by state insurance regulatory authorities,
disregard voting instructions if the instructions require
that the shares be voted so as to cause a change in the
sub-classification or investment objective of an
Investment Option or to approve or disapprove an
investment advisory contract for an Investment Option. In
addition, the Company itself may disregard voting
instructions in favor of changes initiated by a
Policyowner in the investment policy or the investment
adviser of an Investment Option if the Company reasonably
disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities,
or the Company determined that the change would have an
adverse effect on the General Account in that the
proposed investment policy for an Investment Option may
result in overly speculative or unsound investments. In
the event the Company does disregard voting instructions,
a summary of that action and the reasons for such action
will be included in the next annual report to
Policyowners.
- - --------------------------------------------------------------------------------
STATE REGULATION AND OWNERSHIP OF THE COMPANY
The Company, a stock life insurance company organized
under the laws of Iowa, is subject to regulation by the
Iowa Insurance Department. An annual statement is filed
with the Iowa Insurance Department on or before March lst
of each year covering the operations and reporting on the
financial condition of the Company as of December 31st of
the preceding year. Periodically, the Iowa Insurance
Department examines the liabilities and reserves of the
Company and the Variable Account and certifies their
adequacy, and a full examination of operations is
conducted periodically by the National Association of
Insurance Commissioners.
In addition, the Company is subject to the insurance laws
and regulations of other states within which it is
licensed or may become licensed to operate. Generally,
the insurance department of any other state applies the
laws of the state of domicile in determining permissible
investments.
One hundred percent of the outstanding Common Stock, par
value $1 per share, of the Company is owned by American
Equity Investment Life Holding Company (the "Holding
Company"). As of January 15, 1998, the following persons
and entities beneficially own the following specified
percentages of the Common Stock, par value $1 per share,
of the Holding Company: David J. Noble, President and
Director of the Company -- 22.3%; Farm Bureau Life
Insurance Company -- 20%; Conseco, Inc., through its
wholly-owned subsidiaries -- 9.4%. Additionally, 15.4% of
the outstanding Common Stock is held in a voting trust
under which David J. Noble, Debra J. Richardson and David
S. Mulcahy, Trustees, have legal title and voting control
and Farm Bureau Life Insurance Company beneficially owns
all of the economic value. The Holding Company develops,
markets, issues and administers annuity contracts and
life insurance policies through the Company. The
principal offices of the Company and Holding Company are
at 5000 Westown Parkway, Suite 440, West Des Moines, Iowa
50266.
38
<PAGE>
- - --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS OF
AMERICAN EQUITY
INVESTMENT LIFE
<TABLE>
<CAPTION>
INSURANCE COMPANY
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
- - ------------------------------ --------------------------------------------------
<S> <C>
David J. Noble President, Chairman, President and Director, American Equity
President and Director Investment Life Holding Company; Chairman,
President & CEO, The Statesman Group, Inc.; Vice
Chairman and Director, American Life & Casualty
Insurance Company
James M. Gerlach, Executive Executive Vice President and Director, American
Vice President, Chief Equity Investment Life Holding Company; Executive
Marketing Officer and Vice President, Secretary and Director, American
Director Life & Casualty Insurance Company
David S. Mulcahy, Director Director, American Equity Investment Life Holding
400 Locust Street: Company; Principal, MABSCO Capital, Inc.;
160 Capital Square President, Monarch Manufacturing Company; Partner,
Des Moines, Iowa 50309 Ernst & Young LLP
William J. Oddy, Director Chief Operating Officer, FBL Financial Group, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
Terry A. Reimer, Executive Executive Vice President, American Equity
Vice President, Treasurer, Investment Life Holding Company; Executive Vice
Chief Operating Officer and President, Chief Operating Officer and Director,
Director American Life & Casualty Insurance Company
Debra J. Richardson, Vice Vice President and Secretary, American Equity
President, Secretary and Investment Life Holding Company; Vice President
Director and Assistant Secretary, The Statesman Group,
Inc.; Vice President and Assistant Secretary,
American Life & Casualty Insurance Company
Jack W. Schroeder, Vice President and Director, American Life & Casualty
Chairman Insurance Company
and Director
</TABLE>
- - --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5000 Westown Parkway,
Suite 440, West Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years.
Corporate positions may, in some instances, have changed during the period.
39
<PAGE>
- - --------------------------------------------------------------------------------
LEGAL MATTERS Sutherland, Asbill & Brennan LLP of Washington, D.C. has
provided advice on certain legal matters relating to
federal securities laws applicable to the issuance of the
flexible premium variable life insurance policy described
in this Prospectus. All matters of Iowa law pertaining to
the Policy, including the validity of the Policy and the
Company's right to issue the Policy under Iowa Insurance
Law, have been passed upon by Wendy L. Carlson of the
firm Whitfield & Eddy, P.L.C. of Des Moines, Iowa, legal
counsel to the Company.
- - --------------------------------------------------------------------------------
LEGAL PROCEEDINGS The Company, like other insurance companies, is involved
in lawsuits. Currently, there are no class action
lawsuits naming the Company as a defendant or involving
the Variable Account. In some lawsuits involving other
insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the
outcome of any litigation cannot be predicted with
certainty, the Company believes that at the present time,
there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on
the Variable Account of the Company.
- - --------------------------------------------------------------------------------
EXPERTS The financial statements of the Company at December 31,
1997 and 1996, and for the years then ended, and for the
period from December 28, 1995 (date operations commenced)
through December 31, 1995, appearing herein, have been
audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report
given upon the authority of such firm as experts in
accounting and auditing.
Actuarial matters included in this Prospectus have been
examined by Christopher G. Daniels, FSA, MSAA, Consulting
Actuary as stated in the opinion filed as an exhibit to
the registration statement.
- - --------------------------------------------------------------------------------
YEAR 2000 The Company has developed a plan to assess its
information technology needs to be ready for the Year
2000. During 1996, the Company purchased a new policy
administration system which the vendor has represented is
Year 2000 compliant. Additionally, the Company has begun
converting any remaining non-compliant data processing
systems. The Company currently expects the project to be
substantially completed by early 1999 and does not expect
the cost to modify systems used in the normal course of
business to be significant. While additional testing will
be conducted on its systems through the Year 2000, the
Company does not expect this project to have a
significant effect on operating activities.
To mitigate the effect of outside influences and other
dependencies relative to the Year 2000, the Company's
plan includes procedures to contact significant
customers, suppliers and other third parties whose
success in addressing their own Year 2000 issue will
impact the Company's initiative. To the extent these
third parties would be unable to transact business in the
Year 2000 and thereafter, it could adversely affect the
Company's operations.
- - --------------------------------------------------------------------------------
OTHER INFORMATION A registration statement has been filed with the
Securities and Exchange Commission under the Securities
Act of 1933, as amended, with respect to the Policy
offered hereby. This Prospectus does not contain all the
information set forth in the registration statement and
the amendments and exhibits to the registration
statement, to all of which reference is made for further
information concerning the Variable Account, the Company
and the Policy offered hereby. Statements contained in
this Prospectus as to the contents of the Policy and
other legal instruments are summaries. For a complete
statement of the terms thereof, reference is made to such
instruments as filed.
40
<PAGE>
- - --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The balance sheets of the Company at December 31, 1997
and 1996 and the related statements of operations,
changes in stockholder's equity and cash flows for the
years then ended, and for the period from December 28,
1995 (date operations commenced) through December 31,
1995, appearing herein, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein. The unaudited
balance sheet of the Company at March 31, 1998, and the
related unaudited statements of operations, changes in
stockholder's equity and cash flows for the three months
ended March 31, 1998 and 1997 also appear herein.
It is anticipated that the Variable Account will commence
operations in 1998; accordingly, no financial statements
currently exist for the Variable Account.
41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
American Equity Investment Life Insurance Company
We have audited the accompanying balance sheets of American Equity Investment
Life Insurance Company as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholder's equity, and cash flows for
the years ended December 31, 1997 and 1996, and for the period from December 28,
1995 (commencement of operations) through December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Equity Investment Life
Insurance Company at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996,
and for the period from December 28, 1995 through December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
April 8, 1998
42
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1998 1997 1996
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Available-for-sale fixed maturity securities, at market
(amortized cost: 1998--$314,957,252;
1997-- $201,624,365; 1996-- $22,397,478) $ 315,882,252 $ 202,315,960 $22,195,922
Mortgage loans on real estate -- 700,000 700,000
Derivative instruments 4,947,084 2,065,549 --
Mortgage loans on real estate--affiliate 700,000 -- --
Policy loans 190,401 183,353 156,523
Cash and cash equivalents 6,973,244 4,125,117 3,648,321
Receivable from other insurance companies 659,181 622,094 509,656
Premiums due and uncollected 1,309,136 1,336,336 1,253,587
Accrued investment income 1,545,308 1,820,376 414,855
Property, furniture and equipment, less accumulated
depreciation of $203,563 in 1998, $159,306 in 1997 and
$19,845 in 1996 563,916 540,550 189,124
Value of insurance in force acquired 1,263,750 1,343,000 1,725,000
Deferred policy acquisition costs 8,877,392 4,282,491 238,231
Goodwill, less accumulated amortization of $105,000 in 1998,
$87,500 in 1997 and $17,500 in 1996 595,000 612,500 682,500
Deferred income tax asset 4,847,420 3,845,497 --
Receivable from affiliates 1,871,042 142,983 744,045
Other assets 109,006 138,041 37,524
------------- ------------- -----------
Total assets $ 350,334,132 $ 224,073,847 $32,495,288
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1998 1997 1996
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy benefit reserves:
Traditional life insurance and accident and health
products $ 8,929,363 $ 8,959,837 $ 8,672,640
Universal life and annuity products 223,449,669 147,038,431 3,173,926
Other policy funds and contract claims 4,445,055 2,355,156 1,075,614
Provision for experience rating refunds 716,664 535,655 897,529
Note payable to parent and other short-term borrowings 49,642,187 2,500,000 2,500,000
Federal income taxes payable 103,777 2,562,742 --
Due to affiliates 1,067,634 -- --
Other liabilities 4,386,883 2,687,604 494,146
------------- ------------- -----------
Total liabilities 292,741,232 166,639,425 16,813,855
Commitments and contingencies (NOTES 7, 10 AND 12)
Stockholder's equity:
Series preferred stock, par value $1.00 per
share--authorized 500,000 shares -- -- --
Common stock, par value $1.00 per share--authorized
4,000,000 shares, issued and outstanding 2,500,000 shares
(all owned by American Equity Investment Life Holding
Company) 2,500,000 2,500,000 2,500,000
Additional paid-in capital 56,400,235 56,400,235 13,900,235
Accumulated other comprehensive income--net unrealized
appreciation (depreciation) of available-for-sale fixed
maturity securities 292,430 210,300 (201,556)
Retained-earnings deficit (1,599,765) (1,676,113) (517,246)
------------- ------------- -----------
Total stockholder's equity 57,592,900 57,434,422 15,681,433
------------- ------------- -----------
Total liabilities and stockholder's equity $ 350,334,132 $ 224,073,847 $32,495,288
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
44
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 28,
1995
(COMMENCEMENT
OF
THREE MONTHS ENDED YEAR ENDED OPERATIONS)
MARCH 31, DECEMBER 31, THROUGH
----------------------------- ----------------------------- DECEMBER 31,
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Traditional life and accident and
health insurance premiums $ 2,869,938 $ 3,220,322 $ 11,424,907 $ 14,540,707 $ 1,820
Universal life and annuity product
charges 47,832 3,493 11,896 14,007 --
Net investment income 4,725,464 380,414 4,028,628 857,015 4,010
Realized gains on investments 25,495 -- -- -- --
------------- ------------- ------------- ------------- -------------
Total revenues 7,668,729 3,604,229 15,465,431 15,411,729 5,830
Benefits and expenses:
Insurance policy benefits and change
in future policy benefit 1,903,907 1,956,533 7,440,080 8,787,700 --
Interest credited to account balances 1,948,453 93,157 2,129,686 77,831 --
Interest expense on notes payable 49,863 50,973 134,077 41,266 --
Interest expense on short-term
borrowings 392,409 -- 291,547 -- --
Amortization of deferred policy
acquisition costs and value of
insurance in force acquired 590,275 102,509 1,143,032 879,916 --
Amortization of goodwill 17,500 17,500 70,000 17,500 --
Agency and product development costs
(NOTE 2) 740,000 450,000 1,872,217 -- --
Other operating costs and expenses 1,953,172 1,189,167 4,932,435 6,124,343 6,249
------------- ------------- ------------- ------------- -------------
Total benefits and expenses 7,595,579 3,859,839 18,013,074 15,928,556 6,249
Income (loss) before federal income
taxes 73,150 (255,610) (2,547,643) (516,827) (419)
Federal income tax benefit (expense):
Current (1,041,035) -- (2,565,057) -- --
Deferred 1,044,233 -- 3,953,833 -- --
------------- ------------- ------------- ------------- -------------
3,198 -- 1,388,776 -- --
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 76,348 $ (255,610) $ (1,158,867) $ (516,827) $ (419)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
45
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
(DEPRECIATION)
OF AVAILABLE-
FOR-SALE
ADDITIONAL FIXED RETAINED- TOTAL
PAID-IN MATURITY EARNINGS STOCKHOLDER'S
COMMON STOCK CAPITAL SECURITIES DEFICIT EQUITY
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Initial capitalization of 2,500,000 shares of
common stock on December 28, 1995 $ 2,500,000 $ 4,499,000 $ -- $ -- $ 6,999,000
Net loss for period and comprehensive loss -- -- -- (419) (419)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1995 2,500,000 4,499,000 -- (419) 6,998,581
Net loss for year -- -- -- (516,827) (516,827)
Change in net unrealized depreciation of
available-for-sale fixed maturity securities -- -- (201,556) -- (201,556)
-------------
Comprehensive loss (718,383)
Cash contributions from American Equity
Investment Life Holding Company -- 9,401,235 -- -- 9,401,235
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1996 2,500,000 13,900,235 (201,556) (517,246) 15,681,433
Net loss for year -- -- -- (1,158,867) (1,158,867)
Change in net unrealized appreciation of
available-for-sale fixed maturity securities -- -- 411,856 -- 411,856
-------------
Comprehensive loss (747,011)
Cash contributions from American Equity
Investment Life Holding Company -- 42,500,000 -- -- 42,500,000
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1997 2,500,000 56,400,235 210,300 (1,676,113) 57,434,422
Net income for three months ended March 31,
1998 -- -- -- 76,348 76,348
Change in net unrealized appreciation of
available-for-sale fixed maturity securities -- -- 82,130 -- 82,130
-------------
Comprehensive income 158,478
------------- ------------- ------------- ------------- -------------
Balance at March 31, 1998 (unaudited) $ 2,500,000 $ 56,400,235 $ 292,430 $ (1,599,765) $ 57,592,900
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Balance at January 1, 1997 $ 2,500,000 $ 13,900,235 $ (201,556) $ (517,246) $ 15,681,433
Net loss for three months ended March 31, 1997 -- -- -- (255,610) (255,610)
Change in net unrealized appreciation
(depreciation) of available-for-sale fixed
maturity securities -- -- (737,517) -- (737,517)
-------------
Comprehensive loss (993,127)
------------- ------------- ------------- ------------- -------------
Balance at March 31, 1997 (unaudited) $ 2,500,000 $ 13,900,235 $ (939,073) $ (772,856) $ 14,688,306
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
46
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 28,
1995
(COMMENCEMENT
OF OPERATIONS)
THREE MONTHS ENDED YEAR ENDED THROUGH
MARCH 31, DECEMBER 31, DECEMBER 31
----------------------------- ----------------------------- ---------------
1998 1997 1997 1996 1995
--------------- ------------ -------------- ------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 76,348 $ (255,610) $ (1,158,867) $ (516,827) $ (419)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Adjustments related to interest sensitive
products:
Interest credited to account balances 1,948,453 93,157 2,129,686 77,831 --
Charges for mortality and administration (47,832) (3,493) (11,896) (14,007) --
Increase (decrease) in traditional life
insurance and accident and health reserves (17,116) (287,909) 287,197 439,216 --
Policy acquisition costs deferred (4,320,570) (322,163) (5,178,251) (245,226) --
Amortization of deferred policy acquisition
costs 525,337 7,009 761,032 6,995 --
Amortization of value of insurance in force
acquired 79,250 95,500 382,000 872,921 --
Depreciation of property, furniture and
equipment 44,257 14,293 139,461 19,845 --
Amortization of goodwill 17,500 17,500 70,000 17,500 --
Amortization of discount and premiums on
available-for-sale fixed maturity
securities and derivative instruments (2,736,196) 3,528 (997,853) 36,148 --
Deferred income taxes (1,044,233) -- (3,953,833) -- --
Increase (decrease) in federal income taxes
payable (2,458,965) -- 2,562,742 -- --
Other 3,590,616 1,616,046 2,241,873 (441,649) (730)
--------------- ------------ -------------- ------------- ---------------
Net cash provided by (used in) operating
activities (4,343,151) 977,858 (2,726,709) 252,747 (1,149)
INVESTING ACTIVITIES
Maturities or repayments of investments:
Available-for-sale fixed maturity securities 71,262,131 -- 22,591,487 3,779,185 --
Policy loans -- -- -- 12,580 --
--------------- ------------ -------------- ------------- ---------------
71,262,131 -- 22,591,487 3,791,765 --
Acquisitions of investments:
Available-for-sale fixed maturity securities (181,253,310) (8,254,376) (200,181,267) (19,223,611) (6,899,015)
Mortgage loan on real estate -- -- -- (700,000) --
Derivative instruments (1,043,968) -- (1,815,674) -- --
Policy loans (7,048) (4,448) (26,830) (169,103) --
--------------- ------------ -------------- ------------- ---------------
(182,304,326) (8,258,824) (202,023,771) (20,092,714) (6,899,015)
Cash received pursuant to reinsurance
assumption agreements -- -- -- 3,805,969 2,746,767
Purchases of property, furniture and equipment (67,623) (116,941) (490,887) (208,969) --
Acquisition of Century Life Insurance Company,
net of cash equivalents received -- -- -- (885,837) --
--------------- ------------ -------------- ------------- ---------------
Net cash used in investing activities (111,109,818) (8,375,765) (179,923,171) (13,589,786) (4,152,248)
</TABLE>
47
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 28,
1995
(COMMENCEMENT
OF OPERATIONS)
THREE MONTHS ENDED YEAR ENDED THROUGH
MARCH 31, DECEMBER 31, DECEMBER 31,
----------------------------- ----------------------------- ---------------
1998 1997 1997 1996 1995
--------------- ------------ -------------- ------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Receipts from interest sensitive products
credited to policyholder account balances $ 75,509,335 $ 4,038,810 $ 141,802,051 $ 2,456,054 $ --
Return of policyholder account balances on
interest sensitive products (4,350,406) (21,682) (1,175,375) (217,532) --
Proceeds from note payable to parent and other
short-term borrowings 47,142,187 400,000 -- 2,500,000 --
Net proceeds from issuance of common stock -- -- -- -- 6,999,000
Cash contributions by parent -- -- 42,500,000 9,401,235 --
--------------- ------------ -------------- ------------- ---------------
Net cash provided by financing activities 118,301,116 4,417,128 183,126,676 14,139,757 6,999,000
--------------- ------------ -------------- ------------- ---------------
Increase (decrease) in cash and cash
equivalents 2,848,127 (2,980,777) 476,796 802,718 2,845,603
Cash and cash equivalents at beginning of
period 4,125,117 3,648,321 3,648,321 2,845,603 --
--------------- ------------ -------------- ------------- ---------------
Cash and cash equivalents at end of period $ 6,973,244 $ 667,544 $ 4,125,117 $ 3,648,321 $ 2,845,603
--------------- ------------ -------------- ------------- ---------------
--------------- ------------ -------------- ------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during period for:
Interest $ 442,272 $ 22,162 $ 291,547 $ -- $ --
Federal income taxes 3,500,000 -- 2,315 -- --
Non-cash financing and investing activities:
Assets and liabilities acquired pursuant to
reinsurance assumption agreements:
Receivable from ceding company -- -- -- -- (386,113)
Premiums due and uncollected -- -- -- (41,284) (1,116,548)
Reinsurance recoverables -- -- -- -- (473,146)
Value of insurance in force acquired -- -- -- (1,097,921) (1,500,000)
Universal life and annuity policy reserves -- -- -- 871,580 --
Traditional life and accident and health
policy reserves -- -- -- 3,982,118 4,251,306
Policy and contract claims -- -- -- 91,476 657,610
Provision for experience rating refunds -- -- -- -- 1,188,318
Other liabilities -- -- -- -- 125,340
--------------- ------------ -------------- ------------- ---------------
Cash received pursuant to reinsurance
assumption agreements 3,942,272 22,162 -- 3,805,969 2,746,767
</TABLE>
SEE ACCOMPANYING NOTES.
48
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
American Equity Investment Life Insurance Company (the Company) is a
wholly-owned subsidiary of American Equity Investment Life Holding Company
(parent). The Company is licensed to sell insurance products in 32 states and
the District of Columbia at December 31, 1997. The Company offers a broad array
of insurance products including single premium deferred annuities, flexible
premium deferred annuities, interest-sensitive life insurance products
(including universal life insurance) and traditional life insurance products.
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates and assumptions are utilized in the calculation of value
of insurance in force acquired, deferred policy acquisition costs, policyholder
liabilities and accruals and valuation allowances on investments. It is
reasonably possible that actual experience could differ from the estimates and
assumptions utilized.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
INVESTMENTS
The Company has classified all of its fixed maturity securities (bonds) as
available-for-sale. Available-for-sale securities are reported at market value
and unrealized gains and losses, if any, on these securities are included
directly in stockholder's equity, net of certain adjustments. Premiums and
discounts are amortized/accrued using methods which result in a constant yield
over the securities' expected lives. Mortgage loans on real estate are stated at
the aggregate unpaid principal balance.
The carrying amounts of all the Company's investments are reviewed on an ongoing
basis for credit deterioration, and if this review indicates a decline in market
value that is other than temporary, the Company's carrying amount in the
investment is reduced to its estimated realizable value and a specific writedown
is taken. Such reductions in carrying amount are recognized as realized losses
and charged to income. Realized gains and losses on sales are determined on the
basis of specific identification of investments.
Market values, as reported herein, of publicly traded fixed maturity securities
are based on the latest quoted market prices, or for those not readily
marketable, at values which are representative of the market values of issues of
comparable yield and quality.
DERIVATIVE INSTRUMENTS
The Company sells single premium deferred annuity products with an additional
benefit provision based on the growth in the Standard & Poor's 500 Index. The
Company has analyzed the characteristics of these benefits and has purchased
one-year option contracts with similar characteristics to hedge these risks.
These options are reported at fair value in the balance sheet.
The options are purchased at the time the related annuity policies are issued,
with similar maturity dates and benefit features that fluctuate as the value of
the options change. Accordingly, changes in the value of the options ($839,359
during the year ended December 31, 1997) are offset by changes to the policy
benefit liabilities in the statements of operations.
49
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY LOANS
Policy loans are reported at unpaid principal.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
DEFERRED POLICY ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE ACQUIRED
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions, first-year
bonus interest and other expenses related to the production of new business,
have been deferred. The value of insurance in force acquired is an asset that
arose with the acquisition of two blocks of business discussed in Note 4. The
initial values are determined by an actuarial study using expected future
profits as a measurement of the net present value of the insurance acquired.
Interest accrues on the unamortized balance at a rate of 6%.
For universal life and annuity products, these costs are being amortized
generally in proportion to expected gross profits from surrender charges and
investment, mortality, and expense margins. That amortization is adjusted
retrospectively when estimates of current future gross profits/margins
(including the impact of investment gains and losses) to be realized from a
group of products are revised. For traditional life and accident and health
insurance, such costs are being amortized over the premium-paying period of the
related policies in proportion to premium revenues recognized, using principally
the same assumptions for interest, mortality and withdrawals that are used for
computing liabilities for future policy benefits subject to traditional
"lock-in" concepts.
GOODWILL
Goodwill consists of the excess of the purchase price paid over net assets
acquired in connection with the purchase of Century Life Insurance Company (see
Note 4), and is being amortized over 10 years.
PROPERTY, FURNITURE AND EQUIPMENT
Property and furniture and equipment, comprised primarily of office furniture
and equipment, data processing equipment and capitalized software costs, are
reported at cost less allowances for depreciation. Depreciation expense is
compiled primarily using the straight-line method over the estimated useful
lives of the assets.
FUTURE POLICY BENEFITS
Future policy benefit reserves for universal life insurance and annuity products
are computed using the retrospective deposit method and represent policy account
balances before applicable surrender charges. Policy benefits and claims that
are charged to expense include benefit claims incurred in the period in excess
of related policy account balances. Interest crediting rates for universal life
and investment products ranged from 3.0% to 12.4% in 1997 and from 3.0% to 8.4%
in 1996. A portion of this amount ($1,035,325 during the year ended December 31,
1997) represents an additional interest credit on first-year premiums payable
until the first contract anniversary date (first-year bonus interest). Such
amounts have been offset against interest credited to account balances and
deferred as policy acquisitions costs.
The liability for future policy benefits for traditional life insurance is based
on net level premium reserves, including assumptions as to interest, mortality,
and other assumptions underlying the guaranteed policy cash values. Reserve
interest assumptions are level and range from 3.0% to 6.0%. The liabilities for
future policy benefits for accident and health insurance are computed using a
net level premium method, including assumptions as to morbidity and other
assumptions based on the Company's experience, modified as necessary to give
effect to anticipated trends and to include provisions for possible unfavorable
deviations. Policy benefit claims are charged to expense in the period that the
claims are incurred.
Unpaid claims include amounts for losses and related adjustment expenses and are
determined using individual claim evaluations and statistical analysis. Unpaid
claims represent estimates of the ultimate net costs of all losses, reported and
unreported, which remain unpaid at December 31 of each year. These estimates are
necessarily subject to the
50
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impact of future changes in claim severity, frequency and other factors. In
spite of the variability inherent in such situations, management believes that
the unpaid claim amounts are adequate. The estimates are continuously reviewed
and as adjustments to these amounts become necessary, such adjustments are
reflected in current operations.
Certain policies of the Company include provisions for refunds of premiums based
upon annual experience of the underlying business. The Company has recorded a
liability for expected refunds based on experience.
DEFERRED INCOME TAXES
Deferred income tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or credits are
based on the changes in the asset or liability from period to period.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Revenues for universal life and annuity products consist of policy charges for
the cost of insurance, administration charges, amortization of policy initiation
fees and surrender charges assessed against policyholder account balances during
the period. Expenses related to these products include interest credited to
policyholder account balances and benefit claims incurred in excess of
policyholder account balances.
Life and accident and health premiums are recognized as revenues over the
premium-paying period. Future policy benefits and policy acquisition costs are
recognized as expenses over the life of the policy by means of the provision for
future policy benefits and amortization of deferred policy acquisition costs.
All insurance-related revenues, benefits, losses and expenses are reported net
of reinsurance ceded.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement No. 130, REPORTING
COMPREHENSIVE INCOME. Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income of stockholders'
equity. Statement No. 130 requires unrealized gains and losses on the Company's
available-for-sale securities to be included in other comprehensive income.
2. NEW ACCOUNTING STANDARD FOR AGENCY DEVELOPMENT COSTS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. SOP No. 98-5 generally establishes the accounting guidance related
to introducing new products or services, conducting business in a new territory,
or conducting business with a new class of customers. These types of costs are
typically incurred by a life insurance company in connection with agency
development activities. SOP No. 98-5 now requires that such costs be expensed in
the year incurred rather than be capitalized and expensed over a number of
years.
While the adoption of the standard is not mandated until January 1, 1999, the
Company has elected to adopt its provisions, effective January 1, 1997, for the
purposes of preparing its 1997 financial statements. This election will
eliminate the need to record a cumulative effect adjustment on January 1, 1999
to write-off previously capitalized costs. The Company had previously deferred
these costs in its interim 1997 financial statements; however, for these
statements the change was effected as of January 1, 1997 in accordance with
transition rules included within SOP No. 98-5. Costs capitalized prior to
January 1, 1997 were not material.
The Company disagrees with the new standard and continues to believe that
deferral of these costs is appropriate. The Company believes that the new
standard puts start-up operations, such as itself, at a competitive disadvantage
to those entities which acquire existing agency forces in business combinations
accounted for as purchases, which would result in comparable cost deferrals
through the recording of goodwill. The Company believes these inequities should
be considered when reviewing the Company's financial statements.
3. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other
51
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. SFAS No. 107 also excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements and allows companies to forego the disclosures when those estimates
can only be made at excessive cost. Accordingly, the aggregate fair value
amounts presented herein are limited by each of these factors and do not purport
to represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
FIXED MATURITY SECURITIES: Fair values for fixed maturity securities are based
on quoted market prices, when available, or price matrices for securities which
are not actively traded, developed using yield data and other factors relating
to instruments or securities with similar characteristics.
MORTGAGE LOANS ON REAL ESTATE: Fair values are estimated by discounting
expected cash flows using interest rates currently being offered for similar
loans.
DERIVATIVE INSTRUMENTS: Fair values for derivative instruments are based on
quoted market prices from related counterparties.
POLICY LOANS: The Company has not attempted to determine the fair values
associated with its policy loans, as management believes any differences between
the Company's carrying amount and the fair values afforded these instruments are
immaterial to the Company's financial position and, accordingly, the cost to
provide such disclosure is not worth the benefit to be derived.
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for these instruments approximate their fair values.
ANNUITY POLICY RESERVES: Fair values of the Company's liabilities under
contracts not involving significant mortality or morbidity risks (principally
deferred annuities), are stated at the cost the Company would incur to
extinguish the liability (i.e., the cash surrender value). The Company is not
required to and has not estimated the fair value of its liabilities under other
contracts.
The following sets forth a comparison of the fair values and carrying amounts of
the Company's financial instruments:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1997 1996
---------------------------- ------------------------
CARRYING FAIR CARRYING
AMOUNT VALUE AMOUNT FAIR VALUE
---------------------------- ------------------------
<S> <C> <C> <C> <C>
ASSETS
Available-for-sale fixed maturity securities $ 202,315,960 $ 202,315,960 $22,195,922 $22,195,922
Mortgage loans on real estate 700,000 700,000 700,000 700,000
Derivative instruments 2,065,549 2,065,549 -- --
Policy loans 183,353 183,353 156,523 156,523
Cash and cash equivalents 4,125,117 4,125,177 3,648,321 3,648,321
LIABILITIES
Annuity policy reserves $ 146,310,889 $ 129,660,303 $ 2,884,102 $ 2,814,701
</TABLE>
4. PURCHASE OF BUSINESS AND REINSURANCE ASSUMPTION AGREEMENTS
On September 30, 1996, the Company purchased Century Life Insurance Company, an
inactive life insurance company licensed to transact business in 22 states and
the District of Columbia for $5,900,047. The transaction was accounted for as a
purchase and the excess of the purchase price over the fair value of the net
assets received, generally attributed
52
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASE OF BUSINESS AND REINSURANCE ASSUMPTION AGREEMENTS (CONTINUED)
to the licenses received and other intangibles, aggregated $700,000 and has been
allocated to goodwill. Goodwill will be amortized on the straight-line method
over ten years. The following summarizes the assets and liabilities received in
connection with the purchase:
<TABLE>
<S> <C>
Available-for-sale fixed maturity securities $ 155,837
Cash equivalents 5,014,210
Accrued investments income 30,000
Intangibles 700,000
Other assets 6,785
Other liabilities (6,785)
-----------
Net purchase price $ 5,900,047
-----------
-----------
</TABLE>
On December 31, 1995, the Company acquired a block of individual and group
insurance policies from American Life and Casualty Insurance Company, pursuant
to a reinsurance agreement. Under the agreement, the Company received cash of
$3,132,880, of which $2,746,767 had been received prior to December 31, 1995,
and assumed the related assets and liabilities, including the value of insurance
in force acquired in the amount of $1,500,000.
On January 2, 1996, the Company acquired an additional block of individual life
business from American Life and Casualty Insurance Company pursuant to a second
reinsurance agreement. Under this agreement, the Company received cash of
$3,805,969, and assumed the related assets and liabilities, including the value
of insurance in force acquired in the amount of $1,097,921.
The statement of operations includes results of the acquired company and for the
acquired blocks of business subsequent to their purchase dates.
5. INVESTMENTS
At December 31, 1997 and 1996, bonds are comprised entirely of United States
Government and agencies obligations. Net unrealized appreciation (depreciation)
on bonds included gross unrealized appreciation of $736,523 and $1,764 and gross
unrealized depreciation of $44,928 and $203,320 for the years ended December 31,
1997 and 1996, respectively.
The amortized cost and estimated fair value of debt securities at December 31,
1997, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
-----------------------------------
<S> <C> <C>
Due after one year through five years $ 55,029,072 $ 55,005,750
Due after five years through ten years 19,046,971 19,093,110
Due after ten years through twenty years 125,316,243 125,929,600
Due after twenty years 2,232,079 2,287,500
-----------------------------------
$ 201,624,365 $ 202,315,960
-----------------------------------
-----------------------------------
</TABLE>
The unrealized appreciation or depreciation on available-for-sale fixed maturity
securities is reported as a separate component of stockholder's equity, reduced
by adjustments to deferred policy acquisition costs that would have been
53
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS (CONTINUED)
required as a charge or credit to income had such amounts been realized, and a
provision for deferred income taxes. Net unrealized appreciation (depreciation)
of available-for-sale fixed maturity securities as reported were comprised of
the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Unrealized appreciation (depreciation) on
available-for-sale fixed maturity securities $ 691,595 $ (201,556)
Adjustments for assumed changes in amortization
pattern of deferred policy acquisition costs (372,959) --
Provision for deferred income taxes (108,336) --
---------------------------
Net unrealized appreciation (depreciation) of
available-for-sale fixed maturity securities $ 210,300 $ (201,556)
---------------------------
---------------------------
</TABLE>
Components of net investment income are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 28, 1995
YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
---------------------------- OPERATIONS) THROUGH
1997 1996 DECEMBER 31, 1995
---------------------------- --------------------
<S> <C> <C> <C>
Available-for-sale fixed maturity securities $ 5,131,361 $ 913,636 $ 2,926
Mortgage loans on real estate 61,357 -- --
Derivative instruments (589,484) -- --
Policy loans 12,281 9,849 --
Cash and cash equivalents 73,047 62,302 1,084
---------------------------- -------
4,688,562 985,787 4,010
Less investment expenses (659,934) (128,772) --
---------------------------- -------
Net investment income $ 4,028,628 $ 857,015 $ 4,010
---------------------------- -------
---------------------------- -------
</TABLE>
As part of the investment strategy, the Company enters into securities lending
programs to increase its return on investments and improve liquidity. These
transactions are accounted for as short-term borrowings. The borrowings are
collateralized by investment securities with fair values approximately equal to
the loan value. No amounts were outstanding at December 31, 1997 or 1996. At
March 31, 1998, $47,142,187 was outstanding under this arrangement.
At December 31, 1997, affidavits of deposits covering fixed maturity securities
and short-term investments with a carrying value of $200,954,937 (1996 -
$19,293,142) were on deposit with state agencies to meet regulatory
requirements. In addition, fixed maturity securities and short-term investments
with a carrying amount of $539,292 (1996 - $5,156,565) were held on deposit with
state agencies to meet similar requirements.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded 10% of stockholder's equity
at December 31, 1997 or 1996.
54
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. VALUE OF INSURANCE IN FORCE ACQUIRED
The value of insurance in force acquired is an asset that represents the present
value of future profits on business acquired. An analysis of the value of
insurance in force acquired for the periods ended December 31, 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 28, 1995
YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
------------------------------ OPERATIONS) THROUGH
1997 1996 DECEMBER 31, 1995
----------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 1,725,000 $ 1,500,000 $ --
Acquired during the period -- 1,097,921 1,500,000
Accretion of interest during the period 91,000 130,000 --
Amortization of asset (473,000) (1,002,921) --
----------------------------------------------------
Balance at end of period $ 1,343,000 $ 1,725,000 $ 1,500,000
----------------------------------------------------
----------------------------------------------------
</TABLE>
Amortization of the value of insurance in force acquired for the next five years
ending December 31 is expected to be as follows: 1998 - $317,000; 1999 -
$268,000; 2000 - $232,000; 2001 - $104,000; and 2002 - $104,000.
7. REINSURANCE AND POLICY PROVISIONS
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers. Reinsurance coverages
for life insurance vary according to the age and risk classification of the
insured. The Company does not use financial or surplus relief reinsurance.
Reinsurance contracts do not relieve the Company of its obligations to its
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations, and payment of these obligations could result in losses to the
Company. To limit the possibility of such losses, the Company evaluates the
financial condition of its reinsurers, and monitors concentrations of credit
risk. Insurance premiums and product charges have been reduced by $722,545 and
$742,088 and insurance benefits have been reduced by $503,154 and $455,472
during the years ended December 31, 1997 and 1996, respectively, as a result of
cession agreements.
No allowance for uncollectible amounts has been established against the
Company's asset for amounts due from other insurance companies since none of the
receivables are deemed by management to be uncollectible.
55
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
Unpaid claims on accident and health include amounts for losses and related
adjustment expense and are estimates of the ultimate net costs of all losses,
reported and unreported. These estimates are subject to the impact of future
changes in claim severity, frequency and other factors. The activity in the
liability for unpaid claims and related adjustment expense for the years ended
December 31, 1997 and 1996, net of reinsurance, is summarized as follows:
<TABLE>
<CAPTION>
UNPAID CLAIMS
LIABILITY AT CLAIMS UNPAID CLAIMS
BEGINNING OF RESERVE CLAIMS LIABILITY AT
YEAR ASSUMED INCURRED CLAIMS PAID END OF YEAR
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
1997 $ -- $ -- $ 556,302 $ 296,060 $ 260,242
1996 and prior 629,651 -- (107,471) 115,135 407,045
---------------------------------------------------------------------
629,651 $ -- $ 448,831 $ 411,195 667,287
---------------------------------------
---------------------------------------
Active life reserve 1,350,132 1,406,694
------------- -------------
Total accident and health reserves $ 1,979,783 $ 2,073,981
------------- -------------
------------- -------------
YEAR ENDED DECEMBER 31, 1996
1996 $ -- $ -- $ 421,841 $ 90,844 $ 330,997
1995 and prior -- 501,589 44,347 247,282 298,654
---------------------------------------------------------------------
-- $ 501,589 $ 466,188 $ 338,126 629,651
---------------------------------------
---------------------------------------
Active life reserve -- 1,350,132
------------- -------------
Total accident and health reserves $ -- $ 1,979,783
------------- -------------
------------- -------------
</TABLE>
8. FEDERAL INCOME TAXES
The Company files a separate federal income tax return.
Deferred income taxes are established by the Company based upon the temporary
differences among financial reporting and tax bases of assets and liabilities
within each entity, the reversal of which will result in taxable or deductible
amounts in future years when the related asset or liability is recovered or
settled, measured using the enacted tax rates. Prior to 1997, no deferred income
taxes were provided since timing differences were not sufficient to offset
operating loss carryforwards.
The effective tax rate on loss before federal income taxes is different than the
prevailing federal income tax rate, as follows:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 28, 1995
YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
----------------------------- OPERATIONS) THROUGH
1997 1996 DECEMBER 31, 1995
----------------------------- ---------------------
<S> <C> <C> <C>
Loss before income taxes $ (2,547,643) $ (516,827) $ (419)
----------------------------- ------
----------------------------- ------
Tax effect at federal statutory rate (34%) $ 866,199 $ 175,721 $ 142
Tax effect (decrease) of:
Small company deduction 331,000 -- --
Change in valuation allowance 171,000 (171,000) --
Other 20,577 (4,721) (142)
----------------------------- ------
Income tax benefit $ 1,388,776 $ -- $ --
----------------------------- ------
----------------------------- ------
</TABLE>
56
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. FEDERAL INCOME TAXES (CONTINUED)
The tax effect of individual temporary differences and the amount of the related
valuation allowance established against the Company's deferred income tax assets
at December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1997 1996
-----------------------------
<S> <C> <C>
Deferred income tax assets:
Unrealized depreciation of fixed maturity
securities $ -- $ 69,000
Deferred policy acquisition costs -- 152,000
Policy benefit reserves 5,239,000 187,000
Provision for experience rating refunds 182,000 305,000
Net operating loss carryforwards -- 124,000
Other 52,000 3,000
-----------------------------
5,473,000 840,000
Deferred income tax liabilities:
Unrealized appreciation of fixed maturity
securities (108,336) --
Deferred policy acquisition costs (727,000) --
Value of insurance in force acquired (457,000) (587,000)
Other (335,167) (13,000)
-----------------------------
(1,627,503) (600,000)
Valuation allowance on deferred income tax assets,
including amounts attributable to unrealized
depreciation on available-for-sale fixed
maturity securities of $69,000 at December 31,
1996 -- (240,000)
-----------------------------
Deferred income tax asset $ 3,845,497 $ --
-----------------------------
-----------------------------
</TABLE>
The Company regularly reviews its needs for a valuation allowance against its
deferred income tax assets. During the year ended December 31, 1997, the Company
became taxable and it is expected that it will continue to pay federal income
taxes in the foreseeable future. As a result, the valuation allowance pertaining
to deferred income tax assets was removed at December 31, 1997.
9. NOTE PAYABLE TO PARENT
On October 18, 1996, the Company borrowed $2,500,000 from its parent, American
Equity Investment Life Holding Company, in the form of a surplus note. The note
calls for the Company to pay the principal amount of the note and interest
guarantee at an 8% annual rate. Any scheduled payment of interest or repayment
of principal may be paid only out of the Company's earnings, subject to approval
by the Insurance Division, Department of Commerce, of the State of Iowa.
10. RETIREMENT PLAN
During 1996, the Company adopted a contributory defined contribution plan which
is qualified under Section 401(k) of the Internal Revenue Service Code. The plan
covers substantially all full-time employees of the Company, subject to minimum
eligibility requirements. Employees can contribute up to 15% of their annual
salary (with a maximum contribution of $9,500 in 1997) to the plan. The Company
contributes an additional amount, subject to limitations, based on the voluntary
contribution of the employee. Further, the plan provides for additional employer
contributions based on the discretion of the Board of Directors. The Company
contributed $19,434 with respect to this plan during the year ended December 31,
1997. No contributions were made during 1996 to the plan.
11. STATUTORY FINANCIAL INFORMATION
CAPITAL RESTRICTIONS
Iowa Insurance Laws require domestic insurers to maintain a minimum of $5.0
million capital and surplus.
Prior approval of statutory authorities is required for the payment of dividends
to the Company's stockholder which exceed an annual limitation. During 1998, the
Company could pay dividends to its parent of approximately $6,471,000 without
prior approval from regulatory authorities.
57
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STATUTORY FINANCIAL INFORMATION (CONTINUED)
STATUTORY ACCOUNTING POLICIES
The financial statements of the Company included herein differ from related
statutory-basis principally as follows: (a) the bond portfolio is segregated
into held-for-investment (carried at amortized cost), available-for-sale
(carried at fair value), and trading (reported at fair value) classifications
rather than generally being carried at amortized cost; (b) acquisition costs of
acquiring new business are deferred and amortized over the life of the policies
rather than charged to operations as incurred; (c) the excess of purchase price
over net assets acquired in business combinations is allocated to identifiable
intangibles such as value of insurance in force acquired, rather than being
entirely attributable to goodwill (a portion of which may be non-admitted); (d)
policy reserves on traditional life and accident and health products are based
on reasonable assumptions of expected mortality, morbidity, interest and
withdrawals which include a provision for possible adverse deviation from such
assumptions which may differ from reserves based on statutory mortality rates
and interest; (e) future policy benefit reserves on certain universal life and
annuity products are based on full account values, rather than discounting
methodologies utilizing statutory interest rates; (f) reinsurance amounts are
shown as gross amounts, net of an allowance for uncollectible amounts, on the
balance sheet rather than netted against the corresponding receivable or
payable; (g) deferred income taxes are provided for the difference between the
financial statement and income tax bases of assets and liabilities; (h) net
realized gains or losses attributed to changes in the level of interest rates in
the market are recognized as gains or losses in the statement of operations when
the sale is completed rather than deferred and amortized over the remaining life
of the fixed maturity security or mortgage loan; (i) declines in the estimated
realizable value of investments are charged to the statement of operations for
declines in value, when such declines in value are judged to be other than
temporary rather than through the establishment of a formula-determined
statutory investment reserve (carried as a liability), changes in which are
charged directly to surplus, (j) agents' balances and certain other assets
designated as "non-admitted assets" for statutory purposes are reported as
assets rather than being charged to surplus; (k) revenues for universal life and
annuity products consist of policy charges for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed rather than premiums received; and (l) pension income or
expense is recognized in accordance with SFAS No. 87, EMPLOYERS' ACCOUNTING FOR
PENSIONS, rather than in accordance with rules and regulations permitted by the
Employee Retirement Income Security Act of 1974; (m) surplus notes are reported
as a liability rather than as a component of capital and surplus; and (n) assets
and liabilities are restated to fair values when a change in ownership occurs,
rather than continuing to be presented at historical cost.
Net income (loss) for the Company as determined in accordance with statutory
accounting practices was $4,470,284, $1,174,811 and $(419) in 1997, 1996 and
1995, respectively, and total statutory capital and surplus of the Company was
$64,709,809 and $17,302,272 at December 31, 1997 and 1996, respectively.
The National Association of Insurance Commissioners (NAIC) is in the process of
codifying statutory accounting practices (Codification). Codification will
likely change, to some extent, prescribed statutory accounting practices and may
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. Codification, which was approved by
the NAIC in March 1998, will require adoption by the various states before it
becomes the prescribed statutory basis of accounting for insurance companies
domesticated within those states. Accordingly, before Codification becomes
effective for the Company, the State of Iowa must adopt Codification as the
prescribed basis of accounting on which domestic insurers must report their
statutory-basis results to the Insurance Division. At this time, it is unclear
whether the State of Iowa will adopt Codification.
12. COMMITMENTS AND CONTINGENCIES
The Company has entered into General Agency Commission and Servicing Agreement
with American Equity Investment Service Company (the Service Company),
wholly-owned by the Company's chairman. Under the agreement, the Service Company
acts as a national supervisory agent with responsibility for paying commissions
to agents of the Company. The Service Company is obligated to pay a specified
percentage of all commissions due to sales agents with the Company paying the
remainder. The Company then pays renewal commissions to the Service Company
(which are deferred as policy acquisition costs) over a six-year period on all
policies remaining in force. During the year ended December 31, 1997, the
Service Company paid $11,470,576 to agents of the Company and the Company paid
renewal commissions to the Service Company of $1,360,410. At December 31, 1997,
accounts payable to the Service Company aggregated $985,194 and is included in
other liabilities.
58
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases its home office space and certain other equipment under
operating leases which expire through October 2002. During the years ended
December 31, 1997 and 1996, rent expense totaled $341,982 and $147,662,
respectively. At December 31, 1997, minimum rental payments due under all
noncancelable operating leases with initial terms of one year or more are:
<TABLE>
<S> <C>
Year ending December 31:
1998 $ 176,000
1999 176,000
2000 176,000
2001 176,000
2002 103,000
---------
$ 807,000
---------
---------
</TABLE>
Assessments are, from time to time, levied on the Company by life and health
guaranty associations by most states in which the Company is licensed to cover
losses to policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. Given the short period since inception, management believes that
assessments against the Company for failure known to date will be minimal.
13. IMPACT OF YEAR 2000 (UNAUDITED)
The Company has developed a plan to assess its information technology needs to
be ready for the Year 2000. During 1996, the Company purchased a new policy
administration system which the vendor has represented is Year 2000 compliant.
Additionally, the Company has begun converting any remaining non-compliant data
processing systems. The Company currently expects the project to be
substantially completed by early 1999 and does not expect the cost to modify
systems used in the normal course of business to be significant. While
additional testing will be conducted on its systems through the Year 2000, the
Company does not expect this project to have a significant effect on operating
activities.
To mitigate the effect of outside influences and other dependencies relative to
the Year 2000, the Company's plan includes procedures to contact significant
customers, suppliers and other third parties whose success in addressing their
own Year 2000 issue will impact the Company's initiative. To the extent these
third parties would be unable to transact business in the Year 2000 and
thereafter, it could adversely affect the Company's operations.
59
<PAGE>
- - --------------------------------------------------------------------------------
APPENDIX A
- - --------------------------------------------------------------------------------
ILLUSTRATIONS OF DEATH BENEFITS AND ACCUMULATED VALUES
The following tables illustrate how the death benefits,
Accumulated Values and Surrender Values of a Policy may
vary over an extended period of time at certain ages,
assuming hypothetical gross rates of investment return
for the Investment Options equivalent to constant gross
annual rates of 0% and 10%. The hypothetical rates of
investment return are for purposes of illustration only
and should not be deemed a representation of past or
future rates of investment return. Actual rates of return
for a particular Policy may be more or less than the
hypothetical investment rates of return and will depend
on a number of factors including the investment
allocations made by a Policyowner. Also, values would be
different from those shown if the gross annual investment
returns averaged 0% and 10% over a period of years but
fluctuated above and below those averages for individual
Policy Years.
The amounts shown are as of the end of each Policy Year.
The tables assume that the assets in the Investment
Options are subject to an annual expense ratio of 0.77%
of the average daily net assets. This annual expense
ratio is based on the average of the expense ratios of
each of the Investment Options available under the Policy
for the last fiscal year and takes into account current
expense reimbursement arrangements. The fees and expenses
of each Investment Option vary, and in 1997 the total
fees and expenses ranged from an annual rate of 0.33% to
an annual rate of 1.06% of average daily net assets. For
information on Investment Option expenses, see the
prospectuses for the Investment Options.
The tables reflect deduction of the premium expense
charge, the monthly Policy expenses charge, the
first-year monthly administrative charge, the first-year
monthly expense charge, the daily charge for the
Company's assumption of mortality and expense risks, and
cost of insurance charges for the hypothetical Insured.
The surrender values illustrated in the tables also
reflect deduction of applicable surrender charges. The
current charges and the higher guaranteed maximum charges
the Company may charge are reflected in separate tables
on each of the following pages.
Applying the current charges and the average Investment
Option fees and expenses of 0.77% of average net assets,
the gross annual rates of investment return of 0% and 10%
would produce net annual rates of return of -1.82% and
8.18%, respectively, on a guaranteed basis, and -1.67%
and 8.33%, respectively, on a current basis.
The hypothetical values shown in the tables do not
reflect any charges for federal income taxes against the
Variable Account since the Company is not currently
making such charges. However, such charges may be made in
the future and, in that event, the gross annual
investment rate of return would have to exceed 0% or 10%
by an amount sufficient to cover tax charges in order to
produce the death benefits and Accumulated Values
illustrated. (See "FEDERAL TAX MATTERS--Taxation of the
Company.")
The tables illustrate the Policy values that would result
based upon the hypothetical investment rates of return if
premiums are paid as indicated, if all Net Premiums are
allocated to the Variable Account and if no Policy Loans
have been made. The tables are also based on the
assumptions that the Policyowner has not requested an
increase or decrease in Specified Amount, and that no
partial withdrawals or transfers have been made.
For comparative purposes, the second column of each table
shows the amount to which the premiums would accumulate
if an amount equal to those premiums were invested to
earn interest at 5% compounded annually.
* * *
Upon request, the Company will provide a comparable
illustration based upon the proposed insured's age, sex
and premium class, the Specified Amount or premium
requested, and the proposed frequency of premium
payments.
A-1
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 0% HYPOTHETICAL GROSS RETURN,
0% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT
AND GUARANTEED MAXIMUM EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS ------------------------------------------------ -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- --------------- ----------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 581 $ 106 $ 0 $ 100,106 $ 227 $ 0 $ 100,227
2............... 1,190 367 0 100,367 563 0 100,563
3............... 1,831 612 0 100,612 886 0 100,886
4............... 2,503 * * * 1,194 218 101,194
5............... 3,208 * * * 1,488 512 101,488
6............... 3,950 * * * 1,766 930 101,766
7............... 4,728 * * * 2,028 1,375 102,028
8............... 5,545 * * * 2,273 1,795 102,273
9............... 6,403 * * * 2,502 2,191 102,502
10............... 7,303 * * * 2,715 2,563 102,715
15............... 12,530 * * * 3,482 3,482 103,482
20............... 19,200 * * * 3,611 3,611 103,611
25............... 27,713 * * * 2,976 2,976 102,976
30............... 38,578 * * * 1,329 1,329 101,329
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 * * * 1,329 1,329 101,329
Age 70............... * * * * * * *
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-2
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 581 $ 136 $ 0 $ 100,136 $ 264 $ 0 $ 100,264
2............... 1,190 449 0 100,449 668 0 100,668
3............... 1,831 774 0 100,774 1,098 122 101,098
4............... 2,503 1,112 136 101,112 1,554 578 101,554
5............... 3,208 1,464 488 101,464 2,038 1,062 102,038
6............... 3,950 1,827 991 101,827 2,551 1,715 102,551
7............... 4,728 2,200 1,547 102,200 3,094 2,441 103,094
8............... 5,545 2,586 2,108 102,586 3,670 3,192 103,670
9............... 6,403 2,984 2,673 102,984 4,282 3,971 104,282
10............... 7,303 3,396 3,244 103,396 4,931 4,779 104,931
15............... 12,530 5,641 5,641 105,641 8,792 8,792 108,792
20............... 19,200 8,038 8,038 108,038 13,820 13,820 113,820
25............... 27,713 10,252 10,252 110,252 20,358 20,358 120,358
30............... 38,578 11,498 11,498 111,498 28,776 28,776 128,776
35............... 52,445 9,389 9,389 109,389 39,062 39,062 139,062
40............... 70,143 * * * 50,948 50,948 150,948
45............... 92,730 * * * 62,055 62,055 162,055
50............... 121,558 * * * 68,519 68,519 168,519
55............... 158,351 * * * 62,849 62,849 162,849
60............... 205,309 * * * 32,187 32,187 132,187
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 11,498 11,498 111,498 28,776 28,776 128,776
Age 70............... 52,445 9,389 9,389 109,389 39,062 39,062 139,062
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-3
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 0% HYPOTHETICAL GROSS RETURN,
0% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT
AND GUARANTEED MAXIMUM EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS ------------------------------------------------ -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- --------------- ----------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 581 $ 107 $ 0 $ 100,000 $ 228 $ 0 $ 100,000
2............... 1,190 369 0 100,000 565 0 100,000
3............... 1,831 614 0 100,000 888 0 100,000
4............... 2,503 * * * 1,198 222 100,000
5............... 3,208 * * * 1,494 518 100,000
6............... 3,950 * * * 1,775 939 100,000
7............... 4,728 * * * 2,039 1,386 100,000
8............... 5,545 * * * 2,288 1,810 100,000
9............... 6,403 * * * 2,522 2,211 100,000
10............... 7,303 * * * 2,740 2,588 100,000
15............... 12,530 * * * 3,546 3,546 100,000
20............... 19,200 * * * 3,740 3,740 100,000
25............... 27,713 * * * 3,190 3,190 100,000
30............... 38,578 * * * 1,624 1,624 100,000
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 * * * 1,624 1,624 100,000
Age 70............... * * * * * * *
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-4
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
PREMIUMS ----------------------------------------- ----------------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............. $ 581 $ 137 $ 0 $ 100,000 $ 264 $ 0 $ 100,000
2............. 1,190 450 0 100,000 669 0 100,000
3............. 1,831 777 0 100,000 1,100 124 100,000
4............. 2,503 1,118 142 100,000 1,559 583 100,000
5............. 3,208 1,474 498 100,000 2,047 1,071 100,000
6............. 3,950 1,841 1,005 100,000 2,564 1,728 100,000
7............. 4,728 2,222 1,569 100,000 3,114 2,461 100,000
8............. 5,545 2,616 2,138 100,000 3,697 3,219 100,000
9............. 6,403 3,025 2,714 100,000 4,319 4,008 100,000
10............. 7,303 3,451 3,299 100,000 4,982 4,830 100,000
15............. 12,530 5,828 5,828 100,000 8,973 8,973 100,000
20............. 19,200 8,544 8,544 100,000 14,352 14,352 100,000
25............. 27,713 11,454 11,454 100,000 21,727 21,727 100,000
30............. 38,578 14,130 14,130 100,000 32,031 32,031 100,000
35............. 52,445 14,854 14,854 100,000 46,571 46,571 100,000
40............. 70,143 10,096 10,096 100,000 67,992 67,992 100,000
45............. 92,730 * * * 101,534 101,534 106,611
50............. 121,558 * * * 152,705 152,705 160,340
55............. 158,351 * * * 226,787 226,787 238,126
60............. 205,309 * * * 336,248 336,248 339,610
65............. 265,240 * * * 498,212 498,212 503,194
70............. 341,730 * * * 731,751 731,751 739,069
75............. 439,352 * * * 1,070,885 1,070,885 1,081,594
80............. 563,945 * * * 1,563,470 1,563,470 1,579,105
Age 65............. 38,578 14,130 14,130 100,000 32,031 32,031 100,000
Age 70............. 52,445 14,854 14,854 100,000 46,571 46,571 100,000
Age 115............. 563,945 * * * 1,563,470 1,563,470 1,579,105
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-5
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 227 $ 0 $ 100,227 $ 356 $ 0 $ 100,356
2............... 1,526 608 0 100,608 818 0 100,818
3............... 2,347 969 0 100,969 1,265 0 101,265
4............... 3,209 1,311 23 101,311 1,696 408 101,696
5............... 4,114 1,634 503 101,634 2,110 979 102,110
6............... 5,064 1,933 1,013 101,933 2,507 1,587 102,507
7............... 6,061 2,209 1,491 102,209 2,884 2,166 102,884
8............... 7,109 2,462 1,936 102,462 3,243 2,717 103,243
9............... 8,209 2,689 2,347 102,689 3,582 3,240 103,582
10............... 9,364 2,890 2,723 102,890 3,900 3,733 103,900
15............... 16,064 3,419 3,419 103,419 5,091 5,091 105,091
20............... 24,616 2,870 2,870 102,870 5,391 5,391 105,391
25............... 35,530 539 539 100,539 4,348 4,348 104,348
30............... 49,460 * * * 1,345 1,345 101,345
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 * * * 1,345 1,345 101,345
Age 70............... * * * * * * *
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-6
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 270 $ 0 $ 100,270 $ 406 $ 0 $ 100,406
2............... 1,526 729 0 100,729 964 0 100,964
3............... 2,347 1,212 0 101,212 1,561 273 101,561
4............... 3,209 1,721 433 101,721 2,198 910 102,198
5............... 4,114 2,258 1,127 102,258 2,879 1,748 102,879
6............... 5,064 2,820 1,900 102,820 3,605 2,685 103,605
7............... 6,061 3,410 2,692 103,410 4,378 3,660 104,378
8............... 7,109 4,029 3,503 104,029 5,203 4,677 105,203
9............... 8,209 4,676 4,334 104,676 6,081 5,739 106,081
10............... 9,364 5,352 5,185 105,352 7,017 6,850 107,017
15............... 16,064 9,157 9,157 109,157 12,620 12,620 112,620
20............... 24,616 13,497 13,497 113,497 19,973 19,973 119,973
25............... 35,530 17,615 17,615 117,615 29,280 29,280 129,280
30............... 49,460 19,843 19,843 119,843 40,573 40,573 140,573
35............... 67,239 16,527 16,527 116,527 53,581 53,581 153,581
40............... 89,929 636 636 100,636 67,156 67,156 167,156
45............... 118,889 * * * 78,586 78,586 178,586
50............... 155,849 * * * 84,231 84,231 184,231
55............... 203,020 * * * 77,589 77,589 177,589
60............... 263,225 * * * 48,911 48,911 148,911
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 19,843 19,843 119,843 40,573 40,573 140,573
Age 70............... 67,239 16,527 16,527 116,527 53,581 53,581 153,581
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-7
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 228 $ 0 $ 100,000 $ 356 $ 0 $ 100,000
2............... 1,526 610 0 100,000 820 0 100,000
3............... 2,347 973 0 100,000 1,269 0 100,000
4............... 3,209 1,319 31 100,000 1,702 414 100,000
5............... 4,114 1,645 514 100,000 2,120 989 100,000
6............... 5,064 1,949 1,029 100,000 2,520 1,600 100,000
7............... 6,061 2,231 1,513 100,000 2,903 2,185 100,000
8............... 7,109 2,491 1,965 100,000 3,267 2,741 100,000
9............... 8,209 2,726 2,384 100,000 3,613 3,271 100,000
10............... 9,364 2,936 2,769 100,000 3,940 3,773 100,000
15............... 16,064 3,533 3,533 100,000 5,195 5,195 100,000
20............... 24,616 3,086 3,086 100,000 5,611 5,611 100,000
25............... 35,530 852 852 100,000 4,746 4,746 100,000
30............... 49,460 * * * 1,920 1,920 100,000
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 * * * 1,920 1,920 100,000
Age 70............... * * * * * *
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-8
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
PREMIUMS ----------------------------------------- ----------------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.............. $ 744 $ 271 $ 0 $ 100,000 $ 406 $ 0 $ 100,000
2.............. 1,526 731 0 100,000 966 0 100,000
3.............. 2,347 1,217 0 100,000 1,565 277 100,000
4.............. 3,290 1,731 443 100,000 2,206 918 100,000
5.............. 4,114 2,274 1,143 100,000 2,892 1,761 100,000
6.............. 5,064 2,845 1,925 100,000 3,624 2,704 100,000
7.............. 6,061 3,446 2,728 100,000 4,407 3,689 100,000
8.............. 7,109 4,079 3,553 100,000 5,244 4,718 100,000
9.............. 8,209 4,745 4,403 100,000 6,139 5,797 100,000
10.............. 9,364 5,445 5,278 100,000 7,095 6,928 100,000
15.............. 16,064 9,485 9,485 100,000 12,909 12,909 100,000
20.............. 24,616 14,444 14,444 100,000 20,867 20,867 100,000
25.............. 35,530 20,086 20,086 100,000 31,768 31,768 100,000
30.............. 49,460 25,834 25,834 100,000 47,022 47,022 100,000
35.............. 67,239 30,144 30,144 100,000 69,446 69,446 100,000
40.............. 89,929 29,324 29,324 100,000 104,842 104,842 112,181
45.............. 118,889 12,078 12,078 100,000 158,612 158,612 166,542
50.............. 155,849 * * * 236,893 236,893 248,737
55.............. 203,020 * * * 349,789 349,789 367,278
60.............. 263,225 * * * 517,131 517,131 522,303
65.............. 340,062 * * * 765,502 765,502 773,157
70.............. 438,129 * * * 1,123,667 1,123,667 1,134,903
75.............. 563,290 * * * 1,643,748 1,643,748 1,660,185
80.............. 723,030 * * * 2,399,117 2,399,117 2,423,108
Age 65.............. 49,460 25,834 25,834 100,000 47,022 47,022 100,000
Age 70.............. 67,239 30,144 30,144 100,000 69,446 69,446 100,000
Age 115.............. 723,030 * * * 2,399,117 2,399,117 2,423,108
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-9
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $1,434
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 0% HYPOTHETICAL GROSS RETURN,
0% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT
AND GUARANTEED MAXIMUM EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS ---------------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ----------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 1,506 $ 432 $ 0 $ 100,432 $ 682 $ 0 $ 100,682
2............... 3,087 977 0 100,977 1,439 0 101,439
3............... 4,747 1,467 0 101,467 2,152 0 102,152
4............... 6,490 * * * 2,821 436 102,821
5............... 8,320 * * * 3,442 1,454 103,442
6............... 10,242 * * * 4,010 2,399 104,010
7............... 12,259 * * * 4,526 3,273 104,526
8............... 14,378 * * * 4,978 4,064 104,978
9............... 16,603 * * * 5,356 4,763 105,356
10............... 18,938 * * * 5,653 5,365 105,653
15............... 32,491 * * * 5,901 5,901 105,901
20............... 49,787 * * * 3,363 3,363 103,363
25............... * * * * * * *
30............... * * * * * * *
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65............... 18,938 * * * 5,653 5,365 105,653
Age 70............... 32,491 * * * 5,901 5,901 105,901
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-10
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $1,434
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 1,506 $ 518 $ 0 $ 100,518 $ 781 $ 0 $ 100,781
2............... 3,087 1,205 0 101,205 1,719 0 101,719
3............... 4,747 1,902 0 101,902 2,701 0 102,701
4............... 6,490 2,609 224 102,609 3,731 1,346 103,731
5............... 8,320 3,321 1,333 103,321 4,809 2,821 104,809
6............... 10,242 4,028 2,417 104,028 5,932 4,321 105,932
7............... 12,259 4,716 3,463 104,716 7,102 5,849 107,102
8............... 14,378 5,364 4,450 105,364 8,313 7,399 108,313
9............... 16,603 5,948 5,355 105,948 9,553 8,960 109,553
10............... 18,938 6,447 6,159 106,447 10,819 10,531 110,819
15............... 32,491 7,124 7,124 107,124 17,513 17,513 117,513
20............... 49,787 1,563 1,563 101,563 24,041 24,041 124,041
25............... 71,863 * * * 27,153 27,153 127,153
30............... 100,037 * * * 21,690 21,690 121,690
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65............... 18,938 6,447 6,159 106,447 10,819 10,531 110,819
Age 70............... 32,491 7,124 7,124 107,124 17,513 17,513 117,513
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-11
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $1,434
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 0% HYPOTHETICAL GROSS RETURN,
0% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT
AND GUARANTEED MAXIMUM EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS ---------------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ----------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 1,506 $ 438 $ 0 $ 100,000 $ 687 $ 0 $ 100,000
2............... 3,087 992 0 100,000 1,452 0 100,000
3............... 4,747 1,496 0 100,000 2,178 0 100,000
4............... 6,490 * * * 2,864 479 100,000
5............... 8,320 * * * 3,507 1,519 100,000
6............... 10,242 * * * 4,102 2,491 100,000
7............... 12,259 * * * 4,650 3,397 100,000
8............... 14,378 * * * 5,141 4,277 100,000
9............... 16,603 * * * 5,564 4,971 100,000
10............... 18,938 * * * 5,914 5,626 100,000
15............... 32,491 * * * 6,522 6,522 100,000
20............... 49,787 * * * 4,459 4,459 100,000
25............... * * * * * * *
30............... * * * * * * *
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65............... 18,938 * * * 5,914 5,626 100,000
Age 70............... 32,491 * * * 6,522 6,522 100,000
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-12
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $1,434
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 1,506 $ 524 $ 0 $ 100,000 $ 787 $ 0 $ 100,000
2............... 3,087 1,223 0 100,000 1,735 0 100,000
3............... 4,747 1,939 0 100,000 2,734 0 100,000
4............... 6,490 2,673 288 100,000 3,790 1,405 100,000
5............... 8,320 3,422 1,434 100,000 4,903 2,915 100,000
6............... 10,242 4,179 2,568 100,000 6,075 4,464 100,000
7............... 12,259 4,932 3,679 100,000 7,309 6,056 100,000
8............... 14,378 5,664 4,750 100,000 8,603 7,689 100,000
9............... 16,603 6,354 5,761 100,000 9,951 9,358 100,000
10............... 18,938 6,986 6,698 100,000 11,353 11,065 100,000
15............... 32,491 8,845 8,845 100,000 19,389 19,389 100,000
20............... 49,787 5,590 5,590 100,000 29,407 29,407 100,000
25............... 71,863 * * * 41,221 41,221 100,000
30............... 100,037 * * * 55,929 55,929 100,000
35............... 135,995 * * * 77,421 77,421 100,000
40............... 181,888 * * * 118,715 118,715 119,902
45............... 240,460 * * * 182,964 182,964 184,793
50............... 315,215 * * * 275,729 275,729 278,486
55............... 410,623 * * * 410,479 410,479 414,584
60............... 532,391 * * * 606,228 606,228 612,290
Age 65............... 18,938 6,986 6,698 100,000 11,353 11,065 100,000
Age 70............... 32,491 8,845 8,845 100,000 19,389 19,389 100,000
Age 115............... 532,391 * * * 606,228 606,228 612,290
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-13
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $2,127
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 2,233 $ 881 $ 0 $ 100,881 $ 1,184 $ 0 $ 101,184
2............... 4,578 1,829 0 101,829 2,407 0 102,407
3............... 7,041 2,672 0 102,672 3,547 218 103,547
4............... 9,626 3,402 576 103,402 4,598 1,772 104,598
5............... 12,341 4,008 1,658 104,008 5,552 3,202 105,552
6............... 15,191 4,481 2,581 104,481 6,403 4,503 106,403
7............... 18,184 4,809 3,335 104,809 7,155 5,681 107,155
8............... 21,327 4,974 3,902 104,974 7,798 6,726 107,798
9............... 24,626 4,957 4,265 104,957 8,323 7,631 108,323
10............... 28,091 4,743 4,408 104,743 8,722 8,387 108,722
15............... 48,192 181 181 100,181 8,611 8,611 108,611
20............... 73,848 * * * 3,884 3,884 103,884
25............... * * * * * * *
30............... * * * * * * *
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65............... 28,091 4,743 4,408 104,743 8,722 8,387 108,722
Age 70............... 48,192 181 181 100,181 8,611 8,611 108,611
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-14
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $2,127
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 2,233 $ 1,021 $ 0 $ 101,021 $ 1,341 $ 0 $ 101,341
2............... 4,578 2,214 0 102,214 2,855 0 102,855
3............... 7,041 3,411 82 103,411 4,430 1,101 104,430
4............... 9,626 4,603 1,777 104,603 6,061 3,235 106,061
5............... 12,341 5,777 3,427 105,777 7,745 5,395 107,745
6............... 15,191 6,918 5,018 106,918 9,477 7,577 109,477
7............... 18,184 8,008 6,534 108,008 11,265 9,791 111,265
8............... 21,327 9,021 7,949 109,021 13,100 12,028 113,100
9............... 24,626 9,929 9,237 109,929 14,975 14,283 114,975
10............... 28,091 10,703 10,368 110,703 16,882 16,547 116,882
15............... 48,192 11,385 11,385 111,385 26,672 26,672 126,672
20............... 73,848 1,418 1,418 101,418 35,445 35,445 135,445
25............... 106,591 * * * 39,713 39,713 139,713
30............... 148,381 * * * 34,671 34,671 134,671
35............... 201,717 * * * 12,086 12,086 112,086
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65............... 28,091 10,703 10,368 110,703 16,882 16,547 116,882
Age 70............... 48,192 11,385 11,385 111,385 26,672 26,672 126,672
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-15
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $2,127
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 2,233 $ 893 $ 0 $ 100,000 $ 1,193 $ 0 $ 100,000
2............... 4,578 1,862 0 100,000 2,435 0 100,000
3............... 7,041 2,738 0 100,000 3,603 274 100,000
4............... 9,626 3,511 685 100,000 4,693 1,867 100,000
5............... 12,341 4,174 1,824 100,000 5,699 3,349 100,000
6............... 15,191 4,716 2,816 100,000 6,615 4,715 100,000
7............... 18,184 5,127 3,653 100,000 7,447 5,973 100,000
8............... 21,327 5,387 4,315 100,000 8,185 7,113 100,000
9............... 24,626 5,480 4,788 100,000 8,822 8,130 100,000
10............... 28,091 5,385 5,050 100,000 9,349 9,014 100,000
15............... 48,192 1,404 1,404 100,000 10,137 10,137 100,000
20............... 73,848 * * * 6,575 6,575 100,000
25............... * * * * * * *
30............... * * * * * * *
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65............... 28,091 5,385 5,050 100,000 9,349 9,014 100,000
Age 70............... 48,192 1,404 1,404 100,000 10,137 10,137 100,000
Age 115............... * * * * * * *
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-16
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $2,127
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
PREMIUMS ----------------------------------------- ----------------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............. $ 2,233 $ 1,035 $ 0 $ 100,000 $ 1,351 $ 0 $ 100,000
2............. 4,578 2,253 0 100,000 2,888 0 100,000
3............. 7,041 3,495 166 100,000 4,500 1,171 100,000
4............. 9,626 4,752 1,926 100,000 6,190 3,364 100,000
5............. 12,341 6,019 3,669 100,000 7,958 5,608 100,000
6............. 15,191 7,286 5,386 100,000 9,806 7,906 100,000
7............. 18,184 8,544 7,070 100,000 11,748 10,274 100,000
8............. 21,327 9,774 8,702 100,000 13,787 12,715 100,000
9............. 24,626 10,959 10,267 100,000 15,925 15,233 100,000
10............. 28,091 12,081 11,746 100,000 18,168 17,833 100,000
15............. 48,192 15,985 15,985 100,000 31,346 31,346 100,000
20............. 73,848 12,779 12,799 100,000 49,225 49,225 100,000
25............. 106,591 * * * 76,201 76,201 100,000
30............. 148,381 * * * 122,517 122,517 128,643
35............. 201,717 * * * 191,057 191,057 200,610
40............. 269,788 * * * 292,554 292,554 295,480
45............. 356,666 * * * 443,079 443,079 447,509
50............. 493,158 * * * 660,318 660,318 666,921
55............. 609,063 * * * 975,825 975,825 985,583
60............. 789,676 * * * 1,434,107 1,434,107 1,448,448
Age 65............. 28,091 12,081 11,746 100,000 18,168 17,833 100,000
Age 70............. 48,192 15,985 15,985 100,000 31,346 31,346 100,000
Age 115............. 789,676 * * * 1,434,107 1,434,107 1,448,448
</TABLE>
- - ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOIND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-17
<PAGE>
- - --------------------------------------------------------------------------------
APPENDIX B
- - --------------------------------------------------------------------------------
DEATH BENEFIT OPTIONS OPTION A EXAMPLE. For purposes of this example, assume
that the Insured's Attained Age is between 0 and 40 and
that there is no outstanding Policy Debt. Under Option A,
a Policy with a Specified Amount of $50,000 will
generally provide a death benefit of $50,000 plus
Accumulated Value. Thus, for example, a Policy with a
Accumulated Value of $5,000 will have a death benefit of
$55,000 ($50,000 + $5,000); a Accumulated Value of
$10,000 will provide a death benefit of $60,000 ($50,000
+ $10,000). The death benefit, however, must be at least
2.50 multiplied by the Accumulated Value. As a result, if
the Accumulated Value of the Policy exceeds $33,333, the
death benefit will be greater than the Specified Amount
plus Accumulated Value. Each additional dollar of
Accumulated Value above $33,333 will increase the death
benefit by $2.50. A Policy with a Specified Amount of
$50,000 and a Accumulated Value of $40,000 will provide a
death benefit of $100,000 ($40,000 x 2.50); a Accumulated
Value of $60,000 will provide a death benefit of $150,000
($60,000 x 2.50).
Similarly, any time Accumulated Value exceeds $33,333,
each dollar taken out of Accumulated Value will reduce
the death benefit by $2.50. If, for example, the
Accumulated Value is reduced from $40,000 to $35,000
because of partial withdrawals, charges, or negative
investment performance, the death benefit will be reduced
from $100,000 to $87,500. If at any time, however,
Accumulated Value multiplied by the specified amount
factor is less than the Specified Amount plus the
Accumulated Value, then the death benefit will be the
current Specified Amount plus Accumulated Value of the
Policy.
The specified amount factor becomes lower as the
Insured's Attained Age increases. If the Attained Age of
the Insured in the example above were, for example, 50
(rather than under 40), the specified amount factor would
be 1.85. The amount of the death benefit would be the sum
of the Accumulated Value plus $50,000 unless the
Accumulated Value exceeded $58,824 (rather than $33,333),
and each dollar then added to or taken from the
Accumulated Value would change the death benefit by $1.85
(rather than $2.50).
OPTION B EXAMPLE. For purposes of this example, assume
that the Insured's Attained Age is between 0 and 40 and
that there is no outstanding Policy Debt. Under Option B,
a Policy with a $50,000 Specified Amount will generally
pay $50,000 in death benefits. However, because the death
benefit must be equal to or be greater than 2.50
multiplied by the Accumulated Value, any time the
Accumulated Value of the Policy exceeds $20,000, the
death benefit will exceed the $50,000 Specified Amount.
Each additional dollar added to Accumulated Value above
$20,000 will increase the death benefit by $2.50. A
Policy with a $50,000 Specified Amount and a Accumulated
Value of $30,000 will provide death proceeds of $75,000
($30,000 x 2.50); a Accumulated Value of $40,000 will
provide a death benefit of $100,000 ($40,000 x 2.50); a
Accumulated Value of $50,000 will provide a death benefit
of $125,000 ($50,000 x 2.50).
Similarly, so long as Accumulated Value exceeds $20,000,
each dollar taken out of Accumulated Value will reduce
the death benefit by $2.50. If, for example, the
Accumulated Value is reduced from $25,000 to $20,000
because of partial withdrawals, charges, or negative
investment performance, the death benefit will be reduced
from $62,500 to $50,000. If at any time, however, the
Accumulated Value multiplied by the specified amount
factor is less than the Specified Amount, the death
benefit will equal the current Specified Amount of the
Policy.
The specified amount factor becomes lower as the
Insured's Attained Age increases. If the Attained Age of
the Insured in the example above were, for example, 50
(rather than between 0 and 40), the specified amount
factor would be 1.85. The death proceeds would not exceed
the $50,000 Specified Amount unless the Accumulated Value
exceeded approximately $27,028 (rather than $20,000), and
each dollar then added to or taken from the Accumulated
Value would change the life insurance proceeds by $1.85
(rather than $2.50).
B-1
<PAGE>
<TABLE>
<CAPTION>
SPECIFIED AMOUNT FACTOR TABLE
- - ---------------------------------------------------------
ATTAINED AGE SPECIFIED AMOUNT FACTOR
- - ------------------------ -------------------------------
<S> <C>
40 or younger 2.50
41 2.43
42 2.36
43 2.29
44 2.22
45 2.15
46 2.09
47 2.03
48 1.97
49 1.91
50 1.85
51 1.78
52 1.71
53 1.64
54 1.57
55 1.50
56 1.46
57 1.42
58 1.38
59 1.34
60 1.30
61 1.28
62 1.26
63 1.24
64 1.22
65 1.20
66 1.19
67 1.18
68 1.17
69 1.16
70 1.15
71 1.13
72 1.11
73 1.09
74 1.07
75 to 90 1.05
91 1.04
92 1.03
93 1.02
94 to 114 1.01
115 1.00
</TABLE>
B-2
<PAGE>
- - --------------------------------------------------------------------------------
APPENDIX C
- - --------------------------------------------------------------------------------
MAXIMUM SURRENDER CHARGES
The chart below reflects the maximum surrender charge per
$1,000 of Specified Amount for selected issue ages as
policy years increase.
Male, Non-Tobacco
<TABLE>
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 5.50 5.50 5.50 5.50 5.50 5.50 4.30 3.15 2.05 1.00
20 7.46 7.46 7.46 7.46 7.46 6.46 5.05 3.70 2.41 1.18
30 10.48 10.48 10.48 10.48 9.85 8.01 6.26 4.59 2.99 1.46
40 16.08 16.08 16.08 15.81 13.22 10.75 8.39 6.14 3.99 1.95
50 25.74 25.74 25.74 22.86 19.06 15.46 12.03 8.77 5.69 2.77
60 56.18 48.88 41.98 35.48 29.36 23.61 18.21 13.17 8.46 4.07
70 57.48 49.03 41.24 34.10 27.56 21.62 16.26 11.44 7.14 3.34
80 57.48 46.35 36.74 28.53 21.60 15.82 11.08 7.25 4.21 1.83
Male, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
20 12.00 12.00 12.00 10.90 9.12 7.42 5.79 4.24 2.76 1.35
30 17.48 17.48 16.34 13.95 11.66 9.49 7.41 5.42 3.53 1.72
40 27.74 26.34 22.80 19.43 16.22 13.16 10.25 7.49 4.86 2.37
50 44.66 39.17 33.75 28.62 23.76 19.18 14.86 10.79 6.96 3.37
60 57.48 49.60 42.24 35.39 29.02 23.12 17.67 12.65 8.04 3.83
70 57.48 48.27 39.97 32.50 25.84 19.94 14.74 10.20 6.26 2.88
80 57.48 45.30 35.12 26.68 19.79 14.22 9.78 6.30 3.60 1.55
Female, Non-Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 5.30 5.30 5.30 5.30 5.30 5.15 4.03 2.95 1.92 0.94
20 5.66 5.66 5.66 5.66 5.66 5.66 4.69 3.44 2.24 1.10
30 8.04 8.04 8.04 8.04 8.04 7.37 5.76 4.22 2.75 1.34
40 11.98 11.98 11.98 11.98 11.84 9.63 7.52 5.50 3.58 1.75
50 17.96 17.96 17.96 17.96 16.44 13.34 10.40 7.60 4.93 2.40
60 43.60 40.26 34.72 29.46 24.49 19.79 15.34 11.15 7.20 3.49
70 57.48 49.61 42.25 35.38 28.99 23.06 17.59 12.56 7.96 3.78
80 57.48 47.51 38.62 30.77 23.90 17.97 12.92 8.67 5.15 2.29
Female, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
20 7.76 7.76 7.76 7.76 7.76 6.47 5.06 3.71 2.41 1.18
30 11.40 11.40 11.40 11.40 9.97 8.11 6.34 4.64 3.02 1.48
40 17.34 17.34 17.34 15.90 13.28 10.79 8.41 6.15 4.00 1.95
50 25.82 25.82 25.82 22.19 18.49 14.97 11.65 8.49 5.50 2.67
60 51.72 45.03 38.72 32.76 27.14 21.86 16.89 12.24 7.88 3.80
70 57.48 49.36 41.81 34.82 28.36 22.43 17.01 12.07 7.60 3.59
80 57.48 47.10 37.97 29.99 23.11 17.24 12.29 8.19 4.83 2.13
Unisex, Non-Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 5.50 5.50 5.50 5.50 5.50 5.43 4.24 3.11 2.02 0.99
20 7.10 7.10 7.10 7.10 7.10 6.37 4.98 3.65 2.38 1.16
30 9.98 9.98 9.98 9.98 9.69 7.88 6.16 4.51 2.94 1.43
40 15.24 15.24 15.24 15.24 12.94 10.52 8.21 6.01 3.91 1.91
50 24.16 24.16 24.16 22.20 18.51 15.01 11.69 8.53 5.53 2.69
60 53.96 46.98 40.38 34.16 28.29 22.77 17.59 12.73 8.18 3.95
70 57.48 49.17 41.48 34.39 27.89 21.95 16.56 11.70 7.33 3.44
80 57.48 46.67 37.26 29.15 22.24 16.42 11.60 7.65 4.47 1.96
Unisex, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
20 11.14 11.14 11.14 10.61 8.88 7.23 5.64 4.13 2.69 1.32
30 16.26 16.26 15.85 13.53 11.32 9.20 7.19 5.26 3.42 1.67
40 25.60 25.32 21.92 18.68 15.59 12.66 9.86 7.20 4.68 2.28
50 40.68 37.18 32.05 27.19 22.60 18.25 14.15 10.28 6.64 3.22
60 57.48 49.70 42.42 35.62 29.28 23.38 17.91 12.86 8.20 3.92
70 57.48 48.56 40.46 33.12 26.52 20.61 15.35 10.70 6.62 3.07
80 57.48 45.95 36.14 27.88 20.98 15.30 10.69 6.98 4.05 1.76
<CAPTION>
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 0.00
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Male, Tobacco
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 N/A
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Female, Non-Tobac
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 0.00
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Female, Tobacco
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 N/A
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Unisex, Non-Tobac
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 0.00
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Unisex, Tobacco
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 N/A
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
</TABLE>
C-1
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore, or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
Article XII of the Company's By-Laws provides for the indemnification by the
Company of any person who is a party or who is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Article
XII also provides for the indemnification by the Company of any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its factor by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
offer, employee or agent of another corporation, partnership, joint venture,
trust or another enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification will be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Company
unless and only to the extent that the court in which such action or suit was
brought determines upon application that, despite the adjudication of liability
but in view of all circumstances of the case, such person is fairly and
reasonable entitled to indemnity for such expenses which such court shall deem
proper.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATIONS PURSUANT TO SECTION 26(e)(2)A
The Company represents that the aggregate charges under the Contracts are
reasonable in relation to the services rendered, the expenses to be incurred and
the risks assumed by the Company.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of information shown in the Prospectus with the
items of Form N-8B-2.
The Prospectus consisting of 79 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
Representations pursuant to Section 26(a)(2)(A).
The signatures.
Written consents of the following persons:
Wendy L. Carlson.
Messrs. Sutherland, Asbill & Brennan LLP.
Ernst & Young LLP, Independent Auditors.
Christopher G. Daniels, FSA, MSAA, Consulting Actuary.
The following exhibits:
<TABLE>
<C> <C> <S>
1.A. 1. Certified Resolution of the Board of Directors of the Company
establishing the Variable Account. (1)
2. None.
3. *(a) Form of Principal Underwriting Agreement.
*(b) Form of Sales Agreement.
*(c) Form of Wholesaling Agreement.
4. None.
5. (a) Policy Form (1)
*(b) Application Form.
6. (a) Articles of Incorporation of the Company. (1)
(b) By-Laws of the Company. (1)
7. None.
8. None.
9. *(a) Participation Agreement relating to EquiTrust Variable
Insurance Series Fund.
*(b) Participation Agreement relating to Dreyfus Variable Investment
Fund.
*(c) Participation Agreement relating to T. Rowe Price Equity
Series, Inc. and T. Rowe Price International Series, Inc.
10. Form of Application (see Exhibit 1.A.(5)(c) above.)
2. *Opinion and Consent of Wendy L. Carlson.
3. None.
4. Not applicable.
5. Not applicable.
6. *Opinion and Consent of Christopher G. Daniels, FSA, MSAA, Consulting
Actuary.
7. *(a) Consent of Ernst & Young LLP.
*(b) Consent of Messrs. Sutherland, Asbill & Brennan, LLP.
8. Memorandum describing the Company's conversion procedure (included in
Exhibit 9 hereto).
9. *Memorandum describing the Company's issuance, transfer and redemption
procedures for the Policy.
10. Power of Attorney (1)
</TABLE>
- - ------------------------
* Attached as an exhibit.
(1) Incorporated herein by reference to the initial filing of this Registration
Statement (File No. 333-45815) on February 6, 1998.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
American Equity Life Variable Account, has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of West Des Moines, State of Iowa, on the 20th day of
May, 1998.
American Equity Investment Life
Insurance Company
American Equity Life Variable Account
By: /s/ D.J. NOBLE
-----------------------------------
D.J. Noble
CHAIRMAN
American Equity Investment Life
Insurance Company
Attest: /s/ TERRY REIMER
---------------------------------
Terry A. Reimer
CHIEF FINANCIAL OFFICER
American Equity Investment Life
Insurance Company
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates set forth below.
SIGNATURE TITLE DATE
- - ----------------------------------- ------------------------- ----------------
/s/ D.J. NOBLE Chairman and Director
- - ----------------------------------- [Principal Executive May 20, 1998
D.J. Noble Officer]
Chief Financial Officer
/s/ TERRY A. REIMER [Principal Financial
- - ----------------------------------- Officer] [Principal May 20, 1998
Terry A. Reimer Accounting Officer]
- - -----------------------------------
James M. Gerlach* Director May 20, 1998
- - -----------------------------------
David S. Mulcahy* Director May 20, 1998
- - -----------------------------------
William J. Oddy* Director May 20, 1998
- - -----------------------------------
Debra J. Richardson Director May 20, 1998
- - -----------------------------------
Jack W. Schroeder* Director May 20, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, American Equity
Life Variable Account, has duly caused this Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized in the City of West
Des Moines, State of Iowa, on the 20th day of May, 1998.
American Equity Life Variable Account
(Registrant)
By: American Equity Investment Life
Insurance Company (Depositor)
By: /s/ D.J. NOBLE
-----------------------------------
D.J. Noble
CHAIRMAN
American Equity Investment Life
Insurance Company
/s/ DEBRA J. RICHARDSON Attorney-In-Fact, pursuant to
*By ----------------------------------- Power of Attorney.
Debra J. Richardson
<PAGE>
UNDERWRITING AGREEMENT
AGREEMENT dated as of this _____________ day of June, 1998 by and between
American Equity Investment Life Insurance Company, an Iowa corporation
("Insurer"), on its behalf and on behalf of American Equity Life Variable
Account and American Equity Life Annuity Account (the "Separate Accounts"), and
EquiTrust Marketing Services, Inc. ("Distributor"), a Delaware corporation.
WITNESSETH
WHEREAS, Distributor is a broker-dealer that engages in the distribution of
variable insurance products and other investment products; and
WHEREAS, Insurer desires to issue certain variable insurance products
described more fully below to the public through Distributor acting as principal
underwriter;
NOW THEREFORE, in consideration of their mutual promises, Insurer and
Distributor hereby agree as follows:
1. Additional Definitions
a. Contracts - The class or classes of variable insurance products set
forth on Schedule 1 to this Agreement as in effect at the time this Agreement is
executed, and such other classes of variable products that may be added to
Schedule 1 from time to time in accordance with Section 11.b of this Agreement,
and including any riders to such contracts and any other contracts offered in
connection therewith. For the purpose of this Agreement generally, a "class of
Contracts" shall mean those Contracts issued by Insurer on the same policy form
or forms and covered by the same registration statement.
b. Registration Statement - With respect to each class of contracts, the
most recent post-effective registration statement filed with the SEC or the most
recent effective post-effective amendment thereto, including financial
statements included therein and all exhibits thereto. For purposes of Section 9
of this Agreement, the term "Registration Statement" means any document which is
or at any time was a Registration Statement within the meaning of this Section
1.b.
c. Prospectus - With respect to each class of Contracts, the prospectus
for such class of Contracts included within the Registration Statement for such
class of Contracts; provided, however, that if the most recently filed
prospectus filed pursuant to Rule 497 under the 1993 Act subsequent to the date
on which the Registration Statement became effective differs from the prospectus
on file at the time the Registration Statement became effective, the term
"Prospectus" shall refer to the most recently filed prospectus filed under Rule
497 from and after the date on which it shall have been filed. For
<PAGE>
purposes of Section 9 the term "any Prospectus" means any document which is or
at any time was a Prospectus within the meaning of this Section 1.c.
d. Fund - registered investment companies in which the Separate Accounts
invest.
e. Variable Accounts - separate accounts supporting a class or classes of
Contracts and specified in Schedule 1 as in effect at the time this Agreement is
executed, or as it may be amended from time to time in accordance with Section
11.b of this Agreement.
f. 1933 Act - The Securities Act of 1933, as amended.
g. 1934 Act - The Securities Exchange Act of 1934, as amended.
h. 1940 Act - The Investment Company Act of 1940, as amended.
i. SEC - The Securities and Exchange Commission.
j. NASD - The National Association of Securities Dealers, Inc. and any
affiliates.
k. Regulations - The rules and regulations promulgated by the SEC under
the 1933 Act, the 1934 Act and the 1940 Act as in effect at the time this
Agreement is executed or thereafter promulgated.
l. Selling Broker-Dealer - A person registered as a broker-dealer and
licensed as a life insurance agent or affiliated with a person so licensed, and
authorized to distribute the Contracts pursuant to a sales agreement as provided
for in Section 4 of this Agreement.
m. Agent Manual - Any manual and other written rules, regulations and
procedures provided by Insurer to insurance agents appointed to sell its
insurance contracts, as revised from time to time.
n. Representative - When used with reference to Distributor or a Selling
Broker-Dealer, an individual who is an associated person, as that term is
defined in the 1934 Act, thereof.
o. Application - An application for a Contract.
p. Premium - A payment made under a Contract by an applicant or purchaser
to purchase benefits under the Contract.
<PAGE>
q. Administrative Office -- the administrative office identified in the
Prospectus as the location at which Premiums and Applications are accepted.
2. Authorization and Appointment
a. Scope and Authority. Insurer hereby authorizes Distributor on an
exclusive basis, and Distributor accepts such authority, subject to the
registration requirements of the 1933 Act and the 1940 Act and the provisions of
the 1934 Act and conditions herein, to be the distributor and principal
underwriter for the sale of the contracts to the public in each state and other
jurisdiction in which the Contracts may lawfully be sold during the term of this
Agreement. Insurer hereby authorizes Distributor to grant authority to Selling
Broker-Dealers to solicit Applications and Premiums to the extent the
Distributor deems appropriate and consistent with the marketing program for the
Contracts or a class of Contracts, subject to the conditions set forth in
Section 4 of this Agreement. The Contracts shall be offered for sale and
distribution at premium rates set from time to time by Insurer. Distributor
shall use its best efforts to market the Contracts actively through Selling
Broker-Dealers in accordance with Section 4 of this Agreement, subject to
compliance with applicable law, including rules of the NASD; provided, however,
that if Insurer and Distributor enter into an agreement with a broker-dealer
affiliated with Insurer, under which such broker-dealer will act as the primary
wholesaler of the Contracts, then Distributor shall be relieved of its duties to
market the Contracts through Selling Broker-Dealers as described in this
sentence.
b. Limits on Authority. Distributor shall act as an independent
contractor and nothing herein contained shall constitute Distributor or its
agents, officers, or employees as agents, officers or employees of Insurer
solely by virtue of their activities in connection with the sale of the
Contracts hereunder. Distributor and its Representatives shall not have
authority, on behalf of Insurer to make, alter, or discharge any Contract or
other insurance policy or annuity entered into pursuant to a Contract; to waive
any Contract forfeiture provision; to extend the time of paying any Premium; or
to receive monies or Premiums (except for the sole purpose of forwarding monies
or Premiums to Insurer). Distributor shall not expend, nor contract for the
expenditure of, funds of the Insurer. Distributor shall not possess or exercise
any authority on behalf of Insurer other than that expressly conferred on
Distributor by this Agreement.
3. Solicitation Activities
a. Distributor Representatives. The Distributor will not solicit
applications from the public for the Contracts through Distributor
Representatives.
b. Representations and Warranties of Distributor. Distributor represents
and warrants to Insurer that Distributor is and shall remain registered during
the term of this Agreement as a broker-dealer under the 1934 Act, is a member of
the NASD, and is duly
<PAGE>
registered under applicable state securities laws, and that Distributor is and
shall remain during the term of the Agreement in compliance with Section 9(a) of
the 1940 Act.
4. Selling Broker-Dealers. Insurer and Distributor shall insure that sales of
the contracts by Selling Broker-Dealers comply with the following conditions,
and any additional conditions Insurer may specify from time to time.
a. Every Selling Broker-Dealer shall be both registered as a
broker-dealer with the SEC and a member of the NASD and licensed as an insurance
agent, if required, with authority to sell variable products or associated with
an insurance agent so licensed. Any individuals to be authorized to act on
behalf of Selling Broker-Dealer shall be duly registered with the NASD as
representatives of Selling Broker-Dealer with authority to sell variable
products, and shall be licensed as insurance agents with authority to sell
variable products. Insurer shall verify that Selling Broker-Dealer and its
Representatives are duly licensed under applicable state insurance law to sell
the Contracts or, if Broker-Dealer is not so licensed, that it is associated
with an entity so licensed.
b. Every Selling Broker-Dealer (or, if applicable, its associated
insurance agency) and each of its Representatives shall have been appointed by
Insurer, provided that Insurer reserves the right to refuse to appoint any
proposed person, or once appointed, to terminate such appointment.
c. Every Selling Broker-Dealer must enter into a written sales agreement
with Distributor which sales agreement, among other things, will require such
Selling Broker-Dealer to use its best efforts to solicit applications for the
Contracts and to comply with applicable laws and regulations, including the
Insurer's rules and regulations as reflected in the Agents Manual or otherwise
communicated to agents appointed by the Insurer, and will contain such other
provisions as the Distributor deems to be consistent herewith.
d. In view of the fact that Insurer and Distributor want to ensure that
Contracts will be sold to purchasers for whom the Contracts will be suitable,
the written Sales Agreement shall require that Selling Broker-Dealers and their
Representatives not make recommendations to an applicant to purchase a Contract
in the absence of reasonable grounds to believe that the purchase of the
Contract is suitable for the applicant. While not limited to the following, a
determination of suitability shall be based on information supplied by an
applicant after reasonable inquiry concerning the applicant's other security
holdings, insurance and investment objectives, financial situation and needs,
and the likelihood that the applicant will continue to make premium payments
contemplated by the Contract applied for and will keep the Contract in force for
a sufficient period of time so that Insurer's acquisition costs are amortized
over a reasonable period of time.
<PAGE>
5. Marketing Materials
a. Preparation and Filing. Insurer shall be primarily responsible for
the design and preparation of all promotional, sales and advertising material
related to the Contracts. Distributor shall be responsible for filing such
material as required, with the NASD and any state securities regulatory
authorities at Insurers expense. Insurer shall be responsible for filing all
promotional, sales or advertising material, as required, with any state
insurance regulatory authorities. Insurer shall be responsible for preparing
the Contract Forms and filing them with applicable state insurance regulatory
authorities, and for preparing the Prospectuses and Registration Statements and
filing them with the SEC and state regulatory authorities, to the extent
required. The parties shall notify each other expeditiously of any comments
provided by the SEC, NASD or any securities or insurance regulatory authority on
such material, and will cooperate expeditiously in resolving and implementing
any comments, as applicable.
b. Use in Solicitation Activities. Insurer shall be responsible for
furnishing Distributor with such Applications, Prospectuses and other materials
for use by Distributor and any Selling Broker-Dealers in their solicitation
activities with respect to the Contracts. Insurer shall notify Distributor of
those states or jurisdictions which require delivery of a statement of
additional information with a prospectus to a prospective purchaser.
6. Compensation and Expenses.
a. Insurer shall pay compensation for sales of the Contracts in
accordance with Schedule 2 hereto. Upon Distributor's request, Insurer shall
pay compensation payable to Selling-Broker-Dealers, on Distributor's behalf,
subject to the provisions of Section 7 of this Agreement.
b. Insurer shall pay all expenses in connection with:
(1) the preparation and filing of each registration statement (including
each pre-effective and post-effective amendment thereto) and the
preparation and filing of each Prospectus (including any preliminary and
each definitive Prospectus);
(2) the preparation, underwriting, issuance and administration of the
Contracts;
(3) any registration, qualification or approval or other filing of the
Contracts or Contract forms required under the securities or insurance laws
of the states in which the Contracts will be offered;
(4) all registration fees for the Contracts payable to the SEC;
<PAGE>
(5) the printing of promotional materials, definitive Prospectuses for the
Contracts and any supplements thereto for distribution;
(6) any applicable postage costs; and
(7) any out-of-pocket expenses incurred by Distributor in carrying out its
obligations under this Agreement.
7. Compliance.
a. Maintaining Registration and Approvals. Insurer shall be responsible
for maintaining the registration of the Contracts with the SEC and any state
securities regulatory authority with which such registration is required, and
for gaining and maintaining the approval of the Contract forms where required
under the insurance laws and regulations of each state or other jurisdiction in
which the Contracts are to be offered.
b. Confirmations and the 1934 Act Compliance. Insurer, as agent for the
Distributor, shall confirm to each applicant for and purchaser of a Contract in
accordance with Rule 10b-10 under the 1934 Act acceptance of premiums and such
other transactions as are required by Rule 10b-10 or administrative
interpretations thereunder. Insurer shall maintain and preserve such books and
records with respect to such confirmations in conformity with the requirements
of Rules 17a-3 and 17a-4 under the 1934 Act to the extent such requirements
apply. Insurer shall maintain all such books and records and hold such books
and records on behalf of and as agent for Distributor whose property they are
and shall remain, and acknowledges that such books and records are at all times
subject to inspection by the SEC in accordance with Section 17(a) of the 1934
Act.
c. Issuance and Administration of Contracts. Insurer shall be
responsible for issuing the Contracts and administering the Contracts and the
Variable Account, provided, however, that Distributor shall have full
responsibility for the securities activities of all persons employed by the
Insurer, engaged directly or indirectly in the Contract operations, and for the
training, supervision and control of such persons to the extent of such
activities.
8. Investigations and Proceedings.
a. Cooperation. Distributor and Insurer shall cooperate fully in any
securities or insurance regulatory investigation or proceeding or judicial
proceeding arising in connection with the offering, sale or distribution of the
Contracts distributed under this Agreement. Without limiting the forgoing,
Insurer and Distributor shall notify each other promptly of any customer
complaint or notice of any regulatory investigation or proceeding or judicial
proceeding received by either party with respect to the Contracts.
<PAGE>
b. Customer Complaints. In the case of any customer complaints,
Distributor and Insurer will cooperate in investigating such complaint and any
response by Distributor to such complaint or Insurer to such complaint will be
sent to the other party for review and approval not less than five business days
prior to its being sent to the customer or regulatory authority, except that if
a more prompt response is required, the response shall be communicated by
telephone or electronic mail.
9. Indemnification.
a. By Insurer. Insurer shall indemnify and hold harmless Distributor and
each person who controls or is associated with Distributor within the meaning of
such terms under the federal securities laws, and any officer, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
Distributor and/or any such person may become subject, under any statute or
regulation, any NASD rule or interpretation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities:
(1) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances in which
they were made, contained in any (i) Registration Statement or in any
Prospectus or (ii) blue sky application or other document executed by
Insurer specifically for the purpose of qualifying any or all of the
Contracts for sale under the securities laws of any jurisdiction; provided
that Insurer shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of, or is based upon, an untrue
statement or alleged untrue statement or omission or alleged omission made
in reliance upon information furnished in writing to Insurer by Distributor
specifically for use in the preparation of any such Registration Statement
or any such blue sky application or any amendment thereof or supplement
thereto;
(2) result from any breach by Insurer of any provision of this Agreement.
This indemnification agreement shall be in addition to any liability that
Insurer may otherwise have; provided, however, that no person shall be
entitled to indemnification pursuant to this provision if such loss, claim,
damage or liability is due to the willful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the person seeking
indemnification.
b. By Distributor. Distributor shall indemnify and hold harmless Insurer
and each person who controls or is associated with the Insurer within the
meaning of such terms under the federal securities laws, and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several
<PAGE>
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which Insurer and/or any such person may
become subject under any statute or regulation, any NASD rule or interpretation,
at common law or otherwise, insofar as such losses, claims, damages or
liabilities:
(1) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances in which
they were made, contained in any (i) Registration Statement or in any
Prospectus or (ii) blue sky application or other document executed by
Insurer specifically for the purpose of qualifying any or all of the
Contracts for sale under the securities laws of any jurisdiction; in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon information furnished in writing by Distributor to Insurer
specifically for use in the preparation of any such Registration Statement
or any such blue sky application or any amendment thereof or supplement
thereto;
(2) result from any breach by Distributor of any provision of this
Agreement.
This indemnification shall be in addition to any liability that Distributor
may otherwise have; provided, however, that no person shall be entitled to
indemnification pursuant to this provision if such loss, claim, damage or
liability is due to the willful misfeasance, bad faith, gross negligence or
reckless disregard of duty by the person seeking indemnification.
c. General. Promptly after receipt by a party entitled to
indemnification ("Indemnified Person") under this Section 9 of notice of the
commencement of any action as to which a claim will be made against any person
obligated to provide indemnification under this Section 9 ("Indemnifying
Party"), such indemnified person shall notify the indemnifying party in writing
of the commencement thereof as soon as practicable thereafter, but failure to so
notify the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to the indemnified person otherwise than on account
of this Section 9. The indemnifying party will be entitled to participate in
the defense of the indemnified person but such participation will not relieve
such indemnifying party of the obligation to reimburse the indemnified person
for reasonable legal and other expense incurred by such indemnified person in
defending himself or herself.
The indemnification provisions contained in this Section 9 shall remain
operative in full force and effect, regardless of any termination of this
Agreement. A successor by law of Distributor or Insurer, as the case may be,
shall be entitled to the benefits of the indemnification provisions contained in
this Section 9.
<PAGE>
10. Termination. This Agreement shall terminate automatically if it is
assigned by a party without the prior written consent of the other party. (The
term "assigned" shall not include any transaction exempted from Section 15(b)(2)
of the 1940 Act.) This Agreement may be terminated at any time for any reason
by either party upon 60 days' written notice to the other party, without payment
of any penalty. This Agreement may be terminated at the option of either party
to this Agreement upon the other party's material breach of any provision of
this Agreement or of any representation or warranty made in this Agreement,
unless such breach has been cured within 10 days after receipt of notice of
breach from the non-breaching party. Upon termination of this Agreement all
authorizations, rights and obligations shall cease except the obligation to
settle accounts hereunder, including commissions on Premiums subsequently
received for Contracts in effect at the time of termination or issued pursuant
to Applications received by Insurer prior to termination.
11. Miscellaneous.
a. Binding Effect. This Agreement shall be binding on and shall inure to
the benefit of the respective successors and assigns of the parties hereto
provided that neither party shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party.
b. Schedules. The parties to this Agreement may amend Schedule 1 to this
Agreement from time to time to reflect the addition of any class of Contracts
and Variable Accounts. The provisions of this Agreement shall be equally
applicable to each such class of Contracts and each Variable Account that may be
added to the Schedule, unless the context otherwise requires. Insurer may amend
Schedule 2 unilaterally, from time to time. Any other change in the terms or
provisions of this Agreement shall be by written agreement between Insurer and
Distributor.
c. Rights, Remedies, etc. are Cumulative. The rights, remedies and
obligations contained in this Agreement are cumulative and are in addition to
any and all rights, remedies and obligations, at law or in equity, which the
parties hereto are entitled to under state and federal laws. Failure of either
party to insist upon strict compliance with any conditions of this Agreement
shall not be construed as a waiver of any of the conditions, but the same shall
remain in full force and effect. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.
d. Notices. All notices hereunder are to be made in writing and shall be
given:
If to Insurer, to:
American Equity Investment Life
Insurance Company
<PAGE>
Suite 440
5000 Westown Parkway
West Des Moines, Iowa 50266
If to Distributor, to:
EquiTrust Marketing Services, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
or such address as such party may hereafter specify in writing. Each such
notice to a party shall be either hand delivered or transmitted by registered or
certified United States mail with return receipt requested, or by overnight mail
by a nationally recognized courier, and shall be effective upon delivery.
e. Interpretation; Jurisdiction. This Agreement constitutes the whole
Agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior written or oral understandings, agreements or
negotiations between the parties with respect to such subject matter. No prior
writings by or between the parties with respect to the subject matter hereof
shall be used by either party in connection with the interpretation of any
provision of this Agreement. This Agreement shall be construed and its
provisions interpreted under and in accordance with the laws of the state of
Iowa without giving effect to principles of conflict of laws.
f. Severability. In the event that any provision of this Agreement would
require a party to take action prohibited by applicable federal or state law or
prohibit a party from taking action required by applicable federal or state law,
then it is the intention of the parties hereto that such provision shall be
enforced to the extent permitted under the law, and, in any event, that all
other provisions of this Agreement shall remain valid and duly enforceable as if
the provision at issue had never been a part hereof.
g. Section and Other Headings. The headings in this Agreement are
included for convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
h. Counterparts. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
i. Regulation. This Agreement shall be subject to the provisions of the
1933 Act, 1934 Act and the 1940 Act and the rules and regulations of the NASD,
from time to time in effect, including such exemptions from the 1940 Act as the
SEC may grant, and the terms hereof shall be interpreted and construed in
accordance therewith.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by such authorized officers on the date specified below.
INSURER:
By: Date
--------------------------- ----------
Name
--------------------------
Title
-------------------------
DISTRIBUTOR:
By: Date
--------------------------- ----------
Name
--------------------------
Title
-------------------------
<PAGE>
SCHEDULE 1
Separate Accounts
Effective
-------------------
[put contract names in]
American Equity Life Variable Account
American Equity Life Annuity Account
SCHEDULE 2
Compensation
Effective
-------------------
<PAGE>
SALES AGREEMENT
Agreement dated as of __________________, by and among American Equity
Investment Life Insurance Company ("Insurer"), an Iowa insurance company;
EquiTrust Marketing Services, Inc. ("Distributor"), a Delaware Corporation which
is a registered broker-dealer with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc.; ______________________, an ___________ corporation
("Broker-Dealer") also a registered broker/dealer with the SEC under the
Exchange Act and a member of the NASD; and ________________ a licensed insurance
agency associated with Broker/Dealer ("Insurance Agency"); and each additional
insurance agency , if any , signatory hereto (all such insurance agencies
referred to collectively as "Agency").
RECITALS:
A. Pursuant to an agreement with Distributor (the "Underwriting
Agreement"), Insurer has appointed Distributor as the principal underwriter of
the class or classes of variable insurance contracts identified in Schedule 1 to
this Agreement at the time that this Agreement is executed, and such other class
or classes of variable insurance contracts that may be added to Schedule 1 from
time to time in accordance with Section 10 of this Agreement (each, a "class of
Contracts"; all such classes, the "Contracts"). Each class of Contracts will be
issued by Insurer through one or more separate accounts of Insurer ("Separate
Accounts"). Pursuant to the Underwriting Agreement, Insurer has authorized
Distributor to enter into separate written agreements with broker-dealers
pursuant to which such broker-dealers would be authorized to participate in the
sale of the Contracts and would agree to use their best efforts to solicit
applications for the Contracts.
B. Broker-Dealer and Insurance Agency are engaged in the business of
selling various investment products, including variable insurance contracts.
C. The parties to this Agreement desire that Broker-Dealer and Insurance
Agency be authorized to solicit applications for the sale of the Contracts,
subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants hereinafter set forth, the parties agree as follows:
1. ADDITIONAL DEFINITIONS
a. REGISTRATION STATEMENT - With respect to each class of Contracts, the
most recent effective registration statement(s) filed with the SEC or
the most recent effective post-effective amendment(s) thereto,
including financial statements included therein and all exhibits
thereto.
<PAGE>
b. PROSPECTUS - With respect to each class of Contracts, the prospectus
for such class of Contracts included within the Registration Statement
for such class of Contracts; provided, however, that, if the most
recently filed prospectus filed pursuant to Rule 497 under the 1933
Act subsequent to the date on which the Registration Statement became
effective differs from the prospectus on file at the time the
Registration Statement became effective, the term "Prospectus" shall
refer to the most recently filed prospectus filed under Rule 497 from
and after the date on which it shall have been filed.
c. 1933 ACT - The Securities Act of 1933, as amended.
d 1934 ACT - The Securities Exchange Act of 1934, as amended.
e. 1940 ACT - The Investment Company Act of 1940, as amended.
f. FUND - Registered investment companies in which the Separate Account
invests.
g. AGENT - An individual associated with Insurance Agency and
Broker-Dealer who is appointed by Insurer as an agent for the purpose
of soliciting applications.
h. PREMIUM - A payment made under a Contract to purchase benefits under
such Contract.
i. ADMINISTRATIVE OFFICE - The administrative office of the Insurer
identified in the most recently filed prospectus filed pursuant to
Rule 497.
j. AGENT'S MANUAL - Any written rules, regulations and procedures
provided by Insurer to insurance agents appointed to sell the
Contracts, which may be collected in a manual, as revised from time to
time.
k. SEC - The Securities and Exchange Commission.
l. NASD - The National Association of Securities Dealers, Inc. and its
affiliates.
1. AUTHORIZATION OF BROKER-DEALER AND INSURANCE AGENT
a. Pursuant to the authority granted to it in the Underwriting Agreement,
Distributor hereby authorizes Broker-Dealer under the securities laws,
and Insurer hereby authorizes Insurance Agency under the insurance
laws, each in a non-exclusive capacity, to sell the Contracts.
Broker-Dealer and Insurance Agency accept such authorization and shall
use their best efforts to find purchasers for the Contracts in each
case acceptable to Insurer. Distributor and Insurer acknowledge that
Broker-Dealer and Insurance Agency are each an independent contractor
in the performance of their respective duties and obligations under
this Agreement. Accordingly, Broker-Dealer and Insurance Agency are
not obliged or expected to give full time and energies to the
performance of their obligations hereunder, nor
<PAGE>
are Broker-Dealer and Insurance Agency obliged or expected to
represent Distributor or Insurer exclusively. Nothing herein
contained shall constitute Broker-Dealer, Insurance Agency, the Agents
or any agents or representatives of Broker-Dealer or Insurance Agency
as employees of Distributor or Insurer in connection with the
solicitation of applications and Premiums for the Contracts.
b. Broker-Dealer and Insurance Agency acknowledge that no territory is
exclusively assigned hereunder, and that Insurer and Distributor may
in their sole discretion authorize and appoint one or more persons in
any jurisdiction in which Broker-Dealer and Insurance Agency transact
business, to solicit applications and Premiums for the Contracts.
c. Insurance Agency is vested under this Agreement with power and
authority to select and recommend individuals associated with
Insurance Agency for appointment as Agents of the Insurer, and only
individuals so recommended by Insurance Agency shall become Agents,
provided that the conditions of Section 3 are satisfied, and provided
further that Insurer reserves the right to refuse to appoint any
proposed agent or, once appointed, to terminate or refuse to renew the
appointment at any time with or without cause. [INITIAL AND RENEWAL
STATE APPOINTMENT FEES FOR INSURANCE AGENCY AND APPOINTEES OF
INSURANCE AGENCY AS AGENTS OF INSURER WILL BE PAID BY INSURER IN
ACCORDANCE WITH ITS THEN-APPLICABLE REQUIREMENTS.]
d. Neither Broker-Dealer nor Insurance Agency shall expend or contract
for the expenditure of the funds of Distributor or Insurer, except as
may otherwise be agreed in writing. Broker-Dealer and Insurance
Agency each shall pay all expenses incurred by each of them in the
performance of this Agreement, unless otherwise specifically provided
for in this Agreement or unless Distributor and Insurer shall have
agreed in advance in writing to share the cost of any such expenses.
Neither Broker-Dealer nor Insurance Agency shall possess or exercise
any authority on behalf of Insurer or Distributor other than that
expressly conferred on Broker-Dealer or Insurance Agency by this
Agreement. In particular, and without limiting the foregoing, neither
Broker-Dealer nor Insurance Agency shall have any authority, nor shall
either grant such authority to any Agent, on behalf of Insurer: to
make, alter or discharge any Contract or other insurance policy or
annuity entered into pursuant to a Contract; to waive any Contract
forfeiture provision; to extend the time of paying any Premiums; or to
receive any monies or Premiums from applicants for or purchasers of
the Contracts (except for the sole purpose of forwarding monies or
Premiums to Insurer).
e Broker-Dealer and Insurance Agency acknowledge that Insurer has the
right in its sole discretion to reject any applications or Premiums
received by it and to return or refund to an applicant such
applicant's Premiums.
<PAGE>
3. LICENSING AND REGISTRATION OF BROKER-DEALER, INSURANCE AGENCY AND AGENTS
a. Broker-Dealer represents and warrants that it is a broker-dealer
registered with the SEC under the 1934 Act, and is a member of the
NASD. Broker-Dealer shall, at all times when performing its functions
and fulfilling its obligations under this Agreement, be duly
registered as a broker-dealer under the 1934 Act and in each state or
other jurisdiction in which Broker-Dealer intends to perform its
functions and fulfill its obligations hereunder, as required, and be a
member in good standing of the NASD.
b. Insurance Agency represents and warrants that it is a licensed life
insurance agent where required to solicit applications. Insurance
Agency shall, at all times when performing its functions and
fulfilling its obligations under this Agreement, be duly licensed to
sell the Contracts in each state or other jurisdiction in which
Insurance Agency intends to perform its functions and fulfill its
obligations hereunder.
c. Broker-Dealer and Insurance Agency shall ensure that no individual
shall solicit applications or Premiums for the Contracts on their
behalf in any state or other jurisdiction in which the Contracts may
lawfully be sold unless (i) such individual is an associated person of
Broker-Dealer (as that term is defined in Section 3(a)(18) of the 1934
Act) and duly registered with the NASD and any applicable state
securities regulatory authority as a registered person of
Broker-Dealer qualified to solicit applications or Premiums for the
Contracts in such state or jurisdiction, (ii) duly licensed,
registered or otherwise qualified to solicit applications or Premiums
for the Contracts to be offered and sold by such individual under the
insurance laws of such state or jurisdiction, and (iii) duly appointed
by Insurer to solicit applications or Premiums for Contracts in such
state or jurisdiction. INSURER SHALL BE SOLELY RESPONSIBLE FOR
BACKGROUND INVESTIGATIONS OF THE AGENTS TO DETERMINE THEIR
QUALIFICATIONS, GOOD CHARACTER AND MORAL FITNESS TO SELL THE
CONTRACTS. ALL MATTERS CONCERNING THE LICENSING OF ANY INDIVIDUALS
RECOMMENDED FOR APPOINTMENT BY INSURANCE AGENCY UNDER ANY APPLICABLE
STATE INSURANCE LAW SHALL BE A MATTER DIRECTLY BETWEEN INSURANCE
AGENCY AND SUCH INDIVIDUAL, AND SHALL FURNISH INSURER WITH PROOF, OF
PROPER LICENSING OF SUCH INDIVIDUAL OR OTHER PROOF, REASONABLY
ACCEPTABLE TO INSURER, OF SATISFACTION BY SUCH INDIVIDUAL AS AN AGENT
OF INSURER. INSURANCE AGENCY AND BROKER-DEALER SHALL NOTIFY INSURER
AND DISTRIBUTOR IMMEDIATELY UPON TERMINATION (FOR WHATEVER REASON) OF
AN AGENT'S ASSOCIATION WITH BROKER-DEALER AND INSURANCE AGENCY.
d. Without limiting the foregoing, Broker-Dealer and Insurance Agency
represent that they are in compliance with the terms and conditions of
HOWARD & HOWARD (SUB. NOM. FIRST OF AMERICA BROKERAGE SERVICE, INC.)
(avail. Sept. 28, 1995) issued by the Staff of the SEC with respect to
the non-registration as a broker-dealer of an insurance agency
associated with a registered broker-dealer. Broker-
<PAGE>
Dealer and Insurance Agency shall notify Distributor immediately in
writing if Broker-Dealer and/or Insurance Agency fail to comply with
any such terms and conditions and shall take such measures as may be
necessary and as promptly as practicable under the circumstances to
cure any such non-compliance.
4. BROKER-DEALER AND INSURANCE AGENCY COMPLIANCE
a. Broker-Dealer, and not Distributor, shall be responsible for
securities training, supervision and control of the Agents in
connection with their solicitation activities with respect to the
Contracts and shall supervise Agents' compliance with applicable
federal and state securities law and NASD requirements in connection
with such solicitation activities.
b. Broker-Dealer and Insurance Agency hereby represent and warrant that
they are duly in compliance with all applicable federal and state
securities laws and regulations, and all applicable insurance laws and
regulations. Broker-Dealer and Insurance Agency each shall carry out
their respective obligations under this Agreement in continued
compliance with such laws and regulations. Further, Broker-Dealer and
Insurance Agent shall comply, and shall ensure that Agents comply,
with the rules and procedures set for the in the Agents Manual, and
the rules set forth below, and Broker-Dealer and Insurance Agency
shall be solely responsible for such compliance.
(1) Broker-Dealer, Insurance Agency and Agents shall not offer or
attempt to offer the Contracts, nor solicit applications or
Premiums for the Contracts, nor deliver Contracts, in any state
or jurisdiction in which the Contracts have not been approved for
sale. For purposes of determining where the Contracts may be
offered and applications or Premiums solicited, Broker-Dealer and
Insurance Agency may rely on written notification, as revised
from time to time, that they receive from Insurer pursuant to
this Agreement.
(2) Broker-Dealer, Insurance Agency and Agents shall not solicit
applications or Premiums for the Contracts without delivering the
Prospectus for the Contracts, and, where required by state
insurance law, the then-currently effective statement of
additional information for the Contracts, and the then-currently
effective prospectus(es) for the Fund(s).
(3) Broker-Dealer, Insurance Agency and Agents shall not recommend
the purchase of a Contract to an applicant unless each has
reasonable grounds to believe that such purchase is suitable for
the applicant in accordance with, among other things, applicable
regulations of any state insurance regulatory authority, the SEC
and the NASD. While not limited to the following, a
determination of suitability shall be based on information
supplied by the applicant after a reasonable inquiry concerning
the applicant's insurance and investment objectives, financial
situation and
<PAGE>
needs and the likelihood that the applicant will continue to make
premium payments. Each application or related documentation
obtained by an agent of Broker-Dealer shall bear the initials of
a principal of Broker-Dealer indicating the application has been
reviewed by such principal for suitability, completeness and
accuracy.
(4) Broker-Dealer, Insurance Agency and all Agents shall accept
initial Premiums in the form of a check or money order only if
made payable to the name of Insurer and signed by the applicant
for the Contract. Broker-Dealer, Insurance Agency and Agent
shall not accept third-party checks or cash for Premiums.
(5) Broker-Dealer, Insurance Agency and Agents shall not encourage a
prospective applicant to surrender or exchange an instrument
contract in order to purchase a Contract, nor to encourage a
Contract owner to lapse, terminate, surrender, exchange or cancel
his or her Contract or discontinue paying Premiums thereunder.
(6) Broker-Dealer and Insurance Agency shall ensure that all checks
and money orders and applications for the Contracts received by
either of them or an Agent shall be remitted promptly, and in any
event not later than noon of the next business day after receipt,
to the Administrative Office. In the event that any other
Premiums are sent to an Agent, Insurance Agency or Broker-Dealer,
rather than to the Administrative Office, Insurance Agency and
Broker-Dealer shall promptly (and in any event, not later than
noon of the next business day) remit such Premiums to the
Administrative Office. Insurance Agency and Broker-Dealer
acknowledge that if any Premium is held at any time by either of
them such Premium shall be held on behalf of Insurer, and
Insurance Agency or Broker-Dealer shall segregate such Premium
from their own funds and promptly (and in any event, by noon of
the next business day) remit such Premium to the Insurer. All
such Premium, whether by check, money order or wire, shall at all
times be the property of Insurer.
(7) Upon issuance of a Contract by Insurer and delivery of such
Contracts to Insurance Agency, Insurance Agent or Agent shall
promptly deliver such Contract to its purchaser. For purposes of
this provision, "promptly" shall be deemed to mean not later than
five calendar days. Broker-Dealer and Insurance Agency shall
return promptly to Insurer all receipts, if applicable, for
delivered Contracts, all undelivered Contracts and all receipts,
if applicable, for cancellation, in accordance with the
instructions set forth in the Agents Manual. Broker-Dealer,
Insurance Agency, and the Agents in connection with the offer or
sale of the Contracts, shall not give any information or make any
representations or statements, written or oral, concerning the
Contracts, a Fund or Fund shares, other than or inconsistent with
information or representations contained in the
<PAGE>
Prospectuses, statements of additional information and
Registration Statements for the Contracts, or a Fund, or in
reports or proxy statements therefor, or in promotional, sales or
advertising material or other information supplied and approved
in writing by Distributor and Insurer.
c. Broker-Dealer and Insurance Agency understand, acknowledge, and
represent that Contracts and Premiums thereunder shall not be
solicited, offered, or sold in connection with any so-called "market
timing" or "asset reallocation" program, plan, arrangement or service
that has not been approved in advance in writing by Insurer and
Distributor. Should Distributor or Insurer determine in their sole
discretion that Broker-Dealer or Insurance Agency is soliciting,
offering, or selling, or has solicited, offered, or sold, Contracts or
Premiums subject to any so-called "market timing" or "asset
reallocation" program, plan, arrangement or service, Distributor or
Insurer may take such action which is necessary, in their sole
discretion, to halt such solicitations, offers or sales. Furthermore,
in addition to any indemnification provided in Section 11 of this
Agreement and any other liability that Broker-Dealer and Insurance
Agency might have, Broker-Dealer and Insurance Agency shall each be
liable to Distributor and Insurer and each Fund affected by any
so-called "market timing" or "asset reallocation" program, plan,
arrangement or service, for any damages or losses, actual or
consequential, sustained by Distributor or Insurer or any Fund, as a
result of any so-called "market timing" or "asset reallocation"
program, plan, arrangement or service which causes such losses or
damages following solicitation, offer, or sale of a Contract or
Premiums subject to "market timing" or "asset reallocation" or similar
service by Broker-Dealer or Insurance Agency.
c. Broker-Dealer and Insurance Agency shall promptly furnish to Insurer
or its authorized agent any reports and information that Insurer may
reasonably request for the purpose of meeting Insurer's reporting and
recordkeeping requirements under the insurance laws of any state,
under any applicable federal and state securities laws, rules and
regulations.
d. Broker-Dealer shall secure and maintain a fidelity bond (including
coverage for larceny and embezzlement), issued by a reputable bonding
company, covering all of its directors, officers, agents and employees
who have access to funds of Insurer or Distributor. This bond shall
be maintained at Broker-Dealer's expense in at least the amount
prescribed under Rule 3020 of the NASD Conduct Rules. Broker-Dealer
shall provide Distributor with a copy of said bond before executing
this Agreement. Broker-Dealer shall also secure and maintain errors
and omissions insurance acceptable to Insurer and covering
Broker-Dealer and Agents (registered representatives). Broker-Dealer
hereby assigns any proceeds received from a fidelity bonding company,
errors and omissions or other liability coverage, to Insurer or
Distributor as their interest may appear, to the extent of their loss
due to activities covered by the bond, policy or other liability
coverage. If there is any deficiency, whether due to a deductible or
otherwise, Broker-Dealer shall promptly pay such amounts on demand.
Broker-Dealer hereby agrees to
<PAGE>
indemnify and hold harmless Insurer and Distributor from any such
deficiency and from the costs of collection thereof, including
reasonable attorneys' fees.
5. SALES MATERIALS
a. During the term of this Agreement, Distributor and Insurer will
provide Broker-Dealer and Insurance Agency, without charge, with as
many copies of Prospectuses (and any supplements thereto), current
Fund prospectuses (and any supplements thereto), and applications for
the Contracts, as Broker-Dealer or Insurance Agency may reasonably
request. Upon termination of this Agreement, Broker-Dealer and
Insurance Agency will promptly return to Distributor any Prospectuses,
applications, Fund prospectuses, and other materials and supplies
furnished by Distributor or Insurer to Broker-Dealer or Insurance
Agency or to the Agents.
b. During the term of this Agreement, Distributor and Insurer will be
responsible for providing and approving all promotional, sales and
advertising material to be used by Broker-Dealer and Insurance Agency
in the course of their solicitation activities hereunder. Distributor
will file such materials or will cause such materials to be filed with
the SEC, the NASD, and/or with any state securities regulatory
authorities, as appropriate. Broker-Dealer and Insurance Agency shall
not use or implement, nor shall they allow any Agent to use or
implement, any promotional, sales or advertising material relating to
the Contracts or otherwise advertise the Contracts without the prior
written approval of Distributor and Insurer.
6. COMMISSIONS AND EXPENSES
a. COMPENSATION. During the term of this Agreement, Broker-Dealer and
Insurance Agency shall be compensated for services performed
hereunder, based on the Contracts for which Insurance Agency is the
Broker-of-Record and at the COMMISSION RATES AND FEES SET FORTH IN
SCHEDULE 2 TO THIS AGREEMENT, as such SCHEDULE 2 MAY BE AMENDED OR
MODIFIED UPON _____ DAYS NOTICE. ANY amendment to Schedule 2 will be
applicable to any Contract for which an application or Premium is
received by the Administrative Office on or after the effective date
of such amendment or which is in effect after the effective date of
such amendment. Compensation shall be paid on behalf of Insurer and
Distributor to Insurance Agency on its behalf and on behalf of
Broker-Dealer. Compensation with respect to any Contract shall be
paid to Insurance Agency only for so long as Insurance Agent is the
Broker-of-Record for such Contract.
b. CONDITIONS TO COMPENSATION. Broker-Dealer and Insurance Agency
recognize that all compensation payable to them hereunder will be
disbursed by or on behalf of Insurer after Premiums are received and
accepted by Insurer and that no compensation of any kind other than
that described in this Agreement is payable to Insurance Agency for
the performance of its obligations hereunder.
<PAGE>
c. REFUND OF COMPENSATION. No compensation shall be payable, and
Broker-Dealer agrees to reimburse Distributor for any compensation
paid to Broker-Dealer or its Representatives, or Insurance Agency
under each of the following conditions: (i) if Insurer, in its sole
discretion, determines not to issue the Contract applied for; (ii) if
Insurer refunds the Premiums upon the applicant's surrender or
withdrawal pursuant to any "free-look" privilege; (iii) if Insurer
refunds the Premiums paid by applicant as a result of a complaint by
applicant, recognizing that Insurer has sole discretion to refund
Premiums; and (iv) if Insurer determines that any person signing an
application who is required to be licensed or any other person or
entity receiving compensation for soliciting purchase of the Contracts
is not duly licensed to sell the Contracts in the jurisdiction of such
sale or attempted sale.
d. INDEBTEDNESS AND RIGHT OF SETOFF. Nothing contained herein shall be
construed as giving Broker-Dealer or Agent the right to incur any
indebtedness on behalf of Insurer or Distributor. Broker-Dealer
hereby authorizes Insurer and Distributor to set off liabilities of
Broker-Dealer to Insurer and Distributor against any and all amounts
otherwise payable to Broker-Dealer.
e. COMMISSION SHARING. Broker-Dealer and Insurance Agency represent that
no commissions or other compensation will be paid for services
rendered in soliciting the purchase of the contracts by any person or
entity not duly registered or licensed by the required authorities and
appointed by Insurer to sell the Contract in the state in which such
solicitation occurred; provided however, that this provision shall not
prohibit the payment of compensation of the surviving spouse or other
beneficiary of a person entitled to receive such compensation pursuant
to a bona fide contract calling for such payment.
7. INTERESTS IN AGREEMENT. Agents shall have no interest in this Agreement or
right to any commissions to be paid to Insurance Agency hereunder.
Insurance Agency shall be solely responsible for the payment of any
commission or consideration of any kind to Agents. Broker-Dealer and
Insurance Agency shall be solely responsible under applicable tax laws for
the reporting of compensation paid to Agents. Insurance Agency shall have
no right to withhold or deduct any commission from any Premiums in respect
of the Contracts which it may collect, subject to Schedule 2 to this
Agreement. Insurance Agency shall have no interest in any compensation
paid by Insurer to Distributor, now or hereafter, in connection with the
sale of any Contracts hereunder.
8. TERM AND EXCLUSIVITY OF AGREEMENT. This Agreement may not be assigned
except upon the written consent of all parties; provided, however, that the
rights, obligations, duties and responsibilities of Distributor may be
assigned to a properly qualified affiliate of Insurer upon the written
consent of Distributor and Insurer. This Agreement shall continue for an
indefinite term, subject to the termination by either party by ten-days'
advance written notice to the other party, except that in the event
Distributor or Broker-Dealer ceases to be a registered broker-dealer or a
member of the NASD, this Agreement
<PAGE>
shall immediately terminate. Upon its termination, all authorizations,
rights and obligations shall cease, except the agreements in SECTIONS 5,
8, 11, 12, 14, 15, 18 and the payment of any accrued but unpaid
compensation to Broker-Dealer and Insurance Agent.
9. COMPLAINTS AND INVESTIGATIONS
a. Distributor, Insurer, Broker-Dealer and Insurance Agency each shall
cooperate fully in any securities or insurance regulatory
investigation or proceeding or judicial proceeding arising in
connection with the Contracts marketed under this Agreement.
Broker-Dealer and Insurance Agency will be notified promptly of any
customer complaint or notice of any regulatory investigation or
proceeding or judicial proceeding received by Distributor or Insurer
with respect to Broker-Dealer, Insurance Agency or any Agent; and
Broker-Dealer and Insurance Agency will promptly notify Distributor
and the Insurer of any written customer complaint or notice of any
regulatory investigation or proceeding or judicial proceeding received
by Broker-Dealer or Insurance Agency with respect to themselves or any
Agent in connection with this Agreement or any Contract.
b. In the case of a customer complaint, Distributor, Insurer,
Broker-Dealer and Insurance Agency will cooperate in investigating
such complaint and any response by Broker-Dealer or Insurance Agency
to such complaint will be sent to Distributor for approval not less
than five business days prior to its being sent to the customer or
regulatory authority, except that if a more prompt response is
required, the proposed response shall be communicated by telephone or
facsimile.
10. MODIFICATION OF AGREEMENT. This Agreement supersedes all prior agreements,
either oral or written, between the parties relating to the Contracts and,
except for any amendment of Schedule 1 pursuant to the terms of Section 2
hereof or Schedule 2 pursuant to the terms of Section 6 hereof, may not be
modified in any way unless by written agreement signed by all of the
parties.
11. INDEMNIFICATION
a. Broker-Dealer and Insurance Agency, jointly and severally, shall
indemnify and hold harmless Distributor and Insurer and each person
who controls or is associated with Distributor or Insurer within the
meaning of such terms under the federal securities laws, and any
officer, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they
or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon:
<PAGE>
(1) violation(s) by Broker-Dealer, Insurance Agency, or an Agent of
federal or state securities law or regulation(s), insurance law
or regulation(s), or any rule or requirement of the NASD:
(2) any unauthorized use of promotional, sales or advertising
material, any oral or written misrepresentations or any unlawful
sales practices concerning the Contracts, by Broker-Dealer,
Insurance Agency or an Agent;
(3) claims by the Agents or other agents or representatives of
Insurance Agency or Broker-Dealer for commissions or other
compensation or remuneration of any type;
(4) any failure on the part of Broker-Dealer, Insurance Agency, or an
Agent to submit Premiums or applications to Insurer, or to submit
the correct amount of a Premium, on a timely basis and in
accordance with this Agreement and the Agents Manual, subject to
applicable law;
(5) any failure on the part of Broker-Dealer, Insurance Agency, or an
Agent to deliver Contracts to purchasers thereof on a timely
basis and in accordance with the Agents Manual; or
(6) a breach by Broker-Dealer or Insurance Agency of any provision of
this Agreement.
(7) any other acts or omission of Broker-Dealer, Insurance Agency or
Agent which results in a claim against Distributor, Insurer their
agents or employees.
This indemnification will be in addition to any liability which
Broker-Dealer and Insurance Agency may otherwise have.
b. Distributor and Insurer, jointly and severally, shall indemnify and
hold harmless Broker-Dealer and Insurance Agency and each person who
controls or is associated with Broker-Dealer or Insurance Agency
within the meaning of such terms under the federal securities laws,
and any officer, director, employee or agent of the foregoing, against
any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they
or any of them may become subject under any statute or regulation,
NASD rule or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or based upon any
breach by Distributor or Insurer of any provision of this Agreement.
This indemnification will be in addition to any liability which
Distributor and Insurer, jointly and severally, may otherwise have.
<PAGE>
c. Promptly after receipt by a party entitled to indemnification
("indemnified person") under this Section 11 of notice of the
commencement of any action as to which a claim will be made against
any person obligated to provide indemnification under this Section 11
("indemnifying party"), such indemnified person shall notify the
indemnifying party in writing of the commencement thereof as soon as
practicable thereafter, but failure to so notify the indemnifying
party shall not relieve the indemnifying party from any liability
which it may have to the indemnified person otherwise than on account
of this Section 11, except to the extent that the omission results in
a failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to
give such notice. The indemnifying party will be entitled to
participate in the defense of the indemnified person but such
participation will not relieve such indemnifying party of the
obligation to reimburse the indemnified person for reasonable legal
and other expenses incurred by such indemnified person in defending
himself or itself. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others
the indemnifying party may designate in such proceeding and shall pay
the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the
indemnifying party and indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. The indemnifying party
shall not be liable for any settlement of any proceeding effected
without its written consent, but if such proceeding for the plaintiff,
the indemnifying party shall indemnify the indemnified party from and
against any loss or liability by reason of such settlement or
judgement.
The indemnification provisions contained in this Section 11 shall
remain operative in full force and effect, regardless of any
termination of this Agreement. A successor by law of Distributor or
Insurer, as the case may be, shall be entitled to the benefits of the
indemnification provisions contained in this Section 11. After
receipt by a party entitled to indemnification ("indemnified party")
under this Section 11 of notice of the commencement of any action, if
a claim in respect thereof is to be made against any person obligated
to provide indemnification under this Section 11 ("indemnifying
party"), such indemnified party will notify the indemnifying party in
writing of the commencement thereof as soon as practicable thereafter,
provided that the omission so to notify the indemnifying party will
not relieve it from any liability under this Section 11.
12. RIGHTS, REMEDIES, ETC., ARE CUMULATIVE. The rights, remedies and
obligations contained in this Agreement are cumulative and are in addition
to any and all rights, remedies and obligations, at law or in equity, which
the parties hereto are entitled to under state and
<PAGE>
federal laws. Failure of a party to insist upon strict compliance with any
of the conditions of this Agreement shall not be construed as a waiver of
any of the conditions, but the same shall remain in full force and effect.
No waiver of any of the provisions of this Agreement shall be deemed, or
shall constitute, a waiver of any other provisions, whether or not similar,
nor shall any waiver constitute a continuing waiver.
13. NOTICES. All notices hereunder are to be made in writing and shall be
given:
If to Insurer, to:
American Equity Investment Life Insurance Company
Suite 440
5000 Westown Parkway
West Des Moines, Iowa 50266
If to Distributor, to:
EquiTrust Marketing Services, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
If to Broker-Dealer, to:
If to Insurance Agency, to:
such other address as such party may hereafter specify in writing. Each such
notice to a party shall be either hand delivered or transmitted by registered or
certified United States mail with return receipt requested, or by overnight mail
by a nationally recognized courier, and shall be effective upon delivery.
14. INTERPRETATION, JURISDICTION, ETC. This Agreement constitutes the whole
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior oral or written understandings, agreements or
negotiations between the parties with respect to the subject matter hereof. No
prior writings by or between the parties hereto with respect to the subject
matter hereof shall be used by a party in connection with the interpretation of
any provision of this Agreement. This Agreement shall be construed and its
provisions interpreted under and in accordance with the laws of the State of
Iowa without giving effect to principles of conflict of laws.
<PAGE>
15. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgement upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
16. HEADINGS. The headings in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
17. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
18. SEVERABILITY. In the event that any provision of this Agreement would
require a party to take action prohibited by applicable federal or state law or
prohibit a party from taking action required by applicable federal or state law,
then it is the intention of the parties hereto that such provision shall be
enforced to the extent permitted under the law, and, in any event, that all
other provisions of this Agreement shall remain valid and duly enforceable as if
the provision at issue had never been a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
By:_____________________________________
Name:___________________________________
Title:____________________________________
EQUITRUST MARKETING SERVICES, INC.
By:_____________________________________
Name:___________________________________
Title:____________________________________
<PAGE>
RETAIL BROKER-DEALER
By:______________________________________
Name:___________________________________
Title:_____________________________________
INSURANCE AGENCY: ________________________
By:_______________________________________
Name:____________________________________
Title:______________________________________
<PAGE>
SCHEDULE 1
CONTRACTS SUBJECT TO THIS AGREEMENT
EFFECTIVE _________________________, 1998
<PAGE>
SCHEDULE 2
COMPENSATION SCHEDULE
EFFECTIVE _____________________, 1998
<PAGE>
WHOLESALING AGREEMENT
This Agreement dated this _______ day of ___________________, ________ is
by and among American Equity Investment Life Insurance Company, an Iowa
corporation ("Insurer"), EquiTrust Marketing Services, Inc. ("Distributor") a
Delaware corporation which is a registered broker-dealer with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of the National Association of Securities Dealers,
Inc. ("NASD"); ____________________________________ ("Wholesaler"), also a
registered broker-dealer with the SEC under the Exchange Act and a member of the
NASD; and __________________________________, a licensed insurance agency
associated with Wholesaler ("Agency"); and each additional insurance agency, if
any, signatory hereto (all such insurance agencies referred to collectively as
"Agency").
WITNESSETH:
WHEREAS, Insurer has appointed Distributor as the principal underwriter and
distributor of the variable insurance contracts issued by Insurer, and has
agreed with Distributor that Distributor shall be responsible for the
recruitment of third parties who will promote the offer and sale of these
variable contracts; and
WHEREAS, Insurer and Distributor on the one hand, and Wholesaler, on the
other hand, desire to establish an arrangement whereby Wholesaler will recommend
to Distributor and Insurer certain third parties (the "Retailers") who will
promote the offer and sale of the variable life insurance and variable annuities
issued by Insurer (collectively the "Policies").
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. APPOINTMENT OF WHOLESALER
Subject to the terms and conditions of this Agreement, Insurer and Distributor
hereby authorize and appoint Wholesaler, on a non-exclusive basis, to recommend
to Insurer and Distributor Retailers who will promote the offer and sale of
Policies. Wholesaler hereby accepts such authorization and appointment on a
non-exclusive basis and agrees to use its best efforts to find Retailers
acceptable to Insurer who will promote the offer and sale of Policies.
Wholesaler acknowledges that no territory is exclusively assigned to Wholesaler
hereby, and that Distributor and Insurer may enter into agreements with other
third party wholesalers and broker-dealers providing for the sale of the
Policies. Further, Wholesaler acknowledges that Insurer and Distributor may
enter into agreements with other representatives of a Retailer previously
dealing with Wholesaler if such
<PAGE>
representatives are contracted by other third-party Wholesalers. Further, any
compensation as provided for in Section 7 hereof, shall only be based and paid
on those Policies written by Retailers during the period that such Retailer is
recognized by Insurer as appointed through Wholesaler and during which there is
outstanding a valid, binding and enforceable selling agreement between such
Retailer, Distributor and Insurer. Without limiting any provision otherwise
contained in this Agreement, Wholesaler shall conduct its business in accordance
with generally accepted customs and practices of the life insurance industry.
2. THE POLICIES
The Policies issued by Insurer to which this Agreement applies are listed in
Exhibit A, which by this reference is incorporated herein. Exhibit A may be
amended from time to time by Insurer. Insurer in its sole discretion and
without notice to Wholesaler, may suspend sales of any Policies or may amend any
contracts or policies evidencing such Policies if, in Insurer's opinion, such
suspension or amendment is: (1) necessary for compliance with federal, state, or
local laws, regulations, or administrative order(s); or, (2) necessary to
prevent administrative or financial hardship to Insurer. In all other
situations, Insurer shall provide 30 days notice to Wholesaler prior to
suspending sales of any Policies or amending any contracts or policies
evidencing such Policies.
3. SECURITIES REGISTRATION AND LICENSING
Wholesaler shall, at all times when performing its functions under this
Agreement, be either registered as, or a registered representative in good
standing with, a securities broker-dealer in good standing with the SEC and NASD
and licensed or registered as a securities broker-dealer, or representative, in
the states and other local jurisdictions that require such licensing or
registration in connection with variable insurance contract sales activities.
Any personnel through which Wholesaler acts shall be registered and licensed
individually as required. Wholesaler hereby represents and warrants to
Distributor it is not currently under investigation, formal or informal, by any
securities or insurance regulatory authority.
4. INSURANCE LICENSING
Wholesaler shall, at all times when performing its functions under this
Agreement, be validly licensed as an insurance agent or agency in the states and
other local jurisdictions that require such licensing or registration in
connection with the Wholesaler's variable life insurance and variable annuity
contract sales activities; or, in those states in which Wholesaler cannot or
does not obtain a corporate agent's license, shall maintain an ownership
interest in, or contractual relationship with, Agency, which shall be validly
licensed as an insurance agency in such jurisdiction or jurisdictions. Such
contractual relationship shall be set forth in an agreement substantially
equivalent to that set forth as Exhibit B. Any personnel through which
Wholesaler acts shall be licensed individually as required. Wholesaler shall
provide Insurer with a list of all licensed insurance agencies
<PAGE>
relied upon by Wholesaler to comply with this paragraph and covenants to
maintain the completeness and accuracy of such list, and to cause each such
agency to become a signatory hereto.
5. RECOMMENDATION AND ACCEPTANCE OF RETAILERS
Wholesaler will recruit and recommend potential Retailers to sell the Policies.
Insurer shall have sole discretion to accept or reject any such recommendation.
Acceptance shall occur only upon and by way of execution of a selling agreement
between Retailer, Distributor and Insurer .
6. WHOLESALING SERVICES
Wholesaler shall use its best efforts to provide certain services and support to
Retailers to facilitate the offering and selling of Policies. Such activities
shall include, but not be limited to, assistance in the appointment of agents;
distribution of sales material, newsletters and field service bulletins (subject
to Section 12, hereof); assistance with the sales promotional activities with
Retailers; and training of sales staff and registered representatives of
Retailers with respect to the features of the Policies.
7. COMPENSATION
Compensation for the services performed in accordance with Section 6 above, will
be, pursuant to the terms and conditions in Exhibit C, a percentage of purchase
payments made to Insurer on account of Policies issued upon applications
procured through Retailers in accordance with this Agreement. Compensation
shall be paid to Wholesaler unless applicable state insurance law requires that
compensation be paid to Agency. Upon the termination of this Agreement all
compensation payable to Wholesaler hereunder shall cease, except that
compensation will be paid on premiums accompanying applications obtained by
Retailers recruited by Wholesaler and dated prior to such termination. Exhibit
C may be amended by Insurer by providing written notice to Wholesaler. Such
amendment shall apply only to applications dated after the effective date of
such amendment, provided, however, that Insurer reserves the right to apply such
amendment with respect to all subsequent premiums and renewal premiums received
after the effective date of such amendment. In the event Wholesaler is
disqualified from continued registration with the NASD, Insurer shall not be
obligated to pay commissions, fees or additional compensation pursuant to this
Agreement, the payment of which would represent a violation of NASD rules.
8. SUPERVISION OF REGISTERED REPRESENTATIVES
Wholesaler, and not Distributor, shall have full responsibility for the training
and supervision of all of its own registered persons who are engaged directly or
indirectly in the offer or sale of the variable insurance contract hereunder,
and all such persons shall be subject to the control of and supervision of
Wholesaler with respect to such person's
<PAGE>
securities-regulated activities, and to the control of Agency with respect to
such person's insurance-regulated activities, in connection with the
solicitation and sale of and other communication with respect to variable
insurance and annuity contracts hereunder. Wholesaler and Agency shall not,
solely by virtue of this Agreement, be obligated to supervise the registered
representative of any Retailer.
9. COMPLIANCE WITH NASD CONDUCT RULES AND FEDERAL AND STATE SECURITIES LAWS
Wholesaler shall fully comply with the rules and requirements of the NASD and of
the Exchange Act and all other applicable federal or state laws and will
establish such rules and procedures as may be necessary to cause diligent
supervision of the securities activities of its registered persons. Upon
request by Distributor, Wholesaler shall furnish such appropriate records as may
be necessary to establish such diligent supervision.
10. REGULATIONS
All parties agree to observe and comply with the existing laws and rules or
regulations of applicable local, state, or federal regulatory authorities and
with those which may be enacted or adopted during the term of this Agreement
regulating the business contemplated hereby in any jurisdiction in which the
business described herein is to be transacted, and to provide information or
reports with respect to their duties hereunder pursuant to request by any
regulatory authority having jurisdiction with respect thereto.
11. INVESTIGATIONS; CUSTOMER COMPLAINTS
Wholesaler agrees to fully cooperate in any insurance, securities or other
regulatory or judicial investigation or proceeding arising in connection with
the Policies, Insurer, Distributor, Wholesaler, Agency and/or any of the
Retailers recruited by Wholesaler. Wholesaler and Agency shall permit
appropriate federal and state insurance and other regulatory authorities to
audit their records and shall furnish the foregoing authorities with any
information which such authorities may request in order to ascertain whether
Wholesaler or Agency is complying with all applicable laws and/or regulations.
Wholesaler and Agency agree to cooperate with Insurer in resolving all customer
complaints with respect to the Policies, Wholesaler, Agency or any Retailer.
12. PROSPECTUSES, SALES PROMOTION MATERIAL AND ADVERTISING
Wholesaler shall be provided, without any expense to Wholesaler, with
prospectuses relating to the Policies ("Prospectuses") and such other material
as Distributor determines to be necessary or desirable for use in connection
with sales of the Policies or the recruitment of Retailers. No materials or any
advertising relating to the recruitment of Retailers, or the Policies shall be
used by Wholesaler unless the specific item has been approved in writing by
Distributor prior to such use. In addition, Wholesaler shall not print, publish
or distribute any advertisement, circular or any document relating to
<PAGE>
Insurer, Distributor or the Policies unless such advertisement, circular, or
document shall have been approved in writing by Insurer and Distributor prior to
such use. No representations in connection with the recruitment of Retailers,
or the sale of the Policies, other than those contained in the currently
effective registration statements and Prospectuses for the Policies filed with
the SEC, or in the aforesaid approved materials, shall be made by Wholesaler.
Wholesaler shall only recruit Retailers who are licensed in states where
Policies have been approved by state authorities. Upon termination of this
Agreement, all Prospectuses, sales promotion material, advertising, circulars,
and documents relating to the recruitment of Retailers, or the sales of the
Policies shall be promptly turned over to Insurer free from any claim or
retention of rights by the Wholesaler.
13. BOOKS AND RECORDS
Wholesaler shall maintain the books, accounts, and records as required by
applicable laws and regulations. The books, accounts and records of Wholesaler
shall clearly and accurately disclose the nature and details of Wholesaler's
activities related hereto. Wholesaler shall keep confidential all information
obtained pursuant to this Agreement (including, without limitation, names of
purchasers of Policies) and shall disclose such information only if Insurer has
authorized such disclosure in writing, or if such disclosure is expressly
required by applicable federal or state authorities. Distributor shall have
access to all books, accounts and records of Wholesaler pertaining to the
Policies.
14. RIGHT OF OFFSET, LIABILITY OF WHOLESALER, AND LEGAL PROCEEDINGS
Wholesaler hereby authorizes Insurer to set off from all amounts otherwise
payable to Wholesaler all liabilities of Wholesaler or Retailers to Insurer.
Wholesaler shall be jointly and severally liable with Retailers for the payment
of all monies due to Insurer which may arise out of this Agreement or any other
agreement between Wholesaler, Retailer and Insurer including, but not limited
to, any liability for any chargebacks or for any amounts advanced by or
otherwise due Insurer hereunder. The determination of the amount of any
liabilities shall be at the sole discretion of Insurer. The parties agree
Insurer retains the absolute and unilateral right to settle and resolve all
claims or causes of action, in its sole discretion, raised or asserted by any
person concerning the actions of Wholesaler or Retailers. Wholesaler's joint
and several liability shall not be contingent on input by Wholesaler in any such
settlements or resolutions. A first lien is hereby reserved to Insurer upon any
sums due to Wholesaler from Insurer for the satisfaction of any liability
arising pursuant to this Agreement. Insurer and Distributor do not waive any of
its other rights to pursue collection of any indebtedness owed by Wholesaler or
Retailers to Insurer. In the event Insurer initiates legal action to collect any
indebtedness of Wholesaler or Retailers, or their agents, Wholesaler shall
reimburse Insurer for reasonable attorney fees and expenses in connection
therewith. As used in this Section 14, "Insurer" shall be deemed to refer to,
and shall include, all affiliates of Insurer.
<PAGE>
15. INDEMNIFICATION
Insurer and Distributor hereby agrees to indemnify and hold harmless Agency,
Wholesaler and each of its affiliates, officers or directors against any losses,
expenses (including reasonable attorneys' fees), claims, damages or liabilities
to which Agency, Wholesaler or such affiliates, officers or directors becomes
subject insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon Insurer's performance,
non-performance or breach of this Agreement, or are based upon any untrue
statement contained in any registration statement (or any post-effective
amendment thereof) or in the Prospectus or any amendment or supplement to the
Prospectus.
Wholesaler and Agency hereby agree, jointly and severally, to indemnify and hold
harmless Insurer and Distributor and each of their current and former
affiliates, directors and officers and each person, if any, who controls or has
controlled Insurer or Distributor within the meaning of the federal securities
laws, against any losses, expenses (including reasonable attorneys' fees),
claims (including, but not limited to, claims for commissions or other
compensation), damages or liabilities to which Insurer and Distributor and any
such affiliates, director or officer or controlling person may become subject
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon Wholesaler's or Retailer's recruited by
Wholesaler, performance, non-performance, or breach of this Agreement or any
other agreement between Wholesaler, Retailer and Insurer including, but not
limited to, any unauthorized use of sales materials, any misrepresentations, or
any sales practices concerning the Policies.
16. INTEREST
Any unpaid obligation of Wholesaler to Insurer or Distributor under this
Agreement shall accrue interest at the lesser of the rate of fifteen percent per
annum, or the maximum interest rate otherwise permitted by applicable law.
17. LIMITATIONS
Nothing in this Agreement shall be construed as authorizing Wholesaler to incur
any indebtedness on behalf of Insurer or Distributor or any of its affiliates.
No party other than Insurer and Distributor shall have the authority on behalf
of Insurer or Distributor to enter into any selling agreement, or to make,
alter, waive or discharge any policy, contract, or certificate issued by
Insurer, to waive any forfeiture or to grant, permit, nor extend the time for
making any payments nor to guarantee earnings or rates, nor to alter the forms
which Insurer may prescribe or substitute other forms in place of those
prescribed by Insurer, nor to enter into any proceeding in a court of law or
before a regulatory agency in the name of or on behalf of Insurer.
<PAGE>
18. INDEPENDENT CONTRACTORS
Wholesaler, Agency and Retailers are independent contractors with respect to
Insurer and Distributor. Nothing contained within this Agreement shall be
construed as creating a partnership between the parties hereto. Wholesaler,
Agency and their respective agents, representatives, and employees shall not at
any time hold themselves out to the public to be employees of Insurer or
Distributor.
19. NOTICES
All notices or communications shall be sent to the address shown below or to
such other address as the party may request by giving written notice to the
other parties:
Insurer:
American Equity Investment Life Insurance Company
Suite 440
5000 Westown Parkway
West Des Moines, Iowa 50266
Distributor:
EquiTrust Marketing Services, Inc.
5400 University Avenue
West Des Moines IA 50266
Wholesaler:
(b) For purpose of communications pertaining to compliance and
supervision, Wholesaler hereby designates the following person and address to
receive such communications and notices at the following address:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Wholesaler covenants to promptly notify Insurer and Distributor of any change in
such designated person or address.
<PAGE>
20. ENTIRE AGREEMENT
This Agreement is the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings among such parties with respect to such subject
matter. No course of dealing, course of performance and no parole evidence of
any nature shall be used to supplement or modify any terms hereof, provided,
however, any obligation of Wholesaler to Insurer or any of its affiliates
pursuant to a prior agreement of any type shall continue as an obligation
thereunder.
21. SEVERABILITY
Any provision of this Agreement which is found to be invalid, void or illegal
shall in no way affect, impair or invalidate any other provision hereof, and
such other provisions shall remain in full force and effect.
22. AMENDMENT OF AGREEMENT
Insurer and Distributor reserve the right to amend this Agreement at any time,
and the receipt of compensation on any Policy written by any Retailer recruited
by Wholesaler after notice of any such amendment has been sent to Wholesaler
shall constitute the Wholesaler's agreement to any such amendment.
23. ASSIGNMENT
This Agreement may not be assigned except upon the written consent of all
parties; provided, however, that the rights, obligations, duties and
responsibilities of Distributor hereunder may be assigned to a properly
qualified affiliate of Insurer upon the written consent of Insurer and
Distributor.
24. WAIVER
Failure of any party to insist upon strict compliance with any of the conditions
of this Agreement shall not be construed as a waiver of any of the conditions,
but the same shall remain in full force and effect. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute a waiver of
any other provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver.
25. BINDING EFFECT
This Agreement shall be binding on and shall inure to the benefit of the parties
to hereto and their respective successors and assigns; provided that Wholesaler
may not assign this Agreement or any rights or obligations hereunder without the
prior written consent of Insurer.
<PAGE>
26. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the laws of
the state of Iowa.
27. TERMINATION
This Agreement may be terminated, without cause, by any party upon thirty (30)
days prior written notice; and may be terminated for failure to perform
satisfactorily or other cause by any party immediately; and shall be terminated
if Insurer or Wholesaler shall cease to be broker-dealers, or a registered
representative of such a registered broker-dealer, under the Exchange Act or
members in good standing with the NASD. Without limiting the foregoing, Insurer
or Distributor may terminate this Agreement if it is determined by Insurer or
Distributor, in their sole and absolute discretion, that Wholesaler is not
adequately recruiting Retailers or promoting or providing services to facilitate
the solicitations for and sales of the Policies. Upon termination of this
Agreement, the terms of Sections 8, 11, 12, 13,14, 15, 16, 17 and 26 shall
survive and be binding upon the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
INSURER:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
DISTRIBUTOR:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
WHOLESALER:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
AGENCY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT A
THE POLICIES
American Equity Life Annuity Account
American Equity Life Variable Account
<PAGE>
EXHIBIT B
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
[INSERT BROKER/DEALER].
AND
[INSERT INSURANCE AGENCY]
This Administrative Services Agreement, made as of the _____ day
of __________, 199___, by and between ___________________. ("Broker/Dealer"), a
corporation organized and existing under the laws of the State of ___________,
and _________________________. ("Insurance Agency"), a corporation organized and
existing under the laws of the State of ______.
WITNESSETH:
WHEREAS, Broker/Dealer is a broker/dealer registered with the
Securities and Exchange Commission ("SEC");
WHEREAS, Broker/Dealer desires to market variable insurance
product in (_______);
WHEREAS; variable insurance products may be sold in (_______) only
by persons that are licensed insurance agencies;
WHEREAS; (________) imposes requirements relating to domestic
incorporation of insurance agencies that Broker/Dealer cannot satisfy;
WHEREAS; Insurance Agency is a licensed insurance agency and is
associated with Broker/Dealer through stock ownership or contractual
arrangement; and
WHEREAS; Broker/Dealer and Insurance Agency desire to enter into
an arrangement for the offer and sale of variable insurance products through
common employees and representatives of Broker/Dealer and Insurance Agency that
complies with the terms and conditions of the First of America Brokerage
Service, Inc. no-action letter issued by the SEC staff (pub. avail Sept. 28,
1995) so that neither Insurance Agency nor its unregistered employees (defined
below) will be required to register separately with the SEC as broker/dealers
pursuant to Section 15(b) of the Securities Exchange Act of 1934 (the "1934
Act");
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties set forth below, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DUAL REPRESENTATIVES. Individuals who are registered principals
or representatives of Broker/Dealer and licensed insurance agents associated
with Insurance Agency.
<PAGE>
1.2 EFFECTIVE DATE. The date as of which this Agreement is executed.
1.3 UNREGISTERED EMPLOYEES. Individuals associated with Broker/Dealer
or Insurance Agency that do not hold all of the required registrations, licenses
and qualifications to sell Variable Products.
1.4 VARIABLE PRODUCTS. The variable life insurance policies and
variable annuity contracts offered from time to time by Broker/Dealer and
Insurance Agency in (__________).
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 ORGANIZATION AND GOOD STANDING. Each party hereto represents and
warrants that it is a corporation duly organized, validly existing and in good
standing under the laws of that jurisdiction set forth on page one (1) of this
Agreement; has all requisite corporate power to carry on its business as it is
now being conducted and is qualified to do business in each jurisdiction in
which such qualification is necessary under applicable law.
2.2 REGISTRATION OF BROKER/DEALER. Broker/Dealer represents and
warrants that, at all times when performing its functions and fulfilling its
obligations under this Agreement, it is or will be registered as a broker/dealer
with the SEC and in each state or other jurisdiction in which Broker/Dealer
intends to perform its functions and fulfill its obligations hereunder, if
required, and is or will be a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD").
2.3 LICENSING AND APPOINTMENT OF INSURANCE AGENCY. Insurance Agency
represents and warrants that, at all times when performing its functions and
fulfilling its obligations under this Agreement, it is or will be: (a) licensed
to sell Variable Products in each state or other jurisdiction in which Insurance
Agency intends to perform its functions and fulfill its obligations hereunder;
and (b) appointed by the insurance company issuing the Variable Products.
2.4 AUTHORIZATION. each party hereto represents and warrants that the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate action, and when so executed and delivered this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
2.5 NO CONFLICTS. Each party hereto represents and warrants that the
consummation of the transactions contemplated herein, and the fulfillment of the
terms of this Agreement, will not conflict with, result in any breach of any of
the terms and provisions of, or constitute (with or without notice or lapse of
time) a default under, the articles of incorporation or bylaws of such party, or
any indenture, agreement, mortgage, deed of trust, or other instrument to which
such party is a party or by which it is bound, or violate any law, or, to the
best of such party's knowledge, any order, rule or regulation applicable to such
party of any court or of any federal or state regulatory body, administrative
agency or any other governmental instrumental having jurisdiction over such
party or any of its properties.
ARTICLE 3
RESPONSIBILITIES AND OBLIGATIONS OF BROKER/DEALER
3.1 REGISTRATION OF DUAL REPRESENTATIVES: ASSOCIATED PERSONS.
Broker/Dealer shall ensure that each Dual Representative will be registered and
qualified as necessary with the NASD and any appropriate state regulatory
authority, and will be deemed an associated person of Broker/Dealer within the
meaning of Section 3(a)(18) of the 1934 Act.
<PAGE>
3.2 TRAINING AND SUPERVISION. Broker/Dealer, through its designated
principals or members of its staff authorized to supervise employees, shall
train, supervise, control, and assume responsibility for all of the securities
activities of the Dual Representatives in connection with the offer and sale of
Variable Products.
3.3 CONDUCT MANUALS TO UNREGISTERED EMPLOYEES. Broker/Dealer shall
provide conduct manuals to be given to Unregistered Employees of Insurance
Agency that specify the limitations on their permissible activities, as set
forth below in Section 4.4. Insurance Agency shall provide such conduct manuals
to its Unregistered Employees. A form of such manual is attached hereto as
EXHIBIT A.
3.4 SUPERVISORY PROCEDURES TO DUAL REPRESENTATIVES. Broker/Dealer
shall require Dual Representatives to adhere to the policies and procedures
contained in Broker/Dealer's written Supervisory Procedures for registered
representatives, and Broker/Dealer shall monitor their compliance in this
regard.
3.5 COMPLIANCE WITH APPLICABLE LAW. Broker/Dealer shall comply, and
shall require that the Dual Representatives comply, with all applicable
statutory and regulatory requirements of the federal and state securities laws,
rules, regulations and regulatory policies and all applicable NASD rules and
regulatory policies.
3.6 ADVERTISEMENTS AND PROMOTIONAL MATERIALS. Neither Broker/Dealer
nor Insurance Agency shall use any advertisements or promotional materials
unless a designated principal of Broker/Dealer shall have approved such
advertisements and promotional materials prior to their distribution to ensure
that they are in compliance with federal and state securities laws and NASD
rules. Broker/Dealer shall assume full responsibility for all such
advertisements and promotional materials, and all such materials shall be deemed
to be Broker/Dealer's materials.
3.7 MAINTENANCE OF BOOKS AND RECORDS. Broker/Dealer shall maintain
books and records relating to transactions in Variable Products in its home
office in _________________> Where state insurance law mandates, duplicate
books and records relating to the sales of Variable Products may be maintained
by Insurance Agency, as stated below in Section 4.6. Such books and records
will be deemed books and records of Broker/Dealer and will be readily accessible
for examination by the SEC, the NASD, and other self-regulatory organizations of
which Broker/Dealer may become a member and other governmental authorities.
ARTICLE 4
RESPONSIBILITIES AND OBLIGATIONS OF INSURANCE AGENCY
4.1 ASSOCIATED PERSON. Insurance Agency shall be deemed an associated
person of Broker/Dealer within the meaning of Section 3(a)(18) of the 1934 Act.
4.2 DUAL REPRESENTATIVES. All securities services in connection with
the sale of Variable Products will be provided by the Insurance Agency only
through the Dual Representatives. Insurance Agency shall ensure that the Dual
Representatives will effect securities transactions and provide securities
services related to variable insurance products.
4.3 SUSPENSION. Insurance Agency shall terminate or suspend from all
Variable Products activities conducted by Insurance Agency any Dual
Representative whom the SEC, the NASD or any other self-regulatory organization
bars or suspends from association with Broker/Dealer or any other broker/dealer.
4.4 UNREGISTERED EMPLOYEES. Insurance Agency shall ensure that its
Unregistered Employees shall not: (a) engage in any securities activities; or
(b) receive any compensation based on transactions in securities or the
provision of securities advice. Insurance Agency shall further ensure that
<PAGE>
its Unregistered Employees will not recommend any security, give investment
advice with respect to securities, discuss the merits of any security or type of
security, or handle any question that might require familiarity with the
securities industry. Insurance Agency shall require all Unregistered Employees
to refer all Variable Products-related questions to Dual Representatives.
Insurance Agency shall further ensure that Unregistered Employees will not
handle or maintain customer funds in connection with securities transactions
other than providing clerical or ministerial assistance. These obligations
concerning Unregistered Employees are included in Broker/Dealer's conduct manual
for Unregistered Employees, which will be provided to Unregistered Employees of
Insurance Agency, as stated in Sections 3.3 and 4.5, and is attached hereto as
Exhibit A.
4.5 MONITORING UNREGISTERED EMPLOYEES. Insurance Agency shall monitor
the activities of its Unregistered Employees, and ensure their compliance with
the limitations on their permissible activities as set forth in Broker/Dealer's
conduct manual for Unregistered Employees.
4.6 MAINTENANCE OF BOOKS AND RECORDS. Where state insurance law
mandates, duplicates of those books and records maintained by Broker/Dealer
relating to the sales of Variable Products will be maintained by Insurance
Agency, although such books and records will be deemed books and records will be
deemed books and records of Broker/Dealer. Insurance Agency shall ensure that
such books and records will be readily accessible for examination by the SEC,
and NASD, any other self-regulatory organization of which Broker/Dealer may
become a member, and other governmental authorities.
ARTICLE 5
PAYMENTS FOR VARIABLE PRODUCTS
5.1 CUSTOMER CHECKS: HANDLING CUSTOMER FUNDS. Broker/Dealer and
Insurance Agency shall take all necessary and appropriate steps to ensure that
the following procedures are observed:
(a) Initial checks and applications for the purchase of Variable
Products shall be forwarded by Broker/Dealer by noon of the
following business day to the insurance company issuing the
Variable Products and shall bear the initials of a principal of
the Broker/Dealer indicating that the application has been
reviewed by such principal for suitability, completeness and
accuracy;
(b) any subsequent payments will be sent directly by the customer to
the insurance company issuing the Variable Products;
(c) if any checks or applications are received by Broker/Dealer or
Insurance Agency, such checks and applications will be forwarded
to the insurance company issuing the Variable Products by
Broker/Dealer, or its Dual Representatives, by noon of the next
business day following such receipt;
(d) if the insurance company issuing the Variable Products receives
customer checks and applications directly, Broker/Dealer shall
request from such insurance company copies necessary to make any
required suitability determinations; and
(e) only Dual Representatives (and no Unregistered Employees) will:
(i) handle checks routed through Broker/Dealer and Insurance
Agency; and (ii) receive or handle customer funds in connection
with the sale of Variable Products.
Neither Broker/Dealer, Insurance Agency, nor any of their employees shall cash
premium checks, or use any portion of a premium check for a commission, if any,
or for any other purpose other than as a premium.
<PAGE>
ARTICLE 6
COMPENSATION
6.1 COMPENSATION. (INSERT COMPENSATION TERMS OR REFER TO SCHEDULE.)
Insurance Agency shall pay to Broker/Dealer as compensation for Broker/Dealer's
services hereunder one hundred (100) percent of the compensation it receives for
the sale of Variable Products, net of any payments made to Dual Representatives,
so that such compensation can be included in the revenues of the Broker/Dealer
for purposes of complying with applicable laws, rules, regulations, and
regulatory policies. Any compensation paid to Dual Representatives for
securities transactions shall be determined solely by Broker/Dealer and such
payments shall be paid as directed by, and on behalf of, Broker/Dealer and shall
be included in the revenues of the Broker/Dealer.
ARTICLE 7
GENERAL PROVISIONS
7.1 TERM OF AGREEMENT: TERMINATION. This Agreement will become
effective as of the Effective Date and will remain in effect for a period of one
year, and will automatically continue in effect for one-year periods thereafter.
This Agreement may be terminated earlier by agreement in writing by all the
parties hereto. After termination takes effect, Insurance Agency shall not hold
itself out as being authorized or able to sell Variable Products or as being
associated with Broker/Dealer. Furthermore, upon termination of this Agreement,
all authorizations, rights, and obligations shall cease except: (a) the
agreements contained in Sections 4.6 and 7.10 hereof; and (b) the obligation to
settle accounts hereunder.
7.2 ASSIGNMENT SUCCESSION. This Agreement will not be assignable by
any party hereto except that each party may assign its rights (but not its
obligations) hereunder to any affiliated company, provided that such company is
properly licensed and registered. This Agreement will insure to the benefit of
and be binding upon the parties and each of their successors.
7.3 ENTIRE AGREEMENT: MODIFICATION. This Agreement contains the
entire agreement and understanding of the parties with respect to the subject
matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between the parties, and no waiver,
modification or change of any of its provisions will be valid unless in writing
and signed by the parties hereto, or in the case of a waiver, by the party
waiving compliance.
7.4 WAIVER OF BREACH. Failure of any party to enforce any provision
of this Agreement will not constitute a course of conduct or waiver in the
future of the right to enforce the same or any other provision.
7.5 SEVERABILITY: PARTIAL INVALIDITY. The parties to this Agreement
desire and intend that the terms and conditions of this Agreement be enforced to
the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. The parties agree
specifically that, if any particular term or condition of this Agreement is
adjudicated, or becomes by operation or law, invalid or unenforceable, this
Agreement will be deemed amended to delete the portion that is adjudicated, or
that becomes by operation of law, invalid or unenforceable, the deletion or
reduction to apply only with respect to the operation of the term or condition,
and the remainder of the Agreement to remain in full force and effect. A
deletion or reduction resulting from any adjudication will apply only with
respect to the operation of that term in the particular jurisdiction in which
the adjudication is made.
<PAGE>
7.6 NOTICES. Any notice, request, demand or other communication
required or permitted hereunder will be in writing and will be delivered in one
of the following manners: by personal delivery, which will be effective on the
day so delivered; by registered or certified mail, which will be effective three
days after mailing; by telecopier, which will be effective when receipt is
acknowledged; and by courier guaranteeing next day delivery, which will be
effective on the earlier of the second business day after timely delivery to the
courier or the day of actual delivery by the courier. All notices to a party
will be sent to the following addresses or to such other address or person as
such party may designate by notice to each other party hereunder:
(a) TO BROKER/DEALER:
(b) TO INSURANCE AGENCY:
7.7 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the internal laws of the State of (__________) without regard
to the conflict of law provisions thereof.
7.8 COUNTERPARTS. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
7.9 HEADINGS. The headings in the sections of this Agreement are
inserted for convenience only and will not constitute a part hereof.
7.10 COMPLAINTS AND INVESTIGATIONS. The parties will notify each other
promptly if either receives any customer complaint or notice of any regulatory
investigation or proceeding or judicial proceeding with respect to their
respective activities or the activities of any Dual Representative. The parties
will cooperate fully in investigating any such complaint and in responding to
any such proceeding.
IN WITNESS HEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date and year first above written.
[Broker/Dealer].
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[Insurance Agency]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT A
CONDUCT MANUAL
CONDUCT MANUAL RELATING TO
ACTIVITIES OF UNREGISTERED EMPLOYEES OF
[INSURANCE AGENCY]
IN CONNECTION WITH THE SALE OF VARIABLE INSURANCE PRODUCTS
Since you are not licensed or qualified to sell variable insurance
products ("Variable Products"), you must be very careful not to perform any
activities or provide any information to customers that could confuse a customer
as to your role in the sale of Variable Products. Under federal and state
securities laws, and state insurance laws, only properly licensed registered,
and qualified persons may solicit customers or recommend or discuss insurance or
investment products with a customer.
In sum, this means that you should provide only "clerical" and
"ministerial" services. The permissible activities for employees of
______________________. ("Insurance Agency") who do not hold all the required
securities registrations and insurance licenses (hereinafter "Unregistered
Employees") shall be limited to:
(a) referring prospective customers to an individual who holds
all the requisite insurance and securities qualifications
(a "Dual Representative");
(b) arranging an appointment with or taking a message for a
Dual Representative if a Dual Representative is absent or
unavailable;
(c) referring telephone calls and other written and oral
communications to a Dual Representative; and
(d) referring all Variable Products-related questions to a Dual
Representative.
When engaging in any of the foregoing permissible activities,
Unregistered Employees shall limit his or her discussion of the Variable
Products to statements advising customers of the availability of information
about the Variable Products from the broker/dealer affiliated with Insurance
Agency, i.e., _________________-, and the referral of such customer to a Dual
Representative. Such Unregistered Employees shall not offer investment advice,
make recommendations, discuss the features, merits, investment options, or
suitability of any Variable Product or handle any question that might require
familiarity with the securities industry. Such Unregistered Employees shall not
handle or maintain customer funds in connection with securities transactions,
handle or maintain securities, or have any involvement in securities
transactions other than providing clerical or ministerial advice. Nothing in
this Conduct Manual shall limit the ability of Insurance Agency or its employees
to provide administrative or clerical services to _________________________.
<PAGE>
EXHIBIT C
COMPENSATION
<PAGE>
APPLICATION
FOR VARIABLE
UNIVERSAL LIFE
INSURANCE
AMERICAN EQUITY
INVESTMENT LIFE
INSURANCE COMPANY
ADMINISTRATIVE OFFICE:
PO BOX 9310
DES MOINES, IA 50306-9310
Home Office:
5000 Westown Parkway
West Des Moines, Iowa 50266
(Please direct all correspondence to the Administrative Office)
435-120A(07-98)
<PAGE>
CHECK LIST
/ / PROSPECTUS
----------
Did you give the applicant a prospectus?
/ / NOTICE
------
Did you detach Notice to Applicant section and give it to the Applicant?
/ / ANSWER ALL QUESTIONS
--------------------
Did you answer all questions and provide details as requested?
/ / DID YOU HAVE THE APPLICANT COMPLETE AND SIGN THE SUITABILITY QUESTIONNAIRE?
---------------------------------------------------------------------------
/ / SIGNATURES
----------
Are all forms properly signed?
- Proposed Insured
- Applicant, Owner(s), if other than Proposed Insured (where required)
- Spouse, if proposed for coverage
- Parent or court appointed legal guardian for child below age 15
- Agent/Broker/Registered Representative
/ / BLOOD CONSENT FORMS
-------------------
Did you get the appropriate required blood consent form signed and sent to
us (if required)?
See agent packet for list of required blood consent forms.
/ / REPLACEMENT FORMS
-----------------
Is existing coverage being replaced? If so, did you get required
replacement forms signed? Did you leave one copy with the applicant (if
required)?
/ / REQUIRED LICENSE
----------------
Do you have required agent license for the state in which the application
is signed? Have you been appointed as a registered representative to market
variable products for the broker-dealer?
/ / EFT AUTHORIZATION
-----------------
Did the applicant choose Electronic Funds Transfer (EFT)? If so, did you
fill out the EFT form and send it and a voided check to us?
/ / TEMPORARY INSURANCE AGREEMENT
-----------------------------
Have you explained the limits described in the Temporary Life Insurance
Agreement?
/ / CHECK
-----
Please enclose a check payable to American Equity Investment Life
Insurance Company.
/ / AGENT/BROKER/REGISTERED REPRESENTATIVE'S CERTIFICATE
----------------------------------------------------
Complete the certificate following the application.
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
SECTION A - APPLICANT INFORMATION
PROPOSED PRIMARY INSURED
------------------------
COMPLETE THIS SECTION FOR ALL POLICIES:
1. Insured Date of Birth Age
------------------------------------------------- ----------------------- --------------------------
2. / / Male / / Female State of Birth Social Sec. No. (SSN) State/Co.Code
-------------------- ---------------- ---------------
3. Drivers License No. (if different than SSN) Drivers License State
-------------------------------------- ------------------
4. Insured's Current Address
-------------------------------------------------------------------------------------------------
5. Phone Number Home Business
------------------------------------- ----------------------
6. Best time to reach by phone AM PM
---------------------- ----------------------
7. Occupation
----------------------------------------------------------------------------------------------------------------
8. Duties
--------------------------------------------------------------------------------------------------------------------
9. Employer Business Address
------------------------------------------------ --------------------------------------------------
10. Do you have any other occupation?
-----------------------------------------------------------------------------------------
11. Any change in occupation contemplated?
--------------------------------------------
12. Height (ft) (in) Weight
------------- ------------ -----------
13. Second proposed insured's occupation (if applying for coverage)
-----------------------------------------------------------
PAYOR NAME
---------------------------------------------------------------------------------------------------------------------
BILLING ADDRESS
----------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
SECTION B - POLICY INFORMATION
COMPLETE THIS SECTION FOR ALL POLICIES:
Policy Number (Home Office use only)
---------------------
-------------------------------------------------------------------------------------------------------------------------------
1. Life Insurance Plan Face Amount
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
1a. Death Benefit Option................................... / / A (increasing) / / B (level)
2. Tobacco User................................................ / / Yes / / No
3. Riders
/ / Other Adult $ Tobacco User................ / / Yes / / No
---------------
/ / Children's Term $
--------------
/ / Guaranteed Insurability Option $
-----------------
/ / Cost of Living Increase
/ / Waiver of Charges
/ / Other
4. Is this application for an increase on an existing
Variable Universal Life policy?............................ / / Yes / / No
Policy Number
------------------------
Amount of increase $
-----------------
5. Premium Payable.................. / / Annually / / Semi-annually / / Quarterly / / EFT / / Other
Billed Premium Amount $ EFT Start Date
---------------------- --------------
6. Submitted Premium $ Transfer of Funds $
(not including transfer)--------------------- -------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
REGISTERED REPRESENTATIVE INFORMATION
--------------------------------------------------- ----------------------------- -----------------------------------------
Registered Representative Name Phone Firm Name
-------------------------------- -------------------------------------------------------------------------------------------
Branch or Agency Number Branch or Agency Address, City, State, Zip
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
SECTION C - EXISTING LIFE INSURANCE
COMPLETE THIS SECTION FOR ALL POLICIES:
1. Life Insurance In Force (if none, state "none")
-------------------------------------------------------------------------------------------------------------------------------
Company Amount
-------------------------------------------------------------------------------------------------------------------------------
2. Is the policy applied for replacing or likely to replace any existing life or annuity plan? / / Yes / / No
If yes, indicate the amount, company name, give termination date and complete appropriate replacement forms.
-----------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
SECTION D - OTHER PROPOSED INSURED'S INFORMATION
COMPLETE THIS SECTION IF OTHERS ARE TO BE INCLUDED FOR COVERAGE:
1. Names of all other persons proposed for insurance.
-------------------------------------------------------------------------------------------------------------------------------
LAST FIRST MIDDLE SEX RELATIONSHIP DATE OF AGE STATE OF HEIGHT WEIGHT AMOUNT OF
INITIAL BIRTH BIRTH LIFE INSURANCE
IN FORCE
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
YES NO
2. Are all children listed the natural or legally adopted children of the Proposed Insured or Spouse? / / / /
3. Has each child eligible for coverage been included? / / / /
4. Is the Proposed Insured's residence the permanent residence of all children listed? / / / /
- - ------------------------------------------------------------------------------------------------------------------------------------
SECTION E - OWNER AND BENEFICIARY INFORMATION
COMPLETE THIS SECTION FOR ALL POLICIES:
I. Owner (if other than Proposed Insured)
1. Ownership to be vested in Social Security Number/Tax I.D. Number
Name
---------------------------------------------------------- --------------------------------
Address
-----------------------------------------------------------------------------------------
2. Contingent Owner, if any Social Security Number/Tax I.D. Number
Name
---------------------------------------------------------- --------------------------------
Address
-----------------------------------------------------------------------------------------
II. Beneficiary as to proceeds at death of insured
Survivors within a class (primary or secondary) entitled to the proceeds shall share equally unless otherwise specified.
1. Primary Beneficiary Name
------------------------------------------------------------------------
Relationship Social Security Number
-------------------------------------- ----------------------
Address
-----------------------------------------------------------------------------------------
2. Secondary Beneficiary Name
----------------------------------------------------------------------
Relationship Social Security Number
-------------------------------------- ----------------------
Address
-----------------------------------------------------------------------------------------
/ / Children born to or adopted by the Proposed Insured and ______________ (including any named above). The
Beneficiary as to proceeds at death of any person other than the Insured shall be as stated in the applicable
benefit provision.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
SECTION F - MEDICAL HISTORY
HAS ANY PERSON PROPOSED FOR COVERAGE EVER HAD OR BEEN TOLD THEY HAD:
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Epilepsy, fainting spells, convulsions, nervous Yes / / No / / INDICATE QUESTION # - IDENTIFY PERSON
or mental condition, stroke, paralysis or any Circle specific condition, give date
disorder of the brain or nervous system? and severity of symptoms, type of
surgery, remaining effects, names &
addresses of physicians & hospitals.
- - -------------------------------------------------------------------------------
2. Heart attack, heart murmur, high blood Yes / / No / /
pressure, shortness of breath, pain or pressure
in the chest, palpitation, or any disorder of
the heart, blood or blood vessels?
- - -------------------------------------------------------------------------------
3. Tuberculosis, asthma, spitting of blood, or Yes / / No / /
any disorder of the lungs, bronchial tubes,
throat or respiratory system?
- - -------------------------------------------------------------------------------
4. Ulcer, indigestion, colitis, chronic diarrhea, Yes / / No / /
hepatitis, gallstones, hernia, passing blood, or
any disorder of the stomach, intestines, rectum,
appendix, gallbladder or liver?
- - -------------------------------------------------------------------------------
5. Nephritis, sugar, albumin, pus or blood in the Yes / / No / /
urine, syphilis, kidney stone, or any disorder of
the kidneys, urinary system or female or male
organs including the prostate?
- - -------------------------------------------------------------------------------
6. Diabetes, gout, or any disorder of the thyroid or Yes / / No / /
other glands?
- - -------------------------------------------------------------------------------
7. Immune system disorder? Yes / / No / /
- - -------------------------------------------------------------------------------
8. Rheumatic fever, arthritis, back trouble, or any Yes / / No / /
disorder of the joints, muscles or bones?
- - -------------------------------------------------------------------------------
9. Any disorder of the eyes, ears or skin? Yes / / No / /
- - -------------------------------------------------------------------------------
10. Cancer, tumor or lymph node enlargement? Yes / / No / /
- - -------------------------------------------------------------------------------
11. Any physical deformity or defect? Yes / / No / /
- - -------------------------------------------------------------------------------
12. Any injury, disease, recurrent infection, Yes / / No / /
condition or disorder not indicated above?
- - -------------------------------------------------------------------------------
HAS ANY PERSON PROPOSED FOR COVERAGE:
- - -------------------------------------------------------------------------------
13. Gained or lost weight in the past year? (If yes, Yes / / No / /
give pounds gained or lost and reason)
- - -------------------------------------------------------------------------------
14. Used drugs for high blood pressure or presently Yes / / No / /
taking medication of any type? (If yes,
show drugs, dosage and duration taken)
- - -------------------------------------------------------------------------------
15. Been advised to have or now contemplate Yes / / No / /
an operation, surgical procedure or biopsy?
- - --------------------------------------------------------------------------------
16. Used nicotine or tobacco in any form within Yes / / No / /
the last 3 years?
IF YES:
/ / Current use: Form and amount/day ____________
/ / Not current but within past 3 years:
Date of most recent use _____________________
Form and amount/day _________________________
- - -------------------------------------------------------------------------------
DURING THE PAST FIVE YEARS HAS ANY PERSON PROPOSED FOR
COVERAGE:
- - -------------------------------------------------------------------------------
17. Been examined or had a physical check-up? Yes / / No / /
- - -------------------------------------------------------------------------------
18. Had an x-ray, electrocardiogram, blood Yes / / No / /
studies, any other laboratory test or study?
- - -------------------------------------------------------------------------------------------------------------------
19. Give details to "yes" answers to questions 17 & 18 regarding check-ups, electrocardiograms, x-rays, blood
studies or other tests.
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUESTION NAME WHAT TEST WAS DATE REASON FOR TEST WHAT WAS FOUND NAME AND ADDRESS OF
# DONE DOCTORS/HOSPITALS.
<S> <C> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
SECTION G - GENERAL QUESTIONS
HAS ANY PERSON PROPOSED FOR COVERAGE:
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Made any aerial flights in the past two years or Yes / / No / / INDICATE QUESTION # - IDENTIFY PERSON
contemplate such flights in the future, other than Give Details
as a civilian passenger? (If yes, complete Section K)
- - -----------------------------------------------------------------------------
2. Volunteered for military service, been alerted, or Yes / / No / /
ordered to report for active duty? (If currently
in active military service or a reserve
component of the armed service or national guard,
complete Section L)
- - -----------------------------------------------------------------------------
3. Engaged in, or intend to engage in hazardous sports, Yes / / No / /
or travel outside the U.S. and Canada? (If yes for
Hazardous Sports, complete Section M)
- - -----------------------------------------------------------------------------
4. Been treated for alcoholism or any drug habit; Yes / / No / /
used or taken narcotics, marijuana, LSD,
amphetamines or barbiturates on a regular basis?
(If yes, complete Section N)
- - -----------------------------------------------------------------------------
5. Been rejected for or received a Medical Discharge Yes / / No / /
or Disability Benefits from Military Service?
- - -----------------------------------------------------------------------------
6. A pending application for or reinstatement Yes / / No / /
of insurance in this or any other company?
- - -----------------------------------------------------------------------------
7. Ever had an application for insurance or Yes / / No / /
reinstatement declined, postponed, rated
up or limited?
- - -----------------------------------------------------------------------------
8. Had any case of stroke, heart attack, Yes / / No / /
cancer, diabetes, insanity, suicide,
tuberculosis or inheritable disorders
in their family?
- - -----------------------------------------------------------------------------
9. Applied for a pension, disability or medical Yes / / No / /
expense payments from any source?
- - -----------------------------------------------------------------------------
10. Had a moving traffic violation in the past Yes / / No / /
3 years? Give the specific details of each
violation.
</TABLE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECTION H - SPECIAL REQUESTS, REMARKS AND CORRECTIONS OR ENDORSEMENTS
Unless otherwise indicated, these options apply:
I request the adjustable policy loan interest rate.
I request the Automatic Premium Loan privilege, if available.
6
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------
SECTION I - ALLOCATION OF FUNDS
<S> <C> <C>
YES NO
Did you receive the current prospectus for the contract? ....................... / / / /
Do you believe that this contract will meet your insurance needs
and financial objectives? ...................................................... / / / /
- - ----------------------------------------------------------------------------------------------
The net premium payments (as described in the prospectus) are to be allocated to the
appropriate subaccounts as follows:
</TABLE>
SUBACCOUNT ALLOCATION*
<TABLE>
<CAPTION>
<S> <C>
[EquiTrust Value Growth %
-------------------
EquiTrust High Grade Bond %
-------------------
EquiTrust High Yield Bond %
-------------------
EquiTrust Money Market %
-------------------
EquiTrust Blue Chip %
-------------------
T. Rowe Price International Stock %
-------------------
T. Rowe Price Mid-Cap Growth %
-------------------
T. Rowe Price New America Growth %
-------------------
T. Rowe Price Equity Income %
-------------------
T. Rowe Price Personal Strategy Balanced %
-------------------
Dreyfus International Equity %
-------------------
Dreyfus Small Cap Stock %
-------------------
Dreyfus Capital Appreciation %
-------------------
Dreyfus Disciplined Stock %
-------------------
Dreyfus Growth and Income %
-------------------
Declared Interest Option %]
-------------------
</TABLE>
* If any portion of a net premium is allocated to a particular subaccount,
that portion must be at least 10% on the date the allocation takes effect.
All percentage allocations must be in whole numbers (e.g. 33% can be
selected, but 33 1/3% cannot).
Net premiums will initially be allocated to the declared interest option.
When we receive a notice signed by the owner that the policy has been
received and accepted, we will transfer part or all of the accumulated value
in the declared interest option to the subaccounts in accordance with the net
premium allocation percentages shown in the application.
TRANSFER BETWEEN PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
I authorize transfers between the subaccounts upon instruction from any person by telephone. YES NO
If neither box is checked, the telephone privilege will be provided ......................... / / / /
</TABLE>
The first transfer in each policy year will be made without charge;
subsequent transfers in a policy year will be assessed a transfer charge of $25.
- - --------------------------------------------------------------------------------
7
<PAGE>
- - -------------------------------------------------------------------------------
SECTION J - SUITABILITY QUESTIONNAIRE
PLEASE COMPLETE THE FOLLOWING QUESTIONS:
The following information is to be provided by the applicant/owner:
1. Total face amount of life insurance in force is less than or equal
to $50,000
-----
$50,000-$100,000
-----
$100,001-$250,000
-----
$250,001-$500,000
-----
$500,001 or more
-----
2. Existing life insurance policies currently in force are (check all those
that apply)
Term Whole Universal Variable/Variable Universal Life
----- ----- ----- ------
Second/First to Die Other
----- -----
3. Please provide the applicant/owner's a) Annual Earnings $
-----
b) Estimated Net Worth $
-----
4. The best way to describe my investment strategy is (check those most
appropriate)
Long-term capital appreciation
-----
Income with some capital appreciation
-----
Income
-----
Liquidity and stability of principal
-----
Other (Please specify)
----- ------------------------------------------
5. Tolerance for subaccount volatility
LOW-I am willing to accept minimal volatility with the accumulated
value in the subaccounts.
-----
MEDIUM-I am willing to accept some volatility with the accumulated
value in the subaccounts.
-----
HIGH-I am willing to accept greater volatility with the accumulated
value in the subaccounts.
-----
6. YES / / The concept of a variable universal life insurance policy and
its non-guaranteed elements has been explained to my
satisfaction.
NO / /
7. What was the gross rate of return shown to you on the Variable Universal
Life illustration? %.
-----
- - -------------------------------------------------------------------------------
Applicant/Owner's Name (please print)
-------------------------------------
Applicant/Owner's Signature Date
-------------------------------- -------
Registered Representative's Signature Date
---------------------- -------
8
<PAGE>
- - -------------------------------------------------------------------------------
SECTION K - AVIATION SUPPLEMENT
PLEASE COMPLETE THE FOLLOWING QUESTIONS IF REQUIRED:
1. Total hours flown as a pilot? As a crew member?
------------ ---------
2. Date of last flight as a pilot? As a crew member?
---------- ---------
3. If pilot, give class of certificate Date of issue?
------ ------------
(Student, Private, Commercial, IFR, ATR, Other)
4. Check type of civilian aircraft currently being most frequently flown:
/ /Conventional / /Helicopter / /Jet or turbo-jet / /Turbo-prop
/ /Glider / /Other
----------------------------------
5. Are you connected in any way with any military organization?
/ /Yes / /No If yes, check below:
/ /Air Force / /Army / /Navy / /National Guard / /Reserves
/ /Other
------------------------------
Check type of aircraft currently being most frequently flown: If Navy,
is aircraft carrier based?
-----------------------------
/ /Fighter / /Bomber / /Transport / /Reconnaissance
/ /Helicopter / /Other
------------------------------
6. Do you plan to own or pilot any type of aircraft in the future?
-----
7. In the event that my aviation activity (past, present, or future) does
not permit the issuance of standard, unrestricted coverage and a choice
is available to me, I prefer a policy issued:
/ /With extra premium / /With aviation exclusion rider
8. Hours flown as pilot, crew member or as passenger having duties aboard
aircraft:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Type of flying Year Last Year Last
(List hours in each category. Before 12 Next Before 12 Next
No duplication) Last Months Year Type of Flying Last Months Year
----------------------------------------------------------------------------------------------------------------------------
As a student pilot Scheduled airline
----------------------------------------------------------------------------------------------------------------------------
Private plane Chartered, sightseeing trips
----------------------------------------------------------------------------------------------------------------------------
Full-Time company pilot Instructing students
----------------------------------------------------------------------------------------------------------------------------
Military-active duty Aerial application (crop dusting, etc.)
----------------------------------------------------------------------------------------------------------------------------
Reserve or National Guard Other (explain below)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
9. Total hours flown year before last? Last year?
-------------- -----------
10. Additional details
-------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECTION L - MILITARY SUPPLEMENT
TO BE ANSWERED BY THOSE ON ACTIVE DUTY:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. a. What Branch? 1. a. / /Coast Guard / /Marines / /Army / /Navy / /Air Force
b. What is your rank and serial number? b.
c. Primary occupation job title? c.
-------------------------------------------------------------------------------------------------------------------------------
2. a. Are you a part of any Special Forces group? 2. a.
b. Are you now, have you ever been or do you expect b.
to be on flying status? If so, complete Aviation
Supplement.
-------------------------------------------------------------------------------------------------------------------------------
3. a. When will you complete present tour of duty? 3. a.
b. Do you intend to re-enlist upon completion of b.
present tour of duty?
c. To the best of your knowledge, is an overseas c.
assignment probable in next 12 months?
If so, where do you expect to go?
-------------------------------------------------------------------------------------------------------------------------------
TO BE ANSWERED BY THOSE NOT ON ACTIVE DUTY
4. a. Have you any intention of enlisting or making 4. a.
application for military service?
If so, when and with which branch?
b. If you are in ROTC, date you expect commission? b.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
- - -------------------------------------------------------------------------------
SECTION M - HAZARDOUS SPORTS SUPPLEMENT
CHECK TYPE OF HAZARDOUS SPORT AND ANSWER QUESTIONS TO THE RIGHT:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
/ / Stock car racing 1. How many times have you participated in past 12 months?
-----------------------------------------
/ / Modified stock car racing One to two years ago? Intend to in the next 12 months?
---------------------- ------------------
/ / Drag racing 2. Date of last race?
------------------------------------------------------------------------------
/ / Sports car racing 3. Make and type of auto or other vehicle?
---------------------------------------------------------
/ / Midget racing 4. Top speed?
--------------------------------------------------------------------------------------
/ / Go-kart racing 5. Do you compete for cash prizes?
-----------------------------------------------------------------
/ / Motorcycle racing 6. Do you race only in your home town or do you compete in various localities?
---------------------
/ / Motorcycle hill climbing Give details
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
/ / Sports car rallies 7. Have you ever done or do you intend to do any other type of racing?
-----------------------------
/ / Motor boat racing Give details
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
/ / Skin diving 1. How many times have you participated in skin diving in past 12 months?
--------------------------
One to two years ago? Intend to in the next 12 months?
------------------------ ----------------
2. Date of last dive?
---------------------------
3. How deep do you usually dive? What is the deepest you have ever dived?
---------------- --------
4. Do you dive in an ocean? Lake? River?
--------------- --------------- --------------------------
5. How many years have you been skin diving?
-------------------------------------------------------
6. Any formal course of instruction? What?
------------------ -------------------------------------
------------------------------------------------------------------------------------------------
7. Briefly describe type of equipment used
---------------------------------------------------------
------------------------------------------------------------------------------------------------
8. Have you ever received pay for work done that involved diving?
----------------------------------
Give details
------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
/ / Sky diving 1. How many jumps have you made in past 12 months? One to two years ago?
---------------- ---------
Lifetime? Intend to in next 12 months?
------------- ------------------------
2. Date of last jump?
----------------------------------
3. Do you use a reserve chute when jumping?
------------------------------------
4. What is minimum height at which your chute has opened?
-------------------------------------------
5. Do you belong to a national sky diving organization? If so, what is
name of organization? ----------------------------
------------------------------------------------------------------------------
6. Class of license?
-----------------
- - ---------------------------------------------------------------------------------------------------------------------------------
/ / Any other hazardous 1. What type? Give full details
sports, avocation or --------------------------------------------------------------------
hobby
------------------------------------------------------------------------------------------------
/ / Rodeo 2. How many times have you participated in past 12 months?
-----------------------------------------
One to two years ago? Intend to in the next 12 months?
--------------------- -------------------
3. Date of last participation?
---------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- - -----------------------------------------------------------------------------------------------------------------------------------
SECTION N - ALCOHOL AND DRUG QUESTIONNAIRE
COMPLETE THIS SECTION IF REQUIRED:
ALCOHOL QUESTIONNAIRE
- - -----------------------------------------------------------------------------------------------------------------------------------
1. Degree and frequency of use at present or within one year
a. Current DAILY Use -- Number of drinks per day
/ / None / / 1-3 / / 4 / / 5 / / 6 / / 7 / / 8 or more
b. Current NON-DAILY Use
/ / Mild intoxication more than six times per year (not more than six drinks on any one occasion.)
/ / Usage less than above? Describe _____________________________________________________________________________________
/ / Usage more than above? Describe _____________________________________________________________________________________
- - -----------------------------------------------------------------------------------------------------------------------------------
2. Did you ever drink more than you do at present? If "yes," dates:
/ / Yes / / No From ____________ To ____________
- - -----------------------------------------------------------------------------------------------------------------------------------
3. Degree and frequency of past use
a. Past DAILY Use -- Number of drinks per day
/ / 1-3 / / 4 / / 5 / / 6 / / 7 / / 8 or more
b. Past NON-DAILY Use
/ / Mild intoxication more than six times per year (not more than six drinks on any one occasion.)
/ / Usage less than above? Describe _____________________________________________________________________________________
/ / Usage more than above? Describe _____________________________________________________________________________________
- - -----------------------------------------------------------------------------------------------------------------------------------
4. Have you ever stopped drinking? When? Why?
/ / Yes / / No
- - -----------------------------------------------------------------------------------------------------------------------------------
5. Have you ever stopped and When? Why?
relapsed? / / Yes / / No
- - -----------------------------------------------------------------------------------------------------------------------------------
6. Have you ever consulted a doctor or received treatment or counseling because of your alcohol use?
/ / Yes / / No
If yes, name and address of doctor, hospital or treatment center and dates:
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
7. Are you now or have you ever been a member of Alcoholics Anonymous or any similar organization?
/ / Yes / / No (If "yes," complete questions below)
- - -----------------------------------------------------------------------------------------------------------------------------------
a. Date joined? b. Presently active? / / Yes / / No c. How long active?
- - -----------------------------------------------------------------------------------------------------------------------------------
d. Have any "slips" occurred? / / Yes / / No e. If "yes," when?
- - -----------------------------------------------------------------------------------------------------------------------------------
DRUG QUESTIONNAIRE
- - -----------------------------------------------------------------------------------------------------------------------------------
1. Check any drugs used within the past 10 years
/ / Narcotics / / Stimulants / / Sedatives / / Hallucinogenics
2. Details
- - -----------------------------------------------------------------------------------------------------------------------------------
How Often Dosage or Dates Used
Type of Drug Used Amount Used -------------------------------------------------------
From To
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
3. Name and address of physician, therapist, counselor or facility by whom treatment or counseling was provided
------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
- - --------------------------------------------------------------------------------
SECTION O - REPRESENTATION, AUTHORIZATION AND ACKNOWLEDGEMENT STATEMENT
I represent that the statements and answers in all parts of this
application and supplements thereto are true and complete to the best of my
knowledge and belief. It is agreed that: (1) All such statements and
answers shall be the basis of any insurance issued; (2) Except as provided
in the Temporary Life Insurance Agreement attached hereto, no insurance
shall take effect unless and until the following conditions are met: a) the
policy as applied for has been approved by the Company; in its
Administrative Office; or if the policy is issued other than as applied
for, the policy has been physically received and accepted by the applicant;
b) the entire first premium has been paid; and c) no change in the health
and insurability of any persons proposed for coverage has occurred to the
best of applicant's knowledge; (3) No agent or medical examiner is
authorized to pass on acceptability for insurance or to make, modify or
discharge any contract of insurance or waive any of the Company's rights
or requirements; (4) The right to change any beneficiary is reserved to the
owner unless otherwise requested; (5) All changes on the application must
be subject to written ratification by the proposed insured or owner.
STATEMENT regarding payment made with application: I have paid
$ __________ with this application for life insurance and I accept the
terms of the Temporary Life Insurance Agreement.
I hereby authorize any licensed physician, medical practitioner,
hospital, clinic or other medical or medically related facility,
insurance company, the Medical Information Bureau, or other
organization, institution or person, that has any records or knowledge of
me or my health or the health of my dependent, to give to the American
Equity Investment Life Insurance Company, or its reinsurers any such
information. This authorization shall remain valid for two and 1/2 years.
I UNDERSTAND THAT THE ACCUMULATED VALUE OF THE POLICY MAY GO UP OR
DOWN DEPENDING ON THE POLICY'S INVESTMENT EXPERIENCE AND THAT THERE IS
NO GUARANTEED MINIMUM ACCUMULATED VALUE. I ALSO UNDERSTAND THAT THE
AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT MAY
VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT PROVISION OF
THE CONTRACT.
I also acknowledge receipt of the NOTICE TO APPLICANT relating to
information obtained by inspection companies and Medical Information
Bureau. A photographic copy of this authorization shall be as valid as
the original.
<TABLE>
<CAPTION>
<S> <C>
Dated at ____________________________________________ Date Signed ________________________________
Signature of Witness ________________________________ Signature of Proposed Insured ___________________________________
Signature of Applicant Owner (if other than Proposed Insured) Signature of 2nd Proposed Insured (If applying for
coverage) or Parent if a child under age 15
_____________________________________________________________ __________________________________________________
Signature of Registered Representative ____________________________________________________
Broker-Dealer Identification ______________________________________________________________
</TABLE>
12
<PAGE>
AMERICAN EQUITY INVESTMENT LIFE FOR HOME OFFICE USE
INSURANCE COMPANY
Administrative Office ---------------------
P.O. Box 9310 CONTROL/POLICY NUMBER
Des Moines IA 50306-9310
---------------------
AUTHORIZATION FOR CHECK WRITING DAY
ELECTRONIC FUNDS TRANSFER
PAYMENT PLAN
I (we) request and authorize you to automatically make a withdrawal each
month from my financial institution to pay premiums and loans for insurance
policies from the account identified on the attached check, by electronic or
other method. Please do this until you have had reasonable opportunity to
act upon my written request to terminate this service.
Account Type: / / Checking / / Savings
Preferred Withdrawal Date: _____________________________________
This request shall apply to the following policies or new applications:
- - --------------------------------------------------------------------------------
POLICY NO. OR POLICY NO. OR
APPLICATION DATE NAME OF INSURED APPLICATION DATE NAME OF INSURED
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Indicate the start date and amount of premium __________________________________
- - ---------------------------------------------------- --------------------------
Signature of Bank Account Owner Date
- - ---------------------------------------------------- --------------------------
Signature of Bank Account Owner Date
- - ---------------------------------------------------- --------------------------
Signature of Agent/Broker/Registered Representative Agent/Agency/Branch Number
Do you want us to change your address as shown below? __________________________
- - --------------------------------------------------------------------------------
PLEASE ATTACH VOIDED CHECK HERE.
13
<PAGE>
1. The Company shall not be required to give notice of premium becoming
due. Your bank statement will show a deduction and will constitute the
premium receipt. The Company shall incur no liability by reason of
dishonor of any such withdrawal.
2. This payment plan may be discontinued (a) by the Company if any draft is
not paid upon presentation (b) by the undersigned or the Company upon
thirty days written notice. If the policy(ies) is discontinued for any
reason, including death, any premiums then past due and all subsequent
premiums shall be payable as provided in the policy.
3. This payment plan shall not be construed as a modification of any of the
provisions of the policy, except that so long as the payment plan is in
effect, premiums may be paid monthly at the premium rate applicable
under the payment plan and any "Cash Loan Provision", requiring that
"any premiums necessary to complete premium payments for the current policy
year will be deducted from the amount of said loan", will be waived.
14
<PAGE>
AGENT/BROKER/REGISTERED REPRESENTATIVE CERTIFICATE
Was A Blood Profile Ordered? Yes / / No / /
Was an Examination Ordered? Yes / / No / / (Indicate the "key" letter used for
medical requirements.)__________
<TABLE>
<S> <C> <C>
Will this plan replace any other? Yes / / No / /
If yes, have replacement forms been submitted? Yes / / No / /
Did you give "Notice to Applicant" form to applicant? Yes / / No / /
Did you see all persons proposed for insurance? Yes / / No / / (if no - explain)
</TABLE>
Applicant/Proposed Insured's
Maiden/Previous Married Name(s):
------------------------------------------------
Spouse's name and amount of life insurance in force?
----------------------------
Estate Planning: Attach copy of your program or give full details.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Business Insurance: Give full reason for this insurance and nature of
applicant's interest.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
The answers to each question of this application were recorded in my presence
exactly as given. I know nothing detrimental to the risk that is not recorded in
these papers. I have rechecked all answers and calculations for correctness.
- - ----------------------------------------------------------
Signature of Agent/Broker/Registered Representative
15
<PAGE>
NOTICE TO APPLICANT - (MEDICAL INFORMATION BUREAU)
Information regarding your insurability will be treated as confidential.
American Equity Investment Life Insurance Company, or its reinsurers may,
however, make a brief report thereon to the Medical Information Bureau, a
non-profit membership organization of life insurance companies, which operates
an information exchange on behalf of its members. If you apply to another
Medical Information Bureau member company for life or health insurance
coverage, or a claim for benefits is submitted to such a company, the Medical
Information Bureau, upon request, will supply such company with the information
in its file.
Upon receipt of a request from you, the Medical Information Bureau will arrange
disclosure of any information it may have in your file. (Medical information
will be disclosed only to your attending physician.) If you question the
accuracy of information in the Medical Information Bureau's file, you may
contact the Medical Information Bureau and seek a correction in accordance with
the procedures set forth in the Federal Fair Credit Reporting Act. The address
of the Medical Information Bureau's information office is Post Office Box 105,
Essex Station, Boston, Massachusetts 02112, telephone number (617)426-3660.
American Equity Investment Life Insurance Company or its reinsurers may also
release information in its file to other life insurance companies to whom you
may apply for life or health insurance, or to whom a claim for benefits may be
submitted.
NOTICE TO APPLICANT - (FAIR CREDIT REPORTING ACT)
Federal law requires that notice of investigation be given to persons applying
for insurance.
In making this application for insurance to American Equity Investment Life
Insurance Company or its reinsurers it is understood that an investigative
consumer report may be prepared whereby information obtained through personal
interviews with your neighbors, friends or others with whom you are acquainted.
This inquiry may include questions regarding your character, general
reputation, personal characteristics and mode of living. You have the right to
make a written request within a reasonable period of time to receive
additional, detailed information about the nature and scope of this
investigation. You also have the right to receive, upon request, a summary of
your rights under the Fair Credit Reporting Act.
AUTHORIZATION FOR RELEASE OF MEDICAL INFORMATION
(COPY FOR APPLICANT'S FILES)
I hereby authorize any licensed physician, medical practitioner, hospital,
clinic or other medical or medically related facility, insurance company, the
Medical Information Bureau, or other organization, institution or person, that
has any records or knowledge of me or my health or the health of my dependent,
to give to the American Equity Investment Life Insurance Company or its
reinsurers any such information. This authorization shall remain valid for two
and 1/2 years.
THIS SECTION TO BE REMOVED AND LEFT WITH APPLICANT.
16
<PAGE>
- - -------------------------------------------------------------------------------
TEMPORARY LIFE INSURANCE AGREEMENT
This Agreement provides a limited amount of life insurance coverage, for a
limited period of time, subject to the terms of this Agreement. NO INSURANCE is
provided unless all the CONDITIONS AND LIMITATIONS of this Agreement are met.
HEALTH QUESTIONS
Has the Proposed Insured:
1. Within the past 90 days been admitted to a hospital or other medical
facility, been advised to be admitted, or had surgery performed or
recommended? Yes / / No / /
2. Within the past 2 years, been treated for heart trouble, stroke, or cancer,
or had such treatment recommended by a physician or other practitioner?
Yes / / No / /
If either of the above questions is answered "YES" or LEFT BLANK, no
representative of the Company is authorized to accept money and NO COVERAGE will
take effect under this Agreement.
CONDITIONS AND LIMITATIONS
AMOUNT OF COVERAGE - $150,000 MAXIMUM FOR ALL APPLICATIONS OR AGREEMENTS
If the Company accepts money as advance payment of premium with an
application for Life Insurance, and the Proposed Insured dies while this
Temporary Life Insurance Agreement is in effect, the Company will pay to the
designated beneficiary in the application the lesser of (a) the amount of all
death benefits applied for, or (b) $150,000. For purposes of this Temporary
Life Insurance Agreement, "designated beneficiary" shall mean the beneficiary
as determined in accordance with the provisions of the policy applied for.
The total benefit limit is the total of the Company's liability without
regard to the amount of insurance applied for under this application or any
other pending applications with The Company and, in the event any other
temporary insurance agreements are in existence at the time of the Proposed
Insured's death, $150,000 is the aggregate liability under all Temporary
Insurance Agreements for Life Insurance.
Except as provided in this Temporary Life Insurance Agreement, no insurance
shall take effect unless and until the following conditions are met: (a) the
policy as applied for has been approved by the Company in its Administrative
Office; or if the policy is issued other than as applied for, the policy has
been physically received and accepted by the applicant; (b) the entire first
premium has been paid; and (c) no change in the health and insurability of any
persons proposed for coverage has occurred to the best of the applicant's
knowledge.
DATE COVERAGE BEGINS
Temporary life insurance under this Agreement begins on the date of this
Agreement subject to the following conditions: (a) the Application has been
completed on or before the date of this Agreement, and (b) the above Health
Questions are both answered "NO."
DATE COVERAGE TERMINATES - 90 DAY MAXIMUM
Temporary life insurance under this Agreement terminates automatically on the
earliest of:
1. 90 days from the date of this Agreement, or
2. the date insurance takes effect under the policy applied for, or
3. the date a policy, other than applied for, is offered to and accepted by
the Applicant, or
4. the date the Company mails notice of termination of coverage and refunds
the advance payment to the applicant at the address designated in Section A
of the Application. The Company may terminate this coverage at any time.
LIMITATIONS
1. This Agreement does not provide benefits for waiver of charges.
2. Fraud or material misrepresentation in the application or in the answers to
the Health Questions of this Agreement invalidate this Agreement and the
application, and the Company's only liability is for refund of any payment
made.
3. No one is authorized to accept money on Proposed Insureds under 15 days of
age or over age 80 (last birthday) on the date of this Agreement, nor will
any coverage take effect.
4. There is no insurance coverage under this Agreement if the proposed insured
dies by suicide. The Company's liability is limited to a refund of any
payment made.
5. There is no coverage under this Agreement if the check submitted as
payments is not honored by the financial institution on first presentation.
6. No one is authorized to waive or modify any of the provisions of this
Agreement.
Make all premium checks payable to American Equity Investment Life Insurance
Company. Do not make checks payable to the agent/broker/registered
representative or leave the payee blank.
AN ADVANCE PAYMENT OF $_________ HAS BEEN PAID. ADDITIONAL PREMIUM MAY BE
REQUIRED UPON POLICY DELIVERY.
I have read and received a copy of this Agreement and declare that the answers
are true to the best of my knowledge and belief. I understand and agree to all
of its terms.
Signed on (Date) In (City, State)
---------------------- ------------------------
Signature of Proposed Insured Signature of Applicant
--------- (If not Proposed Insured)---------------
Signature of Agent/Broker/Registered Representative
-----------------------------
Original - Return to Administrative Office Copy - Leave with applicant
17
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
AMONG
EQUITRUST VARIABLE INSURANCE SERIES FUND,
EQUITRUST INVESTMENT MANAGEMENT SERVICES, INC.,
AND
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 5th day of June, 1998
by and among American Equity Investment Life Insurance Company (hereinafter,
the "Company"), an Iowa insurance company, on its own behalf and on behalf of
each segregated asset account of the Company set forth on Schedule A hereto
as may be amended from time to time (each account hereinafter referred to as
the "Account"), and the undersigned fund, a business trust organized under
the laws of the Commonwealth of Massachusetts (hereinafter referred to as the
"Fund") and EquiTrust Investment Management Services, Inc. (hereinafter the
"Underwriter"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933,
<PAGE>
as amended (hereinafter the "1933 Act"); and
WHEREAS, EquiTrust Investment Management Services, Inc. (hereinafter
referred to as the "Adviser") is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use its best efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Trustees of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or
<PAGE>
suspend or terminate the offering of shares of any Designated Portfolio if such
action is required by law or by regulatory authorities having jurisdiction, or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Designated Portfolios will be sold to the general public. The Fund and
the Underwriter will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles I, III and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee
of the Fund for receipt of purchase and redemption orders from the Account, and
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order by 3:00 p.m. central time and the Fund receives
notice of such order by 9:30 a.m. central time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt of
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. central time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. central time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For purposes
of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock
<PAGE>
certificates will not be issued to the Company or any Account. Shares ordered
from the Fund will be recorded in an appropriate title for each Account or the
appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated
(normally by 5:30 p.m. central time) and shall use its best efforts to make
such net asset value per share available by 6:00 p.m. central time. If the
net asset value is materially incorrect through no fault of the Company, the
Company on behalf of each Account, shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct net asset value
in accordance with Fund procedures. Any material error in the net asset value
shall be reported to the Company promptly upon discovery. Any administrative
or other costs or losses incurred for correcting underlying Contract owner
accounts shall be at Company's expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Iowa insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws of the state of Iowa and all applicable
federal and state securities laws and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration
<PAGE>
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Iowa to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Iowa and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $2.5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any
<PAGE>
amounts received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund if, and when, applicable. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies. The Company
agrees to exercise its best efforts to ensure that other individuals/entities
not employed or controlled by the Company and dealing with the money and/or
securities of the Fund maintain a similar bond or coverage in a reasonable
amount.
ARTICLE III. PROSPECTUSES. STATEMENTS OF ADDITIONAL INFORMATION. AND PROXY
STATEMENTS: VOTING
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and semi-
annual reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or on diskette) and other assistance as
is reasonably necessary in order for the Company (at the Company's expense) to
print such shareholder communications for distribution to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from
<PAGE>
Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated
Portfolio for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least ten calendar days prior to
its use. No such material shall be used if the Fund or its designee reasonably
object to such use within ten calendar days after receipt of such material. The
Fund or its designee reserves the right to reasonably object to the continued
use of such material, and no such material shall be used if the Fund or its
designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be
<PAGE>
used if the Company reasonably objects to such use within ten calendar days
after receipt of such material. The Company reserves the right to reasonably
object to the continued use of such material and no such material shall be used
if the Company so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, within a reasonable time
after the filing of such document(s) with the SEC or other regulatory
authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(I.E., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise
<PAGE>
payable to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's prospectus
(in accordance with 3.1) and of distributing the Fund's prospectus, proxy
materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity, endowment, or
life insurance contracts, whichever is appropriate, under the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations issued thereunder (or
any successor provisions). Without limiting the scope of the foregoing, each
Designated Portfolio of the Fund will comply with Section 817(h) of the Code and
Treasury Regulation Section 1.817-5, and any Treasury interpretations thereof,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts, and any amendments or other modifications or successor
provisions to such Section or Regulations. In the event of a breach of this
Article VI by the Fund, it will take all reasonable steps (a) to notify the
Company of such breach and (b) to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified
<PAGE>
endowment contract" as that term is defined in Section 7702A of the Code (or any
successor or similar provision), shall identify such contract as a modified
endowment contract.
ARTICLE VII. POTENTIAL CONFLICTS.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be
<PAGE>
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the company for the purchase (and redemption) of shares of
the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund and the
Underwriter and each of their officers and directors and each person, if any,
who controls the Fund or the Underwriter within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus, or statement of
additional information ("SAI") for the Contracts or contained
in the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the
Fund for use in the Registration Statement, prospectus or SAI
for the Contracts or in the Contracts or sales literature or
other promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature or
other promotional material of the Fund not supplied by the
Company or persons under its control) or wrongful conduct of
the Company or persons under its authorization or control,
with respect to the sale or distribution of the Contracts or
Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, SAI, or sales literature or other promotional
material of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement
or omission was made in reliance upon information furnished to
the Fund by or on behalf
<PAGE>
of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
<PAGE>
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of it directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts;
and
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or SAI or sales
literature or other promotional material of the Fund (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in sales
literature or other promotional material (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature or
other promotional material for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful
conduct of the Fund or Underwriter or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, SAI, or sales literature or other promotional
material of the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission
<PAGE>
was made in reliance upon information furnished to the Company
by or on behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
<PAGE>
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including legal and other expenses)
to which the Indemnified Parties may be required to pay or may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
<PAGE>
expense, in the defense thereof. The Fund also shall be entitled to assume the
expense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct. After
notice from the Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceeding against it or any of its
respective officers or directors in connection with the Agreement, the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Iowa.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to some
or all Designated Portfolios, by six (6) months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based
upon the Company's determination that shares of the Fund are
not reasonably available to meet the requirements of the
Contracts; provided that such termination shall apply only to
the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the
use of such shares as the underlying
<PAGE>
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of any Account, or
the purchase of the Fund shares; provided, however, that the
Fund or Underwriter determines in its sole judgment exercised
in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Company
to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in
the event that such Designated Portfolio ceases to qualify as
a Regulated Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification requirements
specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify
or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the
qualifications specified in Section 6.3 hereof; or if the Fund
or Underwriter reasonably believes that such Contracts may
fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund or the
Underwriter has suffered a
<PAGE>
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund and
the Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
EquiTrust Variable Insurance Series Fund
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
<PAGE>
If to the Company:
American Equity Investment Life Insurance Company
Attn: D.J. Noble
5000 Westown Parkway, Suite 440
West Des Moines, IA 50266
If to Underwriter:
EquiTrust Investment Management Services, Inc.
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
ARTICLE XII. MISCELLANEOUS
12.1 All references herein to the Adviser relate solely to the Adviser of
such individual Fund, as appropriate. All persons dealing with a Fund must look
solely to the property of such Fund, and in the case of a series company, the
respective Designated Portfolio listed on Schedule A hereto as though such
Designated Portfolio had separately contracted with the Company and the
Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
<PAGE>
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Iowa Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Iowa
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year.
(b) the Company's quarterly statements (statutory) (and GAAP, if any), as
soon as practical and in any event within 45 days after the end of
each quarterly period.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: American Equity Investment Life Insurance Company
By its authorized officer
By: /s/ Terry Reimer
---------------------------------------------
Title: Executive Vice President & Treasurer
------------------------------------------
Date: June 5, 1998
-------------------------------------------
FUND: EquiTrust Variable Insurance Series Fund
By its authorized officer
By: /s/ Richard D. Harris
---------------------------------------------
Title: Senior Vice President,
Secretary-Treasurer & Trustee
------------------------------------------
Date: June 5, 1998
-------------------------------------------
UNDERWRITER: EquiTrust Investment Management Services, Inc.
By its authorized officer
By: /s/ William J. Oddy
---------------------------------------------
Title: President
------------------------------------------
Date: June 5, 1998
-------------------------------------------
<PAGE>
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE ESTABLISHED BY BOARD OF DIRECTORS
American Equity Life Variable Account 1/12/98
American Equity Life Annuity Account 1/12/98
CONTRACTS FUNDED BY SEPARATE ACCOUNT
Flexible Premium Variable Life Insurance Policies
Flexible Premium Deferred Variable Annuity Contracts
DESIGNATED PORTFOLIOS
Value Growth Portfolio
High Grade Bond Portfolio
High Yield Bond Portfolio
Money Market Portfolio
Blue Chip Portfolio
<PAGE>
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 8th day of June, 1998, between Farm
Bureau Life Insurance Company, a life insurance company organized under the
laws of the State of Iowa ("Insurance Company"), and each of DREYFUS VARIABLE
INVESTMENT FUND; THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; DREYFUS
LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND); AND
DREYFUS INVESTMENT PORTFOLIOS (each a "Fund").
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may
be, of a Fund, which has the responsibility for management and control of
the Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying
investment medium. Individuals who participate under a group Contract
are "Participants".
1.6 "Contractholder" shall mean any entity that is a party to a Contract with
a Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as
defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
- 1 -
<PAGE>
1.10 "Participating Fund" shall mean each Fund, including, as applicable, any
series thereof, specified in Exhibit A, as such Exhibit may be amended
from time to time by agreement of the parties hereto, the shares of which
are available to serve as the underlying investment medium for the
aforesaid Contracts.
1.11 "Prospectus" shall mean the current prospectus and statement of
additional information of a Fund, as most recently filed with the
Commission.
1.12 "Separate Account" shall mean American Equity Life Annuity Account and
American Equity Life Variable Account, individually, each a separate
account established by Insurance Company in accordance with the laws
of the State of Iowa.
1.13 "Software "Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations
where the Lion System or any other Software Program used by a Fund is not
available, such information may be provided by telephone. The Lion
System shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates that invest in a Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to the
Iowa Insurance Code for the purpose of offering to the public certain
individual and group variable annuity and life insurance contracts; (c)
it has registered the Separate Account as a unit investment trust under
the Act to serve as the segregated investment account for the Contracts;
and (d) the Separate Account is eligible to invest in shares of each
Participating Fund without such investment disqualifying any
Participating Fund as an investment medium for insurance company separate
accounts supporting variable annuity contracts or variable life insurance
contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to notify each Participating Fund promptly of any
investment restrictions, of which Insurance Company has knowledge,
imposed by state insurance law and applicable to the Participating Fund.
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2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without regard to other
income, gains or losses from assets allocated to any other accounts of
Insurance Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate from
Insurance Company's General Account and any other separate accounts
Insurance Company may have, and will not be charged with liabilities from
any business that Insurance Company may conduct or the liabilities of any
companies affiliated with Insurance Company.
2.4 Each Participating Fund represents that it is registered with the
Commission under the Act as an open-end, management investment company
and possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating Fund
to operate and offer its shares as an underlying investment medium for
Participating Companies.
2.5 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every effort
to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company immediately
upon having a reasonable basis for believing that it has ceased to so
qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies
or annuity contracts, whichever is appropriate, under applicable
provisions of the Code, and that it will make every effort to maintain
such treatment and that it will notify each Participating Fund and
Dreyfus immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future. Insurance Company agrees that any prospectus
offering a Contract that is a "modified endowment contract," as that term
is defined in Section 7702A of the Code, will identify such Contract as a
modified endowment contract (or policy).
2.7 Each Participating Fund agrees that its assets shall be managed and
invested in a manner that complies with the requirements of Section
817(h) of the Code.
2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares
available to other Participating Companies and Contractholders.
2.9 Each Participating Fund represents and warrants that any of its
directors, trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the
Participating Fund are and shall continue to be at all times
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covered by a blanket fidelity bond or similar coverage for the benefit of
the Participating Fund in an amount not less than that required by Rule
17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than $2.5 million.
The aforesaid Bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for purchase
at the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, each Participating Fund may
refuse to sell its shares to any person, or suspend or terminate the
offering of its shares, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion
of its Board, acting in good faith and in light of its fiduciary duties
under federal and any applicable state laws, necessary and in the
best interests of the Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund will
be sold only to (a) Participating Companies and their separate accounts
or (b) "qualified pension or retirement plans" as determined under
Section 817(h)(4) of the Code. Except as otherwise set forth in this
Section 3.3, no shares of any Participating Fund will be sold to the
general public.
3.4 Each Participating Fund shall use its best efforts to provide closing net
asset value, dividend and capital gain information on a per-share basis
to Insurance Company by 6:00 p.m. Eastern time on each Business Day. Any
material errors in the calculation of net asset value, dividend and
capital gain information shall be reported immediately upon discovery to
Insurance Company. Non-material errors will be corrected in the next
Business Day's net asset value per share.
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3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the unit values
of the Separate Account for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received by
it by the close of the trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar
amount of each Participating Fund's shares that will be purchased or
redeemed at that day's closing net asset value per share. The net
purchase or redemption orders will be transmitted to each Participating
Fund by Insurance Company by 11:00 a.m. Eastern time on the Business Day
next following Insurance Company's receipt of that information. Subject
to Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of each Participating Fund next calculated after receipt of the
order by the Participating Fund or its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such
orders by Insurance Company acting as agent ("effective trade date"),
provided that the Participating Fund receives notice of such orders by
11:00 a.m. Eastern time on the next following Business Day and, if such
orders request the purchase of Participating Fund shares, the conditions
specified in Section 3.8, as applicable, are satisfied. A redemption or
purchase request that does not satisfy the conditions specified above and
in Section 3.8, as applicable, will be effected at the net asset value
per share computed on the Business Day immediately preceding the next
following Business Day upon which such conditions have been satisfied in
accordance with the requirements of this Section and Section 3.8.
Insurance Company represents and warrants that all orders submitted by
the Insurance Company for execution on the effective trade date shall
represent purchase or redemption orders received from Contractholders
prior to the close of trading on the New York Stock Exchange on the
effective trade date.
3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any unusually large purchase or
redemption orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall
make all reasonable efforts to transmit to the applicable Participating
Fund payment in Federal Funds by 12:00 noon Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
Section 3.5. Each applicable Participating Fund will execute such orders
at the applicable net asset value per share determined as of the close of
trading on the effective trade date if the Participating Fund receives
payment in Federal Funds by 12:00 midnight Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
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Section 3.5. If payment in Federal Funds for any purchase is not
received or is received by a Participating Fund after 12:00 noon Eastern
time on such Business Day, Insurance Company shall promptly, upon each
applicable Participating Fund's request, reimburse the respective
Participating Fund for any charges, costs, fees, interest or other
expenses incurred by the Participating Fund in connection with any
advances to, or borrowings or overdrafts by, the Participating Fund, or
any similar expenses incurred by the Participating Fund, as a result of
portfolio transactions effected by the Participating Fund based upon such
purchase request. If Insurance Company's order requests the redemption
of any Participating Fund's shares valued at or greater than $1 million
dollars, the Participating Fund will wire such amount to Insurance
Company within seven days of the order.
3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times.
3.10 Each Participating Fund will confirm each purchase or redemption order
made by Insurance Company. Transfer of Participating Fund shares will be
by book entry only. No share certificates will be issued to Insurance
Company. Insurance Company will record shares ordered from a
Participating Fund in an appropriate title for the corresponding account.
3.11 Each Participating Fund shall credit Insurance Company with the
appropriate number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business
Day, on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital gain,
if any, per share. All dividends and capital gains shall be
automatically reinvested in additional shares of the applicable
Participating Fund at the net asset value per share on the ex-dividend
date. Each Participating Fund shall, on the day after the ex-dividend
date or, if not on a Business Day, on the first Business Day thereafter,
notify Insurance Company of the number of shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as of
the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of
the Participating Fund's Prospectuses, proxy materials, notices, periodic
reports and other printed materials (which the Participating Fund
customarily provides to its shareholders) in quantities as
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Insurance Company may reasonably request for distribution to each
Contractholder and Participant.
4.3 Each Participating Fund will provide to Insurance Company at least
one complete copy of all registration statements, Prospectuses,
reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to
the Participating Fund or its shares, contemporaneously with the
filing of such document with the Commission or other regulatory
authorities.
4.4 Insurance Company will provide to each Participating Fund at least one
copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the
Separate Account, contemporaneously with the filing of such document
with the Commission.
ARTICLE V
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be made in
the determination of the Participating Fund's daily net asset value per
share.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of any Participating Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the following
expenses or costs:
a. Such amount of the production expenses of any Participating
Fund materials, including the cost of printing a Participating
Fund's Prospectus, or marketing materials for prospective
Insurance Company Contractholders and Participants as Dreyfus and
Insurance Company shall agree from time to time.
b. Distribution expenses of say Participating Fund materials or
marketing materials for prospective Insurance Company
Contractholders and Participants.
c. Distribution expenses of any Participating Fund materials or
marketing materials for Insurance Company Contractholders and
Participants.
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Except as provided herein, all other expenses of each Participating Fund
shall not be borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of (i) the amended order dated
December 31, 1997 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to Dreyfus Variable Investment Fund
and Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order dated
February 5, 1998 of the Securities and Exchange Commission under Section
6(c) of the Act with respect to The Dreyfus Socially Responsible Growth
Fund, Inc. and Dreyfus Investment Portfolios, and, in particular, has
reviewed the conditions to the relief set forth in each related Notice.
As set forth therein, if Dreyfus Variable Investment Fund, Dreyfus Life
and Annuity Index Fund, Inc., The Dreyfus Socially Responsible Growth
Fund, Inc. or Dreyfus Investment Portfolios is a Participating Fund,
Insurance Company agrees, as applicable, to report any potential or
existing conflicts promptly to the respective Board of Dreyfus Variable
Investment Fund, Dreyfus Life and Annuity Index Fund, Inc., The Dreyfus
Socially Responsible Growth Fund, Inc. and/or Dreyfus Investment
Portfolios, and, in particular, whenever contract voting instructions
are disregarded, and recognizes that it will be responsible for
assisting each applicable Board in carrying out its responsibilities
under such application. Insurance Company agrees to carry out such
responsibilities with a view to the interests of existing
Contractholders.
6.2 If a majority of the board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in a Participating Fund, the Board
Shall give prompt notice to all Participating Companies and any other
Participating Fund. If the Board determines that Insurance Company is
responsible for causing or creating said conflict, Insurance Company
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Board
Members), take such action as is necessary to remedy or eliminate
the irreconcilable material conflict. Such necessary action may
include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of all affected contractholders;
and/or
b. Establishing a new registered management investment company.
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6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions and
said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in a
Participating Fund, Insurance Company may be required, at the Board's
election, to withdraw the investments of the Separate Account in that
Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a new
funding medium for any Contract. Insurance Company shall not be required
by this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result
of any act or failure to act by Insurance Company pursuant to this
Article VI, shall relieve Insurance Company of its obligations under,
or otherwise affect the operation of, Article V, VOTING OF PARTICIPATING
FUND SHARES.
ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at
no cost to Insurance Company, of the Participating Fund's proxy
material, reports to shareholders and other communications to
shareholders in such quantity as Insurance Company shall reasonably
require for distributing to Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants
on a timely basis and in accordance with applicable law;
(b) vote the Participating Fund shares in accordance with
instructions received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no instructions have
been received in the same proportion as Participating Fund shares
for which instructions have been received.
Insurance Company agrees at all times to vote its General Account shares
in the same proportion as the Participating Fund shares for which
instructions have been received from Contractholders or Participants.
Insurance Company further agrees to be
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responsible for assuring that voting the Participating Fund shares for
the Separate Account is conducted in a manner consistent with other
Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of each applicable Participating Fund and Dreyfus, solicit, induce
or encourage Contractholders to (a) change or supplement the
Participating Fund's current investment adviser or (b) change, modify,
substitute, add to or delete from the current investment media for the
Contracts.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as
Insurance Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne by Insurance
Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating Fund,
its investment adviser or the administrator is named, at least fifteen
Business Days prior to its use. No such material shall be used unless the
Participating Fund or its designee approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. Each
applicable Participating Fund or its designee, as the case may be, shall
use all reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Prospectus of, as may be amended or
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supplemented from time to time, or in reports or proxy statements for,
the applicable Participating Fund, or in sales literature or other
promotional material approved by the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of the Participating Fund's sales
literature or other promotional material in which Insurance Company or
the Separate Account is named, at least fifteen Business Days prior to
its use. No such material shall be used unless Insurance Company approves
such material. Such approval (if given) must be in writing and shall be
presumed not given if not received within ten Business Days after receipt
of such material. Insurance Company shall use all reasonable efforts to
respond within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any
representations on behalf of Insurance Company or concerning insurance
company, the Separate Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented from time
to time, or in published reports for the Separate Account that are in the
public domain or approved by Insurance Company for distribution to
Contractholders or Participants, or in sales literature or other
promotional material approved by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, or reprints or excerpts of
any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or
made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information,
shareholder reports and proxy materials, and any other material
constituting sales literature or advertising under National Association of
Securities Dealers, Inc. rules, the Act or the 1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each
Participating Fund, Dreyfus, each respective Participating Fund's
investment adviser and sub-investment adviser (if applicable), each
respective Participating Fund's distributor, and their respective
affiliates, and each of their directors, trustees, officers, employees,
agents and
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each person, if any, who controls or is associated with any of the
foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any
action, suit or proceeding or any claim asserted) for which the
Indemnified Parties may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect to thereof) (i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
information furnished by Insurance Company for use in the registration
statement or Prospectus or sales literature or advertisements of the
respective Participating Fund or with respect to the Separate Account or
Contracts, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; (ii) arise
out of or as a result of conduct, statements or representations (other
than statements or representations contained in the Prospectus and sales
literature or advertisements of the respective Participating Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which the respective Participating Fund's
shares are an underlying investment; (iii) arise out of the wrongful
conduct of Insurance Company or persons under its control with respect to
the sale or distribution of the Contracts or the respective Participating
Fund's shares; (iv) arise out of Insurance Company's incorrect calculation
and/or untimely reporting of net purchase or redemption orders; or (v)
arise out of any breach by Insurance Company of a material term of this
Agreement or as a result of any failure by Insurance Company to provide
the services and furnish the materials or to make any payments provided
for in this Agreement. Insurance Company will reimburse any Indemnified
Party in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that with respect to
clauses (i) and (ii) above Insurance Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission or
alleged omission made in such registration statement, prospectus, sales
literature, or advertisement in conformity with written information
furnished to Insurance Company by the respective Participating Fund
specifically for use therein. This indemnity agreement will be in
addition to any liability which Insurance Company may otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees, agents
and each person, if any, who controls Insurance Company within the meaning
of the 1933 Act against any losses, claims, damages or liabilities to
which Insurance Company or any such director, officer, employee, agent or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (1) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or advertisements
of the respective Participating Fund: (2) arise out of or
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are based upon the omission to state in the registration statement or
Prospectus or sales literature or advertisements of the respective
Participating Fund any material fact required to be stated therein or
necessary to make the statements therein not misleading; or (3) arise out
of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the registration statement or Prospectus or
sales literature or advertisements with respect to the Separate Account or
the Contracts and such statements were based on information provided to
Insurance Company by the respective Participating Fund; and the respective
Participating Fund will reimburse any legal or other expenses reasonably
incurred by Insurance Company or any such director, officer, employee,
agent or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
the respective Participating Fund will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or omission or alleged omission made in
such registration statement, Prospectus, sales literature or advertisements
in conformity with written information furnished to the respective
Participating Fund by Insurance Company specifically for use therein. This
indemnity agreement will be in addition to any liability which the
respective Participating Fund may otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to pay
due to the respective Participating Fund's (1) incorrect calculation of the
daily net asset value, dividend rate or capital gain distribution rate; (2)
incorrect reporting of the daily net asset value, dividend rate or capital
gain distribution rate; and (3) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate; provided that the
respective Participating Fund shall have no obligation to indemnify and
hold harmless Insurance Company if the incorrect calculation or incorrect
or untimely reporting was the result of incorrect information furnished by
Insurance Company or information furnished untimely by Insurance Company or
otherwise as a result of or relating to a breach of this Agreement by
Insurance Company.
9.4 Promptly after receipt by an indemnified party under this Article of notice
of the commencement of any action, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party under this
Article, notify the indemnifying party of the commencement thereof. The
omission to so notify the indemnifying party will not relieve the
indemnifying party from any liability under this Article IX, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a
result of the failure to give such notice. In case any such action is
brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such indemnified party, and
to the extent that the indemnifying party has given notice to such effect
to the indemnified party and is
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performing its obligations under this Article, the indemnifying party shall
not be liable for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable costs of investigation. Notwithstanding the foregoing, in any
such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this Agreement.
9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund
harmless against any tax liability incurred by the Participating Fund under
Section 851 of the Code arising from purchases or redemptions by Insurance
Company's General Accounts or the account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
10.2 This Agreement shall terminate without penalty:
a. As to any Participating Fund, at the option of Insurance Company or
the Participating Fund at any time from the date hereof upon 180 days'
notice, unless a shorter time is agreed to by the respective
Participating Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company, if
shares of that Participating Fund are not reasonably available to meet
the requirements of the Contracts as determined by Insurance Company.
Prompt notice of election to terminate shall be furnished by Insurance
Company, said termination to be effective ten days after receipt of
notice unless the Participating Fund makes available a sufficient
number of shares to meet the requirements of the Contracts within said
ten-day period;
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<PAGE>
c. As to a Participating Fund, at the option of Insurance Company, upon the
institution of formal proceedings against that Participating Fund by the
Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in Insurance Company's reasonable judgment, materially impair
that Participating Fund's ability to meet and perform the Participating
Fund's obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by Insurance Company with said termination to
be effective upon receipt of notice;
d. As to a Participating Fund, at the option of each Participating Fund, upon
the institution of formal proceedings against Insurance Company by the
Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in the Participating Fund's reasonable judgment, materially
impair Insurance Company's ability to meet and perform Insurance Company's
obligations and duties hereunder. Prompt notice of election to terminate
shall be furnished by such Participating Fund with said termination to be
effective upon receipt of notice;
e. As to a Participating Fund, at the option of that Participating Fund, if
the Participating Fund shall determine, in its sole judgment reasonably
exercised in good faith, that Insurance Company has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity and such material adverse change or material
adverse publicity is likely to have a material adverse impact upon the
business and operation of that Participating Fund or Dreyfus, such
Participating Fund shall notify Insurance Company in writing of such
determination and its intent to terminate this Agreement, and after
considering the actions taken by Insurance Company and any other changes in
circumstances since the giving of such notice, such determination of the
Participating Fund shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth day shall be the
effective date of termination;
f. As to a Participating Fund, upon termination of the Investment Advisory
Agreement between that Participating Fund and Dreyfus or its successors
unless Insurance Company specifically approves the selection of a new
Participating Fund investment adviser. Such Participating Fund shall
promptly furnish notice of such termination to Insurance Company;
g. As to a Participating Fund, in the event that Participating Fund's shares
are not registered, issued or sold in accordance with applicable federal
law, or such law precludes the use of such shares as the underlying
investment medium of Contracts issued or to be issued by Insurance Company.
Termination shall be effective immediately as to that Participating Fund
only upon such occurrence without notice;
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<PAGE>
h. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue to
operate pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by such Participating
Fund to Insurance Company of such termination;
i. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if such Participating Fund
reasonably believes that the Contracts may fail to so qualify;
j. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;
k. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law; or
l. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, each Participating Fund and Dreyfus may, at the option of
the Participating Fund, continue to make available additional shares of
that Participating Fund for as long as the Participating Fund desires
pursuant to the terms and conditions of this Agreement as provided below,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if that Participating Fund and Dreyfus
so elect to make additional Participating Fund shares available, the
owners of the Existing Contracts or Insurance Company, whichever shall
have legal authority to do so, shall be permitted to reallocate
investments in that Participating Fund, redeem investments in that
Participating Fund and/or invest in that Participating Fund upon the
making of additional purchase payments under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 10.2
hereof, such Participating Fund and Dreyfus, as promptly as is
practicable under the circumstances, shall notify Insurance Company
whether Dreyfus and that Participating Fund will continue to make that
Participating Fund's shares available after such termination. If such
Participating Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either of that Participating Fund or Insurance Company may
terminate the Agreement as to that Participating Fund, as so continued
pursuant to this Section 10.3, upon prior written
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<PAGE>
notice to the other party, such notice to be for a period that is
reasonable under the circumstances but, if given by the Participating
Fund, need not be for more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall not
be deemed a termination as to any other Participating Fund unless
Insurance Company or such other Participating Fund, as the case may be,
terminates this Agreement as to such other Participating Fund in
accordance with this Article X.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the addition
or deletion of any Participating Fund as specified in Exhibit A, shall be
made by agreement in writing between Insurance Company and each
respective Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company: American Equity Investment Life Insurance Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Attn: C. Richard Brown
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
Attn: Vice President and Assistant Secretary
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Steven F. Newman
Stroock & Stroock & Lavan
180 Maiden Lane
New York, New York 10038-4982
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<PAGE>
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
director, trustee, officer or shareholder of the Fund individually. It
is agreed that the obligations of the Funds are several and not joint,
that no Fund shall be liable for any amount owing by another Fund and
that the Funds have executed one instrument for convenience only.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
By: /s/ Terry Reimer
-------------------------------
Its: Executive Vice President &
Treasurer
-----------------------------
Attest: /s/ Sue A. Cornick
-----------------------------
DREYFUS LIFE AND ANNUITY INDEX FUND, INC.
(d/b/a DREYFUS STOCK INDEX FUND)
By: /s/ Michael S. Petrucelli
-------------------------------
Its: Vice President
-----------------------------
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<PAGE>
Attest: /s/ Doreen Plante
-----------------------------
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
By: /s/ Michael S. Petrucelli
-------------------------------
Its: Vice President
-----------------------------
Attest: /s/ Doreen Plante
-----------------------------
DREYFUS VARIABLE INVESTMENT FUND
By: /s/ Michael S. Petrucelli
-------------------------------
Its: Vice President
-----------------------------
Attest: /s/ Doreen Plante
-----------------------------
DREYFUS INVESTMENT PORTFOLIOS
By: /s/ Michael S. Petrucelli
-------------------------------
Its: Vice President
-----------------------------
Attest: /s/ Doreen Plante
-----------------------------
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<PAGE>
EXHIBIT A
LIST OF PARTICIPATING FUNDS
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio
Disciplined Stock Portfolio
Growth and Income Portfolio
International Equity Portfolio
Small Cap Portfolio
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<PAGE>
PARTICIPATION AGREEMENT
Among
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
and
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 8th day of June, 1998
by and among American Equity Investment Life Insurance Company (hereinafter,
the "Company"), a Iowa insurance company, on its own behalf and on behalf of
each segregated asset account of the Company set forth on Schedule A hereto
as may be amended from time to time (each account hereinafter referred to as
the "Account"), and the undersigned funds, each, a corporation organized
under the laws of Maryland (each hereinafter referred to as the "Fund") and
T. Rowe Price Investment Services, Inc. (hereinafter the "Underwriter"), a
Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by the
Company and the Account on those days on which the Fund calculates its net asset
value pursuant to rules of the SEC, and the Fund shall use its best efforts to
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
<PAGE>
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III and VII of this Agreement is in effect to govern such
sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt
of an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For
purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash.
The Fund shall notify the Company of the number of shares so issued as payment
of such dividends and distributions.
<PAGE>
1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated (normally
by 6:30 p.m. Baltimore time) and shall use its best efforts to make such net
asset value per share available by 7 p.m. Baltimore time. If the net asset
value is materially incorrect through no fault of the Company, the Company on
behalf of each Account, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct net asset value in
accordance with Fund procedures. Any material error in the net asset value
shall be reported to the Company promptly upon discovery. Any administrative or
other costs or losses incurred for correcting underlying Contract owner accounts
shall be at Company's expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Iowa insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Iowa and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
<PAGE>
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Iowa to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered under all applicable federal and state securities
laws and that the Adviser shall perform its obligations for the Fund in
compliance in all material respects with the laws of the State of Iowa and any
applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $2.5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund if, and when, applicable. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies. The Company
agrees to exercise its best efforts to ensure that other individuals/entities
not employed or controlled by the Company and dealing with the money and/or
securities of the Fund maintain a similar bond or coverage in a reasonable
amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
<PAGE>
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and semi-
annual reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or on diskette) and other assistance as
is reasonably necessary in order for the Company (at the Company's expense) to
print such shareholder communications for distribution to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
<PAGE>
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a Portfolio
thereof) or the Adviser or the Underwriter is named, at least ten calendar days
prior to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within ten calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within ten calendar days after receipt of
such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account, within a
reasonable time after the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
<PAGE>
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, except as otherwise provided herein. The
Fund shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior to
their sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's
prospectus (in accordance with 3.1) and of distributing the Fund's prospectus,
proxy materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such
a manner as to ensure that the Contracts will be treated as annuity, endowment,
or life insurance contracts, whichever is appropriate, under the Internal
Revenue Code of 1986, as amended (the Code ) and the regulations issued
thereunder (or any successor provisions). Without limiting the scope of the
foregoing, each Designated Portfolio of the Fund will comply with Section 817(h)
of the Code and Treasury Regulation 1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
<PAGE>
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Code (or any successor or similar provision), shall
identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
<PAGE>
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six month period the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
<PAGE>
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement, prospectus, or statement of additional information ( SAI ) for the
Contracts or contained in the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement, prospectus or SAI for the
Contracts or in the Contracts or sales literature or other promotional material
(or any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature or other promotional material of the
Fund not supplied by the Company or persons under its control) or wrongful
conduct of the Company or persons under its authorization or control, with
respect to the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, SAI, or
sales literature or other promotional material of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the Company;
or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the qualification requirements specified in Article VI of this
Agreement); or
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
<PAGE>
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or SAI or sales literature or other promotional material
of the Fund (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on behalf of the Company
for use in the Registration Statement or prospectus for the Fund or in sales
literature or other promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature or other promotional
material for the Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund or Underwriter or persons under their
control, with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
SAI, or sales literature or other promotional material of the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter;
<PAGE>
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action and to settle the claim at its own expense;
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Underwriter to such
party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
<PAGE>
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to
some or all Designated Portfolios, by six (6) months' advance written notice
delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based upon the
Company's determination that shares of the Fund are not reasonably available to
meet the requirements of the Contracts; provided that such termination shall
apply only to the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the Company by the
NASD, the SEC, the Insurance Commissioner or like official of any state or any
other regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of any Account, or the
purchase of the Fund shares; provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or Underwriter by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body; provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in the event that such
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the qualifications
specified in Section 6.3 hereof; or if the Fund or Underwriter reasonably
believes that such Contracts may fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
<PAGE>
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole judgment exercised
in good faith, that the Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any termination under
Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company s assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a Legally Required Redemption ), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund
and the Underwriter the opinion of counsel for the Company (which counsel shall
be reasonably satisfactory to the Fund and the Underwriter) to the effect that
any redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
American Equity Investment Life Insurance Company
5000 Westown Parkway
<PAGE>
Suite 440
West Des Moines, Iowa 50266
Attention: C. Richard Brown
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All references herein to the Fund are to each of the undersigned
Funds as if this agreement were between such individual Fund and the Underwriter
and the Company. All references herein to the Adviser relate solely to the
Adviser of such individual Fund, as appropriate. All persons dealing with a
Fund must look solely to the property of such Fund, and in the case of a series
company, the respective Designated Portfolio listed on Schedule A hereto as
though such Designated Portfolio had separately contracted with the Company and
the Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all
<PAGE>
information reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as such information may come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Iowa Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Iowa
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted accounting
principles ( GAAP ), if any), as soon as practical and in any event within 90
days after the end of each fiscal year.
(b) the Company s quarterly statements (statutory) (and GAAP, if any),
as soon as practical and in any event within 45 days after the end of each
quarterly period.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
<PAGE>
COMPANY: AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ Terry Reimer
Title: Executive Vice President & Treasurer
Date: June 8, 1998
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: June 8, 1998
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: June 8, 1998
<PAGE>
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ Darrell N. Braman
Title: Vice President
Date: June 8, 1998
<PAGE>
SCHEDULE A
Name of Separate Account and Date Established by Board of Directors:
American Equity Life Variable Account
1/12/98
Contracts Funded by Separate Account:
Flexible Premium Variable Life Insurance Policy
Designated Portfolios:
T. Rowe Price Equity Series, Inc.
- Equity Income Portfolio
- Mid-Cap Growth Portfolio
- New America Growth Portfolio
- Personal Strategy Balanced Portfolio
T. Rowe Price International Series, Inc.
- International Stock Portfolio
Name of Separate Account and Date Established by Board of Directors:
American Equity Life Annuity Account
1/12/98
Contracts Funded by Separate Account:
Flexible Premium Deferred Variable Annuity Contract
Designated Portfolios:
T. Rowe Price Equity Series, Inc.
- Equity Income Portfolio
- Mid-Cap Growth Portfolio
- New America Growth Portfolio
- Personal Strategy Balanced Portfolio
T. Rowe Price International Series, Inc.
- International Stock Portfolio
<PAGE>
May 26, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statement on Form S-6 filed by American
Equity Investment Life Insurance Company ("Company") and its American Equity
Life Variable Account with the Securities and Exchange Commission covering
certain variable universal life insurance policies, I have examined such
documents and such law as I considered necessary and appropriate, and on the
basis of such examinations, it is my opinion that:
(1) Company is duly organized and validly existing under the laws of the State
of Iowa.
(2) The variable universal life policies, when issued as contemplated by the
said Form S-6 Registration Statement will constitute legal, validly issued
and binding obligations of American Equity Investment Life Insurance
Company.
I hereby consent to the filing of this opinion as an exhibit to the said Form
S-6 Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Prospectus contained in the said Registration Statement.
In giving this consent, I am not admitting that I am in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Wendy L. Carlson
Wendy L. Carlson
Whitfield & Eddy, P.L.C.
<PAGE>
May 26, 1998
American Equity Investment Life Insurance Company
5000 Westown Parkway; Suite 440
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by American Equity
Investment Life Insurance Company of a flexible premium variable life insurance
policy ("Policy") under the Securities Act of 1933, as amended. The prospectus
included in Pre-Effective Amendment No. 1 to the Registration Statement on Form
S-6 (File No. 333-45815) describes the Policy. I have provided actuarial advice
concerning the preparation of the policy form described in the Registration
Statement, and I am familiar with the Registration Statement and exhibits
thereto.
It is my professional opinion that:
(1) The illustrations of death benefits and cash values included in Appendix A
of the Prospectus, based on the assumptions stated in the illustrations,
are consistent with the provisions of the Policy. The rate structure of the
Policy has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear more favorable
for policyowners at the ages illustrated than for policyowners at other
ages.
(2) The information contained in the examples set forth in Appendix B of the
Prospectus, based on the assumptions stated in the examples, is consistent
with the provisions of the Policy.
(3) The fees and charges deducted under the Policy, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to
be incurred and the risks assumed by the insurance company.
I hereby consent to the use of this opinion as an exhibit to Pre-Effective
Amendment No. 1 to the Registration Statement and to the reference to my name
under the heading "Experts" in the Prospectus.
Sincerely,
/s/ Christopher G. Daniels
Christopher G. Daniels, FSA, MSAA
Consulting Actuary
American Equity Investment Life Insurance Company
<PAGE>
Ernst & Young LLP letterhead
The Board of Directors
American Equity Investment Life Insurance Company
We consent to the reference to our firm under the captions "Financial
Statements" and "Experts" and to the use of our report dated April 8, 1998 with
respect to American Equity Investment Life Insurance Company, in the
Registration Statement under the Securities Act of 1933 (Form S-6 No. 333-45815)
and related Prospectus of American Equity Life Variable Account.
Sincerely,
/s/ Ernst & Young LLP
Des Moines, Iowa
June 9, 1998
<PAGE>
[Sutherland, Asbill & Brennan LLP letterhead]
June 15, 1998
American Equity Investment Life Insurance Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of the registration statement on Form
S-6 for American Equity Life Variable Account (File No. 333-45815). In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
Stephen E. Roth, Esq.
<PAGE>
DESCRIPTION OF AMERICAN EQUITY INVESTMENT LIFE
INSURANCE COMPANY'S ISSUANCE, TRANSFER AND REDEMPTION
PROCEDURES FOR ITS FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICIES
This document sets forth the administrative procedures that will be
followed by American Equity Investment Life Insurance Company (the "Company") in
connection with the issuance of its individual flexible premium variable life
insurance policy (the "Policy") and acceptance of payments thereunder, the
transfer of assets held thereunder and the redemption by policyowners of their
interests in the Policies. Capitalized terms used herein have the same
definition as in the prospectus for the Policy that is included in the current
registration statement on Form S-6 for the Policy (File No. 333-45815) as filed
with the Securities and Exchange Commission ("Commission" or "SEC").
1. PURCHASE AND RELATED TRANSACTIONS.
Set forth below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction.
(a) PREMIUM PAYMENTS. The Policies will be offered and sold pursuant to
established underwriting standards in accordance with state insurance laws.
State insurance laws prohibit unfair discrimination, but recognize that premiums
and charges must be based upon factors such as age, sex, health and occupation.
Premiums for the Policies will not be the same for all policyowners selecting
the same Specified Amount. An initial premium, together with a completed
application, must be received by the Company before a Policy will be issued.
The minimum amount of an initial
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premium is equal to an amount that, when reduced by the premium expense charge,
will be sufficient to pay the monthly deduction for the first Policy Months.
Other than the initial premium, the Company does not require the payment of an
additional premium, and failure to pay an additional premium will not of itself
cause a Policy to lapse. The Company expects that most Policyowners will choose
to pay planned periodic premiums -- that is, level premiums at regular
(quarterly, semi-annual or annual) intervals. The Policy provides, however,
that a policyowner may pay premiums in addition to planned periodic premiums
(i.e., unscheduled premiums) if (i) the insured is then living; (ii) the
additional premium is at least $100; and (iii) the premium does not cause total
premiums paid to exceed the maximum premium limitation for the Policy
established by federal tax law. The Company reserves the right to limit the
number and amount of unscheduled premium payments. In the event that a tendered
premium causes total premiums paid to exceed the maximum premium limitation for
the Policies established by federal tax law, the Company will return the portion
of such premium which causes total premiums to exceed such limitation.
The Policy will remain in force so long as the Net Accumulated Value is
sufficient to pay the monthly deduction which consists of charges for the cost
of insurance, additional insurance benefits and administrative expenses. Thus,
the amount of the premium, if any, that must be paid to keep the Policy in force
depends upon the amount of the monthly deduction and the Net Accumulated Value
of the Policy, which in turn depends upon the investment experience of the
Subaccounts of the Variable Account.
The cost of insurance rate utilized in computing the cost of insurance
charge will not be the same for each Policyowner. The chief reason is that the
principle of pooling and distribution of
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mortality risks is based upon the assumption that the cost of insuring each
insured is commensurate with his or her mortality risk, which is actuarially
determined based upon factors such as attained age, sex and premium class.
Accordingly, while not all insureds will be subject to the same cost of
insurance rate, there will be a single rate for all insureds in a given
actuarial category.
(b) INITIAL PREMIUM PROCESSING. Upon receipt of a completed application
for a Policy, the Company will follow certain insurance underwriting (i.e.,
evaluation of risk) procedures designed to determine whether the proposed
insured is insurable. This process may involve medical examinations or other
verification procedures and may require that certain further information be
provided by the applicant before a determination can be made. A Policy will not
be issued until this underwriting procedure has been completed. The effective
date of insurance coverage under the Policy will be the latest of (i) the policy
date, (ii) if an amendment to the initial application is required pursuant to
the Company's underwriting rules, the date the insured signs the last such
amendment, or (iii) the date on which the full initial premium is received by
the Company at its Home Office. The policy date will be the later of (i) the
date of the initial application, or (ii) if additional medical or other
information is required pursuant to the Company's underwriting rules, the date
such information is received by the Company at its Home Office. The policy date
may also be any other date mutually agreed to by the Company and the
Policyowner. If the policy date would fall on the 29th, 30th or 31st of any
month, the policy date will instead be the 28th of such month. Applicants who
pay the initial premium at the time of submission of the application will be
issued a conditional receipt which provides that if the applicant dies during
the underwriting period, he or she will receive the death benefit provided for
in such conditional receipt if he or she would have
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<PAGE>
been found to be insurable under the Company's normal underwriting procedures.
The initial net premium (the initial premium reduced by a premium expense
charge) will be allocated automatically to the Declared Interest Option as of
the policy date. The initial net premium will remain in the Declared Interest
Option until the Company receives, at its Home Office, a notice signed by the
policyowner that the Policy has been received and accepted. At that time, the
Accumulated Value in the Declared Interest Option automatically will be
allocated among the Subaccounts and Declared Interest Option pursuant to the
allocation instructions set forth in the application for the Policy. No charge
is imposed in connection with this initial allocation.
(c) PREMIUM ALLOCATION. The policyowner may allocate net premiums among
the Subaccounts or the Declared Interest Option. The Variable Account currently
has 15 Subaccounts, each of which invests exclusively in shares of one of the
corresponding portfolios of the EquiTrust Variable Insurance Series Fund, T.
Rowe Price Equity Series, Inc., T. Rowe Price International Series, Inc., and
Dreyfus Variable Investment Fund (each a "Fund"). Each Fund is a series-type
mutual fund and is registered with the Securities and Exchange Commission as an
open-end diversified management investment company.
The policyowner must indicate the initial allocation of premiums in the
application for the Policy. Net premiums will continue to be allocated in
accordance with the policyowner's allocation instructions in the application
unless contrary written instructions are received by the Company. The change
will take effect on the date the written notice is received at the Home Office.
Once a change in allocation is made, all future net premiums will be allocated
in accordance with the new allocation instructions, unless contrary written
instructions are provided by the policyowner. The minimum
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<PAGE>
percentage of each premium that may be allocated to any Subaccount or the
Declared Interest Option is 10%; fractional percentages are not permitted. No
charge is imposed for any change in net premium allocation.
(d) EXCHANGE PRIVILEGE. The Company will permit the owner of a flexible
premium fixed-benefit life insurance policy issued by the Company or an
affiliated ("fixed-benefit policy"), within 12 months of the policy date shown
in such policy, to exchange his or her policy for a Policy on the life of the
insured.
The policy date will be the date the application for the Policy is signed.
The Policy will have a specified amount equal to the specified amount of the
fixed-benefit policy. No evidence of insurability is required to exercise this
privilege. The insured will be placed in the premium class applicable to the
initial specified amount under the fixed-benefit policy, unless there has been
an underwritten increase in specified amount, in which event the insured will be
placed, with respect to the entire specified amount under the Policy, in the
premium class applicable to such increase in specified amount.
The net cash value of the fixed-benefit policy will initially be allocated
to the Declared Interest Option. When the Company receives, at its Home Office,
a notice signed by the policyowner that the Policy has been received and
accepted, the amount initially allocated to the Declared Interest Option
automatically will be transferred among the Subaccounts and the Declared
Interest Option pursuant to the allocation instructions set forth in the
application for the Policy.
The Company will waive the premium expense charge and premium taxes on the
net cash value of the fixed-benefit policy applied to the Policy pursuant to the
exchange. In addition, the
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<PAGE>
Company will assess the first year monthly administrative charge only to the
extent that 12 monthly per $1,000 charges under the fixed-benefit policy have
not been assessed. Otherwise, charges and deductions will be made in the
usual manner.
An exchanging owner will not be permitted to carry over any outstanding
loans under his fixed-benefit policy. Any outstanding loan and loan interest
must be repaid prior to the date of exchange. If not repaid prior to the date
of exchange, the amount of the outstanding loan and interest thereon will be
reflected in the net cash value of the fixed-benefit policy.
(e) REINSTATEMENT. Prior to the maturity date, a lapsed policy (other
than a surrendered Policy) may be reinstated at any time within five years of
the monthly deduction day immediately preceding the grace period which expired
without payment of the required premium. In order to reinstate a Policy, a
policyowner must submit: (i) a written application for reinstatement signed by
the insured and the policyowner; (ii) evidence of insurability satisfactory to
the Company; (iii) payment of a premium that, after deduction of the premium
expense charge, is at least sufficient to keep the Policy in force for three
months; and (iv) an amount equal to the monthly cost of insurance charge for the
two policy months prior to lapse. The effective date of reinstatement will be
the monthly deduction day coinciding with or next following the date of approval
by the Company of the application for reinstatement.
(f) REPAYMENT OF POLICY DEBT. A loan made under the Policy will be
subject to interest charges at the loan interest rate stated in the Policy from
the date that the loan is made. Outstanding policy debt may be repaid in whole
or in part prior to the maturity date at any time during the insured's life so
long as the Policy is in force. Any payments made by the policyowner while
there
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<PAGE>
is outstanding policy debt are treated first as repayment of policy debt, unless
the owner indicates otherwise. When a repayment of the debt is made, the
portion of the accumulated value in the Declared Interest Option securing the
repaid portion of the policy debt will no longer be segregated within the
Declared Interest Option as security for policy debt, but will remain in the
Declared Interest Option unless and until transferred to the Variable Account by
the Policyowner.
(g) CORRECTION OF MISSTATEMENT OF AGE OR SEX. If the insured's age or sex
was misstated in an application, the Company will recalculate the accumulated
value to be the amount it would have been had the cost of insurance been based
on the correct age and sex of the insured. If the insured has died, the Company
will pay the death proceeds that would have been payable at the insured's
correct age and sex.
2. TRANSFERS.
Amounts may be transferred among the Subaccounts an unlimited number of
times per year. Only one transfer per policy year may be made between the
Declared Interest Option and the Variable Account. The amount of this transfer
must be at least $100 or the total accumulated value in the Subaccount, or the
total accumulated value in the Declared Interest Option reduced by any
outstanding policy debt, if less than $100. The Company may, at its discretion,
waive the $100 minimum requirement. The transfer will be effective as of the
end of the valuation period during which the request is received at the Home
Office. The first transfer in each policy year will be made without charge;
each time amounts are subsequently transferred in that policy year, a transfer
charge of $25 will be assessed. Transfers resulting from the making of policy
loans will not be considered transfers for the purposes of these limitations and
charges. All transfers effected on the same day
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<PAGE>
will be considered a single transfer for purposes of these limitations and
charges. Transfers are made by written request to the Home Office or by
telephone if the policyowner has elected the Telephone Transfer Authorization.
3. REDEMPTION PROCEDURES - SURRENDER AND RELATED TRANSACTIONS
This section outlines those procedures which might be deemed to constitute
redemptions under the Policy. These procedures differ in certain significant
respects from the redemption procedures for mutual funds and annuity plans.
(a) SURRENDER. At any time prior to the maturity date while the Policy is
in force, a policyowner may surrender the Policy in whole or in part by sending
a written request to the Company at its Home Office. A surrender charge equal
to the lesser of $25 or 2.0% of the amount requested will be payable upon
complete surrender and upon each partial surrender.
The amount payable on complete surrender of the Policy is the net surrender
value at the end of the valuation period during which the surrender request is
received. If the entire net accumulated value is surrendered, all insurance in
force will terminate. A partial surrender must be at least $500 and cannot
exceed the lesser of (i) the net accumulated value less $500, or (2) 90% of the
net accumulated value. The policyowner may request that the proceeds of a
complete or partial surrender be paid in a lump sum or under one of the payment
options specified in the Policy.
A partial surrender will be allocated among the Subaccounts and Declared
Interest Option in accordance with the written instructions of the policyowner.
If no such instructions are received with the request for partial surrender, the
partial surrender will be allocated among the Subaccounts and Declared Interest
Option in the same proportion that the accumulated value in each of the
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Subaccounts and the accumulated value in the Declared Interest Option, reduced
by any outstanding Policy Debt, bears to the total accumulated value, reduced by
any outstanding Policy Debt, on the date the request is received at the Home
Office.
Surrender proceeds ordinarily will be mailed to the policyowner within
seven days after the Company receives a signed request for a surrender at its
Home Office, although payments may be postponed whenever: (i) the New York
Stock Exchange is closed other than customary weekend and holiday closing, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission; (ii) the Commission by order permits
postponement for the protection of policyowners; or (iii) an emergency exists,
as determined by the Commission, as a result of which disposal of securities is
not reasonably practicable, or it is not reasonably practicable to determine the
value of the net assets of the Variable Account. Payments under the Policy which
are derived from any amount paid to the Company by check or draft may be
postponed until such time as the Company is satisfied that the check or draft
has cleared the bank upon which it is drawn.
(b) PAYMENT OF DEATH PROCEEDS. So long as the Policy remains in force,
the Company will, upon due proof of the insured's death, pay the death proceeds
to the primary or a contingent beneficiary (or if no beneficiary survives the
insured, to the policyowner or his estate). In determining the amount of the
death proceeds, the death benefit will be reduced by any outstanding policy debt
and increased by any unearned loan interest and any premiums paid after the date
of death. The amount of the death benefit payable under a Policy will depend
upon the death benefit option in effect at the time of the Insured's death.
Under Option A, the death benefit will be equal to the greater of (i) the sum of
the current specified amount and the accumulated value, or (ii) the
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<PAGE>
accumulated value multiplied by the specified amount factor. Under Option B, the
death benefit will be equal to the greater of (i) the current specified amount,
or (ii) the accumulated value multiplied by the specified amount factor.
Accumulated value will be determined as of the end of the Business Day
coinciding with or immediately following the date of death. The specified
amount factors referred to above are determined by the "cash value corridor"
mandated by Section 7702 of the Internal Revenue Code. The factor is 2.50 for
those under 40 years of age and declines as the insured's attained age increases
until it becomes 1.0 at age 115.
The death proceeds will be paid to the beneficiary in one lump sum or under
any of the payment options set forth in the Policy, which include payments of
interest only, payments for a fixed period, payments for life with a term
certain, payments of a fixed amount, and a joint and two-thirds survivor monthly
life income. The Company may also provide other payment options in the future.
If the insured is still alive and the Policy is in force on the maturity
date (i.e., the insured's 115th birthday), the Company will pay the policyowner
the accumulated value of the Policy reduced by an outstanding policy debt.
All payments of death benefits and maturity proceeds are ordinarily mailed
within seven days after the Company receives due proof of the insured's death or
within seven days of the maturity date, unless a payment option is chosen.
However, payment may be delayed for more than seven days under the same
circumstances described above with respect to surrender payments.
(c) POLICY LOANS. So long as the Policy remains in force and has a
positive net surrender value, a policyowner may borrow money from the Company at
any time using the Policy as the sole security for the policy loan. The maximum
amount that may be borrowed at any time is 90% of the net surrender value as of
the end of the valuation period during which the request for the policy loan is
received at the Home Office, less any previously outstanding policy debt.
Policy debt equals the sum of all
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unpaid policy loans and any due and unpaid policy loan interest. Policy debt
may be repaid in whole or in part any time during the insured's life and before
the maturity date so long as the Policy is in force.
When a policy loan is made, an amount equal to the policy loan will be
segregated within the Declared Interest Option as security for the policy loan.
If, immediately prior to the policy loan, the accumulated value in the Declared
Interest Option less policy debt outstanding immediately prior to such policy
loan is less than the amount of such policy loan, the difference will be
transferred from the Subaccounts which have accumulated value in the same
proportions that the Policy's accumulated value in each Subaccount bears to the
Policy's total accumulated value in the Variable Account. No charge will be
made for those transfers. Accumulated values will be determined as of the end
of the valuation period during which the request for the policy loan is received
at the home office.
Policy loan proceeds normally will be mailed to the policyowner within
seven days after receipt of a written request. Postponement of a policy loan may
take place under the same circumstances described above with respect to
surrender payments.
Amounts segregated within the Declared Interest Option as security for
policy debt will bear interest at an annual rate determined and declared by the
Company. The interest credited will remain in the Declared Interest Option
unless and until transferred by the policyowner to the Variable Account, but
will not be segregated within the Declared Interest Option as security for
policy debt.
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<PAGE>
The interest rate charged on policy loans is not fixed. Initially, it will
be the rate shown in the Policy on the policy data page. The Company may at any
time elect to change the interest rate, subject to certain conditions specified
in the Policy and prospectus. The Company will send notice of any change in
rate to the policyowner. The new rate will take effect on the policy
anniversary coinciding with or next following the date the rate is changed.
Interest is payable in advance at the time any policy loan is made (for the
remainder of the policy year) and on each policy anniversary thereafter (for the
entire policy year) so long as there is policy debt outstanding. Interest
payable at the time a policy loan is made will be subtracted from the loan
proceeds. Thereafter, interest not paid when due will be added to the existing
policy debt and bear interest at the same rate charged for policy loans. An
amount equal to unpaid interest will be segregated within the Declared Interest
Option in the same manner that amounts for policy loans are segregated within
the Declared Interest Option.
Because interest is charged in advance, any interest that has not been
earned will be added to the death benefit payable at the insured's death and to
the accumulated value upon complete surrender, and will be credited to the
accumulated value in the Declared Interest Option upon repayment of policy debt.
(d) POLICY TERMINATION. The Policy will terminate and lapse only when net
accumulated value is insufficient on a monthly deduction day to cover the
monthly deduction and a grace period expires without payment of a sufficient
premium. A grace period of 61 days begins on the date on which the Company
sends written notice
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of any insufficiency to the policyowner. The notice will be sent to the
policyowner's last known address on file with the Company. The notice will
specify the premium payment that, if received during the grace period, will be
sufficient to keep the Policy in force. If the Company does not receive the
premium payment on or before the last day of the grace period, the Policy will
terminate and insurance coverage and all rights thereunder will cease.
Insurance coverage will continue during the grace period. The amount of the
premium sufficient to keep the Policy in force beyond the grace period is an
amount equal to three times the monthly deduction due on the monthly deduction
day immediately preceding the grace period. A terminated Policy (other than a
surrendered Policy) may be reinstated prior to the maturity date at any time
within five years of the monthly deduction day immediately preceding the grace
period which expired without payment of the required premium.
(e) CANCELLATION PRIVILEGE. The policyowner may cancel the Policy by
delivering or mailing written notice or sending a telegram to the Company at its
Home Office, and returning the Policy to the Company at its Home Office before
midnight of the twentieth day after receipt of the Policy. With respect to all
Policies, the Company will refund, within seven days after receipt of the notice
of cancellation and the returned Policy at its Home Office, an amount equal to
the greater of premiums paid or the accumulated value plus an amount equal to
any charges that have been deducted from premiums, accumulated value and the
Variable Account.
(f) SPECIAL TRANSFER PRIVILEGE. A policyowner may, at any time prior to
the maturity date while the Policy is in force, convert the Policy to a flexible
premium
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fixed-benefit life insurance policy by requesting that all of the accumulated
value in the Variable Account be transferred to the Declared Interest Option.
The policyowner may exercise this special transfer privilege once each policy
year. Once a policyowner exercises the special transfer privilege, all future
premium payments will automatically be credited to the Declared Interest Option,
until such time as the policyowner requests a change in allocation. No charge
will be imposed for any transfers resulting from the exercise of this special
transfer privilege.
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