<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2 / /
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. 20004-2404
------------------------
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. Farm Bureau Life Insurance Company; The Variable Account
6. The Variable Account
7. Not Required
8. Not Required
9. Legal Proceedings
10. Summary; The Variable Account; FBL Variable Insurance Series Fund; Charges and Deductions; Policy Benefits;
Voting Rights; General Provisions
11. Summary; FBL Variable Insurance Series Fund
12. Summary; FBL Variable Insurance Series Fund
13. Summary; Charges and Deductions; FBL Variable Insurance Series Fund
14. Summary; Premiums
15. Premiums
16. Premiums; FBL Variable Insurance Series Fund
17. Summary; Charges and Deductions; Policy Benefits; FBL Variable Insurance Series Fund
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. Farm Bureau Life Insurance Company
26. Not Applicable
27. Farm Bureau Life Insurance Company
28. Executive Officers and Directors of Farm Bureau Life Insurance Company
29. Farm Bureau 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. Farm Bureau 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. FBL Variable Insurance Series Fund
48. Not Applicable
49. Not Applicable
50. The Variable Account
51. Cover Page; Summary; Charges and Deductions; Policy Benefits; Premiums
52. FBL Variable Insurance Series Fund
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>
[Logo]
VARIABLE UNIVERSAL LIFE
July , 1998
Prospectus for:
Flexible Premium Variable
Life Insurance Policies
issued by
American Equity Investment Life
Insurance Company
-------------------------------------------
Call Toll-Free
1-800-
(Des Moines)
<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: ; ; or ; . The accompanying prospectus for each Fund
describes the investment objectives and attendant risks of each Investment
Option. [Information on additional Investment Options to be provided by
amendment.]
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
THE DATE OF THIS PROSPECTUS IS JULY , 1998.
<PAGE>
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TABLE OF CONTENTS
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PAGE
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...................... 8
Tax Treatment..................................... 8
Cancellation Privilege............................ 8
Illustrations..................................... 9
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AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY AND THE VARIABLE 10
ACCOUNT...............................................................
American Equity Investment Life Insurance 10
Company...........................................
The Variable Account.............................. 10
Investment Options................................ 10
Addition, Deletion or Substitution of 13
Investments.......................................
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THE POLICY............................................................ 14
Purpose of the Policy............................. 14
Purchasing the Policy............................. 15
Premiums.......................................... 15
Policy Lapse and Reinstatement.................... 16
Examination of Policy (Cancellation Privilege).... 17
Special Transfer Privilege........................ 17
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POLICY BENEFITS....................................................... 18
Accumulated Value Benefits........................ 18
Transfers......................................... 20
Loan Benefits..................................... 21
Death Proceeds.................................... 22
Accelerated Payments of Death Proceeds............ 25
Benefits at Maturity.............................. 26
Payment Options................................... 26
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CHARGES AND DEDUCTIONS................................................ 27
Premium Expense Charge............................ 27
Monthly Deduction................................. 27
Transfer Charge................................... 29
Partial Withdrawal Fee............................ 30
Surrender Charge.................................. 30
Variable Account Charges.......................... 30
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THE DECLARED INTEREST OPTION.......................................... 30
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GENERAL PROVISIONS.................................................... 32
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DISTRIBUTION OF THE POLICIES.......................................... 34
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FEDERAL TAX MATTERS................................................... 34
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ADDITIONAL INFORMATION................................................ 38
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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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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 plus the value of the
Policy in the Declared Interest Option.
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 Thursday 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
Subaccount, the Subaccount, the
Subaccount, the Subaccount, the
Subaccount, the Subaccount, the
Subaccount, the Subaccount,
the Subaccount and the
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.")
- --------------------------------------------------------------------------------
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.")
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
6
<PAGE>
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.
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
7
<PAGE>
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%.)
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>
ADVISORY OTHER TOTAL
INVESTMENT OPTION FEE EXPENSES EXPENSES
- ------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Value Growth
High Grade Bond
High Yield Bond
Blue Chip
Money Market
Investment Option F
Investment Option G
Investment Option H
Investment Option I
Investment Option J
Investment Option K
Investment Option L
Investment Option M
Investment Option N
Investment Option O
</TABLE>
- --------------------------------------------------------------------------------
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 approximately equal to any charges which have been
deducted from premiums, Accumulated Value and the
Variable Account. (See "THE POLICY--Examination of Policy
(Cancellation Privilege).")
8
<PAGE>
- --------------------------------------------------------------------------------
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."
9
<PAGE>
- --------------------------------------------------------------------------------
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, Idaho,
Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland,
Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada,
North Dakota, Ohio, Oregon, Pennsylvania, South Carolina,
South Dakota, Texas, Utah, Washington, West Virginia,
Wisconsin and the District of Columbia.
- --------------------------------------------------------------------------------
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 Portfolio,
Portfolio, Portfolio,
Portfolio and Portfolio of
and the Portfolio,
Portfolio, Portfolio,
Portfolio and Portfolio
of . 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
10
<PAGE>
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
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.
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.
11
<PAGE>
PORTFOLIO.
PORTFOLIO.
PORTFOLIO.
PORTFOLIO.
PORTFOLIO.
PORTFOLIO.
PORTFOLIO.
PORTFOLIO.
12
<PAGE>
PORTFOLIO.
PORTFOLIO.
EquiTrust Variable Insurance Series Fund currently sells
shares only to the Variable Account and to separate
accounts of the Company supporting other variable life
insurance policies and variable annuity contracts.
EquiTrust Variable Insurance Series Fund may in the
future sell shares to other separate accounts of the
Company or its life insurance company affiliates
supporting other variable insurance products, or to
variable life insurance and variable annuity separate
accounts of insurance companies not affiliated with the
Company. The other 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.)
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.
[Additional information on Investment Options to be
provided by amendment.]
- --------------------------------------------------------------------------------
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
13
<PAGE>
the Investment Company Act of 1940 or other applicable
law. Nothing contained in 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.
14
<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
15
<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
16
<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
approximately 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
17
<PAGE>
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.
- --------------------------------------------------------------------------------
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 $25 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 Accumulated Value. The amount
requested for partial withdrawal must be at least $500
and cannot exceed the lesser of (1) the Net Accumulated
Value less $500, or (2) 90% of the Net Accumulated 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
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<PAGE>
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.")
Partial withdrawals will reduce the Policy's Specified
Amount by the amount of Cash 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.
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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 (800) 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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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 and therefore Net Accumulated Value is reduced by
the amount of any 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."
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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
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<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
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<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.
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<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.
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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.
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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.
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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 $20; 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.
26
<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, the
monthly deduction will be
27
<PAGE>
deducted on the preceding Business 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, 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%.
28
<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
29
<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 of $25 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. At the time of a requested
decrease in Specified Amount, the full original Surrender
Charge stays in place. 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.
30
<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.
31
<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
32
<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.
33
<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
Subject to certain requirements, one or more of the
following additional insurance
BENEFITS
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
34
<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.
35
<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
36
<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.
37
<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
COMPANY
At 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
38
<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.
39
<PAGE>
- --------------------------------------------------------------------------------
OFFICERS AND
DIRECTORS OF AMERICAN
EQUITY INVESTMENT
LIFE INSURANCE
COMPANY
<TABLE>
<CAPTION>
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.
40
<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
There are no legal proceedings to which the Variable
Account is a party or to which the assets of the Variable
Account are subject. The Company is not involved in any
litigation that is of material importance in relation to
its total assets or that relates to the Variable Account.
- --------------------------------------------------------------------------------
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 firms as experts in
accounting and auditing.
Actuarial matters included in this Prospectus have been
examined by Christopher G. Daniels, FSA, MAAA, Life
Product Development and Pricing Vice President, as stated
in the opinion filed as an exhibit to the registration
statement.
[Financial statements to be provided by amendment.]
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The balance sheets of the Company at December 31, 1997
and 1996 and the related statements of operations,
changes in stockholders' 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.
It is anticipated that the Variable Account will commence
operations in 1998; accordingly, no financial statements
currently exist for the Variable Account.
[Financial statements to be provided by amendment.]
41
<PAGE>
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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%, 6% and 12%. 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%, 6% and 12% 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 % 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 take 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 % to an annual
rate of % 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 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 % of average net assets,
the gross annual rates of investment return of 0%, 6% and
12% would produce net annual rate of return of %, %
and %, respectively, during the ten Policy Years, and
%, % and %, respectively, after that.
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%, 6% or
12% 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.
[Additional Investment Options and Illustrations to be
provided by amendment.]
A-1
<PAGE>
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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>
AMERICAN EQUITY INVESTMENT LIFE INSURANCE
COMPANY
5000 WESTOWN PARKWAY: SUITE 440
WEST DES MOINES, IOWA 50266
( )
<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 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, Life Product Development and Pricing
Vice President
The following exhibits:
<TABLE>
<S> <C> <C>
1.A. 1. * Certified Resolution of the Board of Directors of the Company establishing the Variable
Account.
2. None.
3. (a) Form of Principal Underwriting Agreement
(b)(I) Forms of Career Agent's Contract.
(ii) Forms of Financed Career Agent's Contract.
(c) Commission schedules. (See Exhibits 3(b)(I) and 3(b)(ii) above.)
4. None.
5. * (a) Form of Policy
(b) State variation of Form of Policy.
(c) Form of Application.
6. * (a) Articles of Incorporation of the Company.
* (b) By-Laws of the Company.
7. None.
8. None.
9. Form of Participation Agreement.
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, L.L.P.
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
</TABLE>
- ------------------------
* Attached as an exhibit.
[Remaining exhibits to be filed by amendment.]
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 12th day of
January, 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/ Perry Reimer
---------------------------------------------
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
- -----------------------
D.J. Noble Chairman and Director January 12, 1998
[Principal Executive Officer]
/s/ Terry A. Reimer
- -----------------------
Terry A. Reimer Chief Financial Officer and January 12, 1998
Director
[Principal Financial Officer]
[Principal Accounting Officer]
/s/ James M. Gerlach
- -----------------------
James M. Gerlach Director January 12, 1998
<PAGE>
/s/ David S. Mulcahy
- -----------------------
David S. Mulcahy Director January 12, 1998
/s/ William J. Oddy
- -----------------------
William J. Oddy Director January 12, 1998
/s/ Debra J. Richardson
- -----------------------
Debra J. Richardson Director January 12, 1998
/s/ Jack W. Schroeder
- ----------------------
Jack W. Schroeder Director January 12, 1998
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 12th day of January, 1998.
American Equity Life Variable Account
(Registrant)
By: /s/ D.J. Noble President
-------------------------------------------------
American Equity Investment Life Insurance Company
(Depositor)
By: /s/ D.J. Noble
-------------------------------------------------
D.J. Noble
Chairman
American Equity Investment Life Insurance Company
* By Attorney-In-Fact, pursuant to Power of Attorney.
------------------
<PAGE>
RESOLUTIONS ADOPTED BY
THE BOARD OF DIRECTORS OF
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
January 12, 1998
RESOLVED, that the Board of Directors of American Equity Investment Life
Insurance Company (the "Company"), hereby establishes a separate account,
pursuant to the provisions of Section 508A.1 of the Insurance Laws of the State
of Iowa, designated American Equity Life Variable Account (hereinafter the
"Variable Account"), for the following use and purposes, and subject to such
conditions as hereinafter set forth; and
FURTHER RESOLVED, that the Variable Account is established for the purpose of
providing for the issuance by the Company of certain variable life insurance
policies (the "Policies"), and shall constitute a funding medium to support
reserves under such Policies issued by the Company; and
FURTHER RESOLVED, that the income, gains and losses, realized or unrealized,
from assets allocated to the Variable Account shall be credited to or charged
against the Variable Account, without regard to other income, gains or losses of
the Company; and
FURTHER RESOLVED, that the assets of the Variable Account equal to the reserves
and other liabilities under the Policies and any other variable life insurance
policies issued through the Variable Account may not be charged with liabilities
arising out of any other business the Company may conduct; and
FURTHER RESOLVED, that the Variable Account shall be divided into investment
subaccounts (the "Subaccounts"), each of which shall invest in the shares of a
mutual fund portfolio, and net premiums under the Policies shall be allocated
among the Subaccounts in accordance with instructions received from owners of
the Policies; and
FURTHER RESOLVED, that Executive Committee of the Board of Directors be, and
hereby is, authorized to add or remove any Subaccount of the Variable Account or
add or remove any mutual fund portfolio as may hereafter be deemed necessary or
appropriate; and
FURTHER RESOLVED, that the income, gains and losses, realized or unrealized,
from assets allocated to each Subaccount of the Variable Account shall be
credited to or charged against such Subaccount of the Variable Account, without
regard to other income, gains or losses of any other Subaccount of the Variable
Account; and
FURTHER RESOLVED, that Executive Committee be, and it hereby is, authorized to
invest such amount or amounts of the Company's cash in the Variable Account or
in any Subaccount thereof or in any mutual fund portfolio as may be deemed
necessary or
1
<PAGE>
appropriate to facilitate the commencement of the Variable Account's and/ or the
mutual fund portfolio's operations and/ or to meet any minimum capital
requirements under the Investment Company Act of 1940, as amended (the "1940
Act"); and
FURTHER RESOLVED, that the Executive Committee (hereafter, the "empowered
officers") and each of them, with full power to act without the others, be, and
they hereby are, severally authorized to transfer cash from time to time from
the Company's general account to the Variable Account, or from the Variable
Account to the general account, as deemed necessary or appropriate and
consistent with the terms of the Policies; and
FURTHER RESOLVED, that the Board of Directors of the Company reserves the right
to change the designation of the Variable Account hereafter to such other
designation as it may deem necessary or appropriate; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, with such assistance from the Company's independent
certified public accountants, legal counsel and independent consultants or
others as they may require, be, and they hereby are, severally authorized and
directed to take all action necessary to: (a) register the Policies under the
Variable Account as a unit investment trust under the 1940 Act; (b) register the
Policies under the Securities Act of 1933 (the "1933 Act), and (c) take all
other actions that are necessary in connection with the offering of the Policies
for sale and the operation of the Variable Account in order to comply with the
1940 Act, the 1933 Act, the 1933 Securities Exchange Act of 1934 and other
applicable Federal laws, including the filing of any registration statements,
any undertakings, no-action requests, consents, applications for exemptions from
the 1940 Act or other applicable federal laws, and any amendments to the
foregoing as the empowered officers of the Company shall deem necessary and
appropriate; and
FURTHER RESOLVED, that the empowered officers, and each of them, with full power
to act without the others, are severally authorized to prepare, execute and
cause to be filed with the Securities and Exchange Commission on behalf of the
Variable Account, and by the Company as sponsor and depositor, a Notification of
Registration on Form N-8A, a registration statement on Form N-8B-2, and a
registration statement on Form S-6 registering the Variable Account under the
1940 Act and registering the Policies under the 1933 Act, and any and all
amendments to the foregoing on behalf of the Variable Account and the Company
and on behalf of and as attorneys-in-fact for the empowered officers and/ or any
other officer of the Company; and
FURTHER RESOLVED, that Debra J. Richardson, Vice President and Secretary (and
any successor to such position), is duly appointed as agent for service under
any such registration statement, duly authorized to receive communications and
notices from the Securities and Exchange Commission with respect thereto; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, are severally authorized on behalf of the Variable
Account and on behalf of the Company to take any and all such action that each
of them may deem
2
<PAGE>
necessary or advisable in order to offer and sell the Policies, including any
registrations, filings and qualifications both of the Company, its officers,
agents and employees, and of the Policies, under the insurance and securities
laws of any of the states of the United States of America or other
jurisdictions, and in connection therewith to prepare, execute, deliver and file
all such applications, requests, undertakings, reports, covenants, resolutions,
applications for exemptions, consents to service of process and other papers and
instruments as may be required under such laws, and to take any and all further
action which such officers or legal counsel of the Company may deem necessary or
desirable (including entering into whatever agreements and contracts may be
necessary) in order to maintain such registrations or qualifications for as long
as the officers or legal counsel deem it to be in the best interests of the
Variable Account and the Company; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, be, and they hereby are, severally authorized in the
names and on behalf of the Variable Account and the Company: (a) to execute and
file irrevocable written consents on the part of the Variable Account and of the
Company to be used in such states wherein such consents to service of process
may be required under the insurance or securities laws therein in connection
with the registration or qualification of the Policies; and (b) to appoint the
appropriate state official, or such other person as may be allowed by insurance
or securities laws, agent of the Variable Account and of the Company for the
purpose of receiving and accepting process; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, be, and hereby are, severally authorized to establish
procedures under which the Company will provide voting rights for owners of the
Policies with respect to securities owned by the Variable Account; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, are hereby severally authorized to execute such
agreement or agreements as deemed necessary and appropriate (a) with a qualified
entity under which such entity will be appointed principal underwriter and
distributor for the Policies, (b) with one or more qualified entities to provide
administrative services in connection with the establishment and maintenance of
the Variable Account and the administration of the Policies, and (c) with the
designated mutual fund portfolios and/ or the principal underwriter and
distributor of such mutual fund portfolios for the purchase and redemption of
portfolio shares; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, are hereby severally authorized to execute and
deliver such agreements and other documents and do such acts and things as each
of them may deem necessary or desirable to carry out the foregoing resolutions
and the intent and purposes thereof.
FURTHER RESOLVED, that the Company hereby adopts and establishes the following
Standards of Suitability for its officers, employees, and agents with respect to
the suitability of the Policies for applicants:
3
<PAGE>
1. No recommendation shall be made to an applicant to purchase a Policy, and
no Policy shall be issued, in the absence of reasonable grounds to believe
that the purchase of the Policy is suitable for the applicant on the basis
of information furnished after reasonable inquiry of the applicant
concerning the applicant's insurance and investment objectives, financial
situation and needs, and any other information known to the Company or to
the agent making the recommendation;
2. A good faith, reasonable inquiry shall be made as to the facts and
circumstances concerning a prospective Policy owner's insurance and
financial needs and no recommendation shall be made that the prospective
Policy owner purchase a Policy when such a purchase is not reasonable
consistent with the information that is known or reasonably should be known
to the Company or its agents. In making such recommendation, factors which
may be considered are: age, earnings, marital status, number and age of
dependents, the value of savings or other assets, and current life
insurance program.
Additionally, the Company's agents, as registered representatives, will be
subject to supervision by a registered broker-dealer with respect to suitability
and other sales practices under the NASD Conduct Rules of NASD Regulation, Inc;
and
FURTHER RESOLVED, that the Company hereby adopts and establishes the following
Standards of Conduct for itself and its officers, directors, and employees
(each, an "Employee) with respect to the purchase or sale of investments of the
Variable Account:
No Employee shall:
1. Employ any device, scheme or artifice to defraud the Variable Account or
the owners of the Policies;
2. Make any untrue statement of a material fact with respect to the
investments of the Variable Account or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances in which they were made, not misleading;
3. Engage in any act, practice or course of business that operates or would
operate as a fraud or deceit upon the Variable Account or the owners of the
Policies;
4. Engage in any manipulative practice with respect to the Variable Account
or the owners of the Policies;
5. Sell to, or purchase from the Variable Account any securities or other
property, except as permitted under applicable laws, rules, regulations,
order, or other interpretation of any government, agency, or
self-regulatory organization.
6. Purchase or allow to be purchased for the Variable Account any securities
of which the Company or an affiliated company is the issuer, except as
permitted under applicable laws, rules, regulations, order, or other
interpretation of any government, agency, or self-regulatory organization.
4
<PAGE>
7. Accept any compensation other than regular salary or wages from the Company
or an affiliated company for the sale or purchase of investment securities
to or from the Variable Account except as permitted under applicable laws,
rules, regulations, orders, or other interpretations of any government,
agency or self-regulatory organization;
8. Engage in any joint transaction, participation or common undertaking
whereby the Company or an affiliated company participates with the Variable
Account in any transaction in which the Company or an affiliated company
obtains an advantage in the price or quality of an item purchased, the
service received or in the cost of such service, and the Variable Account
or the owners of the Policies are disadvantaged in any of these respects by
the same transaction; or
9. Borrow money or securities from the Variable Account other than under a
Policy loan provision.
FURTHER RESOLVED, that the Company shall require any third party providing
administrative services to the Variable Account to adopt Standards of Conduct
encompassing the standards set forth above.
5
<PAGE>
NON-PARTICIPATING
FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
DEATH PROCEEDS PAYABLE AT THE INSURED'S DEATH PRIOR TO THE MATURITY DATE.
FLEXIBLE PREMIUMS PAYABLE FOR THE INSURED'S LIFE OR UNTIL THE MATURITY DATE. THE
AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT MAY VARY UNDER
THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT PROVISIONS. THE CASH VALUE IN THE
VARIABLE ACCOUNT IS BASED ON THE INVESTMENT EXPERIENCE OF THAT ACCOUNT AND MAY
INCREASE OR DECREASE DAILY. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT. THE
VARIABLE FEATURES OF THIS POLICY ARE DESCRIBED ON PAGES 13 THROUGH 15.
Farm Bureau Life Insurance Company will pay the benefits of this policy subject
to all of its terms.
RIGHT TO EXAMINE POLICY
The owner may cancel this policy by delivering or mailing a written notice or
sending a telegram or fax to the agent through whom it was purchased or the Farm
Bureau Life Insurance Company, 5400 University Avenue, West Des Moines, Iowa
50266-5997 and by returning the policy or contract before midnight of the
twentieth day after the date you receive the policy. Notice given by mail and
return of the policy or contract by mail are effective on being postmarked,
properly addressed and postage prepaid. Farm Bureau Life will refund within
seven days after it receives notice of cancellation and the returned policy an
amount equal to the greater of the premiums paid or the sum of:
a) the accumulated value of the policy on the date the policy is received at
our home office;
b) any premium expense charges which were deducted from premiums;
c) monthly deductions made on the policy date and any monthly deduction day;
and
d) amounts approximating daily charges against the variable account.
Signed for and on behalf of Farm Bureau Life Insurance Company at its home
office at 5400 University Avenue, West Des Moines, Iowa 50266-5997, effective as
of the date of issue of this policy.
/s/ Edward M. Wiederstein /s/ Richard D. Harris
President Secretary
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266-5997
[LOGO]
<PAGE>
This policy is a legal contract between the owner and Farm Bureau Life Insurance
Company.
READ YOUR POLICY CAREFULLY
INDEX OF MAJOR POLICY PROVISIONS
POLICY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3
Insured; Insuring Age; Sex; Policy Number; Policy Date; Owner(s); Date of Issue;
Death Benefit Option; Maturity Date; Specified Amount at Issue; Schedule of
Forms and Premiums; Schedule of Current Charges; Schedule of Current Surrender
Charges.
TABLE OF GUARANTEED MAXIMUM MONTHLY INSURANCE RATES PER $1000. . . . . Page 6
SPECIFIED AMOUNT FACTORS . . . . . . . . . . . . . . . . . . . . . . . Page 7
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . Page 8
1.1 You or Your; 1.2 Age; 1.3 Net Accumulated Value; 1.4 Age; 1.5 Attained Age;
1.6 Business Day; 1.7 Declared Interest Option; 1.8 Eligible for Waiver of
Surrender Charge; 1.9 Fund; 1.10 General Account; 1.11 Home Office; 1.12 Monthly
Deduction Day; 1.13 Net Premium; 1.14 Partial Withdrawal Fee; 1.15 Policy
Anniversary; 1.16 Policy Date; 1.17 Policy Year; 1.18 Premium Expense Charge
1.19 Qualified Physician; 1.20 Qualified Nursing Care Center; 1.21 SEC; 1.22
Surrender Charge; 1.23 Surrender Value; 1.24 Net Surrender Value; 1.25 Valuation
Period; 1.26 Variable Account; 1.27 We, Our, Us or the Company.
SECTION 2 - THE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . Page 9
2.1 Death Proceeds 2.2 Death Benefit Options; 2.3 Contract; 2.4 Modification;
2.5 Incontestable Clause; 2.6 Misstatement of Age or Sex; 2.7 Suicide; 2.8
Return of Policy and Policy Settlement; 2.9 Maturity Proceeds; 2.10 Termination;
2-11 Non-Participation.
SECTION 3 - OWNERSHIP AND BENEFICIARIES. . . . . . . . . . . . . . . . Page 11
3.1 Ownership; 3.2 Beneficiary; 3.3 Change of Owner or Beneficiary; 3.4
Assignment.
SECTION 4 - PREMIUMS AND REINSTATEMENT . . . . . . . . . . . . . . . . Page 11
4.1 Premium Payment; 4.2 Payment Frequency; 4.3 Grace Period; 4.4 Reinstatement;
4.5 Unscheduled Premiums; 4.6 Premium Limitations; 4.7 Premium Application; 4.8
Allocation of Premium.
SECTION 5 - POLICY CHANGE. . . . . . . . . . . . . . . . . . . . . . . Page 12
5.1 Change of Specified Amount; 5.2 Specified Amount Decrease; 5.3 Specified
Amount Increase; 5.4 Change of Death Benefit Option; 5.5 Life Insurance
Qualification.
SECTION 6 - VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . Page 13
6.1 Variable Account; 6.2 Subaccounts; 6.3 Fund Portfolios; 6.4 Transfers; 6.5
Special Transfer Privilege.
SECTION 7 - ACCUMULATED VALUE BENEFITS . . . . . . . . . . . . . . . . Page 15
7.1 Accumulated Value Determination; 7.2 Net Accumulated Value Determination;
7.3 Surrender Value; 7.4 Net Surrender Value; 7.5 Variable Accumulated Value;
7.6 Account Units; 7.7 Unit Value; 7.8 Declared Interest Option Accumulated
Value; 7.9 Declared Interest Option Interest; 7.10 Monthly Deduction; 7.11 Cost
of Insurance; 7.12 Cost of Insurance Rate; 7.13 Basis of Values; 7.14 Surrender;
7.15 Waiver of Surrender Charge; 7.16 Partial Withdrawal; 7.17 Use of Payment
Option; 7.18 Delay of Payment; 7.19 Continuance of Insurance; 7.20 Annual
Report.
SECTION 8 - POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . Page 19
8.1 Cash Loan; 8.2 Loan Value; 8.3 Loan Interest; 8.4 Loan Allocation; 8.5 Loan
Repayment.
SECTION 9 - PAYMENT OF PROCEEDS . . . . . . . . . . . . . . . . . . . Page 20
9.1 Choice of Options; 9.2 Payment Options; 9.3 Interest and Mortality; 9.4
Requirements; 9.5 Effective Date; 9.6 Death of Payee; 9.7 Withdrawal of
Proceeds; 9.8 Claims of Creditors.
PAYMENT OPTION TABLES . . . . . . . . . . . . . . . . . . . . . . . . Page 22
Any additional benefits and endorsements which apply to this policy are listed
on page 3 and are described in the forms which follow page 22 of this policy.
<PAGE>
POLICY DATA
Insured [John Doe]
Insuring Age [35]
Sex [Male]
Policy Number [23456789]
Policy Date [07-01-1998]
Owner(s) [John Doe]
Date of Issue [07-01-1998]
Death Benefit Option [Option A]
Maturity Date [07-01-2078]
Specified Amount at Issue [$1,000,000.00]
Reserve Interest Rate [4.00]
Summary of Current Specified Amount
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Description Specified Amount Effective Date Premium Class
[AT ISSUE $1,000,000.00 07-01-1998 NON-TOBACCO]
(will show if rated)
Schedule of Forms and Premiums
<CAPTION>
<S> <C> <C> <C> <C>
Current
Original Target
Form No. Description Amount or No. of Units Effective Date Premium
[434-114(06-98) Non-Par Flexible $100,000,000.00 07-01-1998 $XXX.XX]
Premium Variable Life
[434-085(06-98) Living Benefit
</TABLE>
3
<PAGE>
POLICY DATA
Schedule of Current Charges
Premium Expense Charge [7% of each premium up to Target Premium]
[2% of each premium over Target Premium]
Policy Expense Charge [$5.00 per month]
First Year Administrative Charge [$5.00 per month, plus
(applies to the first 12 monthly $0.05 per $1,000 of specified amount]
deductions following issue and
the first 12 months following
any increase in specified amount)
Partial Withdrawal Fee [$25 per withdrawal]
Transfer Charge [$25 per transfer]
Mortality and Expense Risk [0.0024548% of the variable cash value per
Charge day (equivalent to 0.90% per year)]
Monthly Deduction Day [20th of each month]
Policy Loan Interest Rate Adjustable Loan Rate (as described
in Section 8.3 of your policy)
SCHEDULE OF INVESTMENT OPTIONS
General Account The general assets of Farm Bureau Life Insurance
Company
Separate Account(s) [Farm Bureau Life Variable Account II]
Subaccounts Fund
[A Subaccount Investment Option A
B Subaccount Investment Option B
C Subaccount Investment Option C
D Subaccount Investment Option D
E Subaccount Investment Option E
F Subaccount Investment Option F
G Subaccount Investment Option G
H Subaccount Investment Option H
I Subaccount Investment Option I
J Subaccount Investment Option J
K Subaccount Investment Option K
L Subaccount Investment Option L
M Subaccount Investment Option M
N Subaccount Investment Option N
O Subaccount Investment Option 0]
Net premiums will be allocated to the subaccounts or the declared interest
option in accordance with the net premium allocation percentages shown in the
application or in the most recent written instructions of the owner. For a full
description of the Separate Account and the designated subaccounts, please refer
to the current prospectus.
Form Number 434-114(06-98)
Policy Number 12345678
4
<PAGE>
POLICY DATA
Schedule of Current Surrender Charges
SURRENDER DATE SURRENDER CHARGE
[January 1, 1998-December 31, 1998 $XXXXX
January 1, 1999-December 31, 1999 $XXXXX
January 1, 2000-December 31, 2000 $XXXXX
January 1, 2001-December 21, 2001 $XXXXX
January 1, 2002-December 21, 2002 $XXXXX
January 1, 2003-December 21, 2003 $XXXXX
January 1, 2004-December 21, 2004 $XXXXX
January 1, 2005-December 21, 2005 $XXXXX
January 1, 2006 December 21, 2006 $XXXXX
January 1, 2007-December 21, 2007 $XXXXX
January 1, 2008-December 21, 2008 $00.00]
Form Number 434-114(06-98)
Policy Number 12345678
5
<PAGE>
POLICY DATA
TABLE OF GUARANTEED MAXIMUM MONTHLY INSURANCE RATES
PER $1,000 FOR TOBACCO AND NON-TOBACCO RATE CLASSES
Tobacco Non-Tobacco
------- -----------
Attained Male Female Male Female
Age Rate Rate Rate Rate
0 0.08584 0.07000
1 0.08584 0.07000
2 0.08251 0.06667
3 0.08084 0.06500
4 0.07751 0.06417
5 0.07334 0.06250
6 0.06917 0.06084
7 0.06500 0.05917
8 0.06250 0.05834
9 0.06167 0.05750
10 0.06250 0.05667
11 0.06750 0.05834
12 0.07667 0.06084
13 0.08917 0.06417
14 0.10334 0.06834
15 0.11335 0.07167
16 0.12335 0.07501
17 0.13085 0.07751
18 0.18420 0.09251 0.13585 0.08001
19 0.19004 0.09501 0.13919 0.08251
20 0.19337 0.09751 0.14002 0.08417
21 0.19337 0.09918 0.13835 0.08584
22 0.19004 0.10168 0.13585 0.08667
23 0.18670 0.10418 0.13252 0.08834
24 0.18170 0.10668 0.12918 0.09001
25 0.17586 0.10918 0.12502 0.09168
26 0.17253 0.11335 0.12252 0.09418
27 0.17086 0.11668 0.12085 0.09584
28 0.17086 0.12085 0.12001 0.09834
29 0.17336 0.12585 0.12001 0.10168
30 0.17753 0.13168 0.12085 0.10418
31 0.18337 0.13669 0.12335 0.10751
32 0.19087 0.14252 0.12668 0.11085
33 0.20087 0.15002 0.13168 0.11501
34 0.21255 0.15836 0.13752 0.12001
35 0.22672 0.16753 0.14419 0.12585
36 0.24339 0.18170 0.15169 0.13418
37 0.26424 0.19837 0.16169 0.14419
38 0.28758 0.21755 0.17253 0.15502
39 0.31427 0.23839 0.18420 0.16669
40 0.34512 0.26340 0.19837 0.18087
41 0.37848 0.29008 0.21338 0.19587
42 0.41517 0.31677 0.22922 0.21088
43 0.45521 0.34345 0.24673 0.22588
44 0.49942 0.37014 0.26590 0.24089
45 0.54613 0.39849 0.28758 0.25757
46 0.59452 0.42768 0.31093 0.27508
47 0.64709 0.45771 0.33595 0.29425
48 0.70383 0.49024 0.36347 0.31427
49 0.76559 0.52611 0.39349 0.33678
50 0.83403 0.56449 0.42768 0.36180
51 0.91166 0.60537 0.46688 0.38932
52 0.99933 0.65209 0.51193 0.42101
53 1.09871 0.70383 0.56365 0.45604
54 1.20729 0.75641 0.62122 0.49191
55 1.32342 0.81066 0.68547 0.53028
56 1.44626 0.86408 0.75557 0.56866
57 1.57581 0.91417 0.82985 0.60620
58 1.71209 0.96343 0.91250 0.64375
59 1.85845 1.01603 1.00518 0.68630
60 2.02158 1.07866 1.10873 0.73638
61 2.20569 1.15717 1.22400 0.79814
62 2.41331 1.25825 1.35684 0.87493
63 2.64531 1.38107 1.50727 0.96927
64 2.89921 1.51813 1.67447 1.07532
65 3.16834 1.66276 1.85761 1.18975
66 3.45020 1.80994 2.05588 1.30838
67 3.74229 1.95214 2.26847 1.42954
68 4.04883 2.09605 2.49957 1.55491
69 4.38161 2.25256 2.75591 1.69453
70 4.74911 2.43759 3.04592 1.85845
71 5.16235 2.67212 3.37720 2.05839
72 5.62985 2.95957 3.75992 2.30363
73 6.14841 3.30170 4.19334 2.59756
74 6.71732 3.69191 4.67004 2.93610
75 7.32578 4.11856 5.18003 3.31428
76 7.94851 4.57248 5.71919 3.72382
77 8.57456 5.04701 6.28340 4.16309
78 9.20818 5.54895 6.87612 4.63892
79 9.87149 6.09610 7.51607 5.16656
80 10.58674 6.70972 8.22375 5.76724
81 11.37459 7.40696 9.01810 6.45895
82 12.24906 8.20087 9.91569 7.25729
83 13.19603 9.11907 10.91280 8.15937
84 14.18421 10.11631 11.99040 9.15556
85 15.18033 11.17773 13.12418 10.23537
86 16.16034 12.29517 14.29994 11.39164
87 17.16810 13.45788 15.49991 12.62319
88 18.22020 14.67216 16.71910 13.93142
89 19.26842 15.93752 17.97489 15.32721
90 20.32834 17.34402 19.28574 16.82248
91 21.43307 18.86254 20.68243 18.45266
92 22.71710 20.55222 22.21791 20.28063
93 24.36888 22.54368 24.04369 22.43826
94 26.62992 25.22305 26.50346 25.22305
95 30.20740 29.24956 30.20740 29.24956
96 36.35803 35.72205 36.35803 35.72205
97 47.21180 46.86829 47.21180 46.86829
98 66.20701 66.09429 66.20701 66.09249
99-114 90.90909 90.90909 90.90909 90.90909
6
<PAGE>
POLICY DATA
SPECIFIED AMOUNT FACTORS
Attained Attained Attained
Age At Date Age At Date Age At Date
of Death Factor of Death Factor of Death Factor
0-40 2.50 59 1.34 78 1.05
41 2.43 60 1.30 79 1.05
42 2.36 61 1.28 80 1.05
43 2.29 62 1.26 81 1.05
44 2.22 63 1.24 82 1.05
45 2.15 64 1.22 83 1.05
46 2.09 65 1.20 84 1.05
47 2.03 66 1.19 85 1.05
48 1.97 67 1.18 86 1.05
49 1.91 68 1.17 87 1.05
50 1.85 69 1.16 88 1.05
51 1.78 70 1.15 89 1.05
52 1.71 71 1.13 90 1.05
53 1.64 72 1.11 91 1.04
54 1.57 73 1.09 92 1.03
55 1.50 74 1.07 93 1.02
56 1.46 75 1.05 94 1.01
57 1.42 76 1.05 95-114 1.01
58 1.38 77 1.05 115 1.00
7
<PAGE>
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured.
1.2 ACCUMULATED VALUE
means the policy's accumulated value which is calculated as:
a) the variable accumulated value, which is defined in section 7.5; plus
b) the declared interest option accumulated value which is defined in
section 7.8.
1.3 NET ACCUMULATED VALUE
means the policy's net accumulated value which is calculated as:
a) the accumulated value; less
b) the amount of any policy loan; less
c) any policy loan interest due; plus
d) any unearned loan interest.
1.4 AGE
means age at the last birthday.
1.5 ATTAINED AGE means your age at issue plus the number of policy years
since the policy date.
1.6 BUSINESS DAY
means a day when the New York Stock Exchange is open for trading, except for the
day after Thanksgiving, any other designated Company holidays, and any day the
home office is closed because of a weather-related or comparable type of
emergency. Assets are valued at the close of the business day.
1.7 DECLARED INTEREST OPTION
means an option pursuant to which accumulated value accrues interest at a
guaranteed minimum rate. The declared interest option is supported by the
general account.
1.8 ELIGIBLE FOR WAIVER OF SURRENDER CHARGE
means the insured:
a) is diagnosed by a Qualified Physician as having a terminal illness. A
terminal illness is any disease or medical condition which the Qualified
Physician expects will result in death within one year; or
b) stays in a Qualified Nursing Care Center for 90 days.
1.9 FUND
means the investment options shown on the policy data page. The corresponding
funds are registered with the SEC under the Investment Company Act of 1940 as
open-end diversified management investment companies or unit investment trusts.
1.10 GENERAL ACCOUNT
means all our assets other than those allocated to the variable account or any
other separate account. We have complete ownership and control of the assets of
the general account.
1.11 HOME OFFICE
means Farm Bureau Life Insurance Company at 5400 University Avenue, West Des
Moines, Iowa, 50266-5997.
1.12 MONTHLY DEDUCTION DAY
means the same date in each month as the policy date. The charges for this
policy are deducted on the business day on or next following the monthly
deduction day.
1.13 NET PREMIUM
means the amount of premium remaining after the premium expense charge has been
deducted. This amount will be allocated among the subaccounts of the variable
account and the declared interest option according to the allocations shown on
the policy data page or the most recent instructions received from the owner.
1.14 PARTIAL WITHDRAWAL FEE
means a fee of $25 that is applied at the time of any partial withdrawal.
1.15 POLICY ANNIVERSARY
means the same date in each year as the policy date.
1.16 POLICY DATE
means the policy date shown on the policy data page. This date is used to
determine policy years and any policy anniversaries.
1.17 POLICY YEAR
means the 12-month period that begins on the policy date or on a policy
anniversary.
1.18 PREMIUM EXPENSE CHARGE
means the premium expense charge shown on the policy data page. This amount may
go up or down, but is guaranteed to never exceed 7 percent.
8
<PAGE>
1.19 QUALIFIED PHYSICIAN:
means a licensed, medical practitioner performing within the scope of his/her
license. Such person must be someone other than you, the insured, or a member of
the immediate family of either you or the insured.
1.20 QUALIFIED NURSING CARE CENTER:
means a long term care center that is licensed to operate according to the laws
of their location. The following are qualified nursing care centers:
a) Skilled Nursing Center - means a center:
i) That provides skilled nursing care supervised by a licensed
physician;
ii) That provides 24-hour nursing care by, or supervised by, an
R.N.; and
iii) That keeps daily medical record of each patient.
b) Intermediate Care Center - means a center:
i) That provides 24-hour nursing care by, or supervised by an R.N.
or an L.P.N.; and
II) That keeps a daily medical record of each patient.
c) Hospital - means a center:
i) That operates for the care and treatment of sick or injured
persons as inpatients;
ii) That provides 24-hour nursing care by, or supervised by, an R.N.;
iii) That is supervised by a staff of licensed physicians; and
iv) That has medical, diagnostic, and major surgery capabilities or
access to such capabilities.
Qualified Nursing Care Center does not include:
a) Drug or alcohol treatment centers;
b) Home for the aged or mentally ill, community living centers, or places that
primarily provide domiciliary, residency or retirement care;
c) Places owned or operated by a member of the annuitant's immediate family.
1.21 SEC
means the Securities and Exchange Commission, a U.S. government agency.
1.22 SURRENDER CHARGE
means a fee that is applied at the time of a surrender. The surrender charge
will be the amount shown on the policy data page.
A specified amount increase has its own surrender charge period which begins on
the date of the increase. If a specified amount increase is made, the surrender
charges will be a composite of all charges which apply for each year.
1.23 SURRENDER VALUE
means the policy's surrender value which is calculated as:
a) the accumulated value; minus
b) the surrender charge.
1.24 NET SURRENDER VALUE
means the policy's net surrender value which is calculated as:
a) the surrender value; minus
b) any policy loan; minus
c) any policy loan interest due; plus
d) any unearned loan interest.
1.25 VALUATION PERIOD
means the period between the close of business on a business day and the close
of business on the next business day.
1.26 VARIABLE ACCOUNT
means the Separate Account shown on the policy data page. It is a unit
investment trust registered with the SEC under the Investment Company Act of
1940.
1.27 WE, OUR, US OR THE COMPANY
means the Farm Bureau Life Insurance Company.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 DEATH PROCEEDS
We will pay the death proceeds to the beneficiary:
a) within seven days after receipt by us of due proof of your death;
b) if the policy is in force on the date of your death; and
c) subject to the terms and conditions of this policy.
The death proceeds will be the sum of:
a) the death benefit; and
b) any premiums paid after the date of death; and
c) any unearned policy loan interest on the date of death;
less:
a) any policy loan; and
9
<PAGE>
b) any policy loan interest due;
plus any interest credited on this amount from the date of death to the date
of payment, the rate to be set by us but not less than 3% per year or any
rate required by law.
2.2 DEATH BENEFIT OPTIONS
The death benefit option in effect for this policy is shown on the policy
data page and is one of the following:
Option A -- The death benefit will be the greater of a) or b) where:
a) is the sum of the specified amount shown on the policy data page and the
accumulated value; and
b) is the accumulated value multiplied by the specified amount factor from the
table on the policy data page for your attained age.
Option B -- The death benefit will be the greater of a) or b) where:
a) is the specified amount shown on the policy data page; and
b) is the accumulated value multiplied by the specified amount factor from the
table on the policy data page for your attained age.
All values are determined as of the end of the business day on or next following
the date of death.
2.3 CONTRACT
This policy is a legal contract. We issue this policy in consideration of the
first premium and the statements in the application. The entire contract
consists of:
a) this basic policy;
b) any endorsements or additional benefit riders;
c) the attached copy of your application; and
d) any amendments, supplemental applications or other attached papers.
We rely on statements made in the application for the policy. These statements
in the absence of fraud are deemed representations and not warranties. No
statement will void this policy or be used in defense of a claim unless:
a) it is contained in the application; and
b) such application is attached to this policy.
2.4 MODIFICATION
No one can change any part of this policy except the owner and one of our
officers. Both must agree to a change, and it must be in writing. No agent may
change this policy or waive any of its provisions.
2.5 INCONTESTABLE CLAUSE
We will not contest payment of the death benefit for any reason other than fraud
after this policy has been in force during your lifetime for two years from the
date of issue shown on the policy data page.
Any requested increase in the specified amount will be incontestable only after
such increase has been in force during your lifetime for two years from the
effective date of such increase.
2.6 MISSTATEMENT OF AGE OR SEX
We have the right to correct benefits for misstated age or sex. In such an
event, benefits will be the amount the premium actually paid would have bought
at the correct age or sex.
2.7 SUICIDE
If, within one year of the policy date, you die by suicide, whether sane or
insane, our liability is limited to the premium paid plus any unearned loan
interest at the date of death, less any policy loan, any loan interest due and
any partial withdrawals.
Any increase in death benefits resulting from a requested increase in specified
amount will not be paid if the insured dies by suicide, while sane or insane,
within one year of the date of such increase. Instead, we will return to the
owner an amount equal to the cost of insurance for such increase in specified
amount.
2.8 RETURN OF POLICY AND POLICY SETTLEMENT
We reserve the right to have this policy sent to us for any:
a) modification; b) death settlement; c) surrender; d) assignment; e) change
of owner or beneficiary; f) election; or g) exercise of any policy privilege.
We will send a payment contract to replace this policy if any payment option is
chosen. All sums to be paid by us under this policy are considered paid when
tendered by us at our home office.
2.9 MATURITY PROCEEDS
If you are living on the maturity date and this policy is in force, we will pay
the proceeds to the owner. Such proceeds will be:
a) the accumulated value; less
b) any policy loan.
The maturity date will be your attained age 115.
10
<PAGE>
All values are determined as of the end of the business day on or next following
the maturity date.
2.10 TERMINATION
This policy ends when any one of the following events occurs:
a) the owner requests that the policy be canceled;
b) you die;
c) the policy matures;
d) the policy is surrendered; or
e) the grace period ends without payment of the premium.
2.11 NON-PARTICIPATION
This policy does not share in the Company's surplus or profits.
- --------------------------------------------------------------------------------
SECTION 3 - OWNERSHIP AND BENEFICIARIES
- --------------------------------------------------------------------------------
3.1 OWNERSHIP
The original owner of this policy is shown on the policy data page. Ownership of
the policy may change according to the provisions indicated in the original
application or by a subsequent endorsement to the policy.
3.2 BENEFICIARY
Beneficiaries are as named in the application, unless changed by the owner. The
interests of any beneficiary in a class who dies before you will pass to any
survivors of the class, unless the policy provides otherwise. Secondary
beneficiaries will have the right to receive the proceeds only if no primary
beneficiary survives. If no beneficiary survives you, we will pay the proceeds
to the owner or the owner's estate.
In finding and identifying beneficiaries we may rely on sworn statements, other
facts, or evidence we deem satisfactory. Any benefits we pay based on such
information will be a valid discharge of our duty up to the amount paid.
3.3 CHANGE OF OWNER OR BENEFICIARY
While you live, a change of owner or beneficiary can be made at any time,
subject to the following rules:
a) the change must be in writing on a form acceptable to us;
b) it must be signed by the owner;
c) the form must be sent to our home office and recorded by us; and
d) the change will take effect on the date signed, but it will not apply to
any payment or action by us before we receive the form.
3.4 ASSIGNMENT
No assignment of this policy will bind us unless:
a) it is in writing on a form acceptable to us;
b) signed by the owner; and
c) received by us at our home office.
We will not be responsible for the validity of an assignment.
- --------------------------------------------------------------------------------
SECTION 4 - PREMIUMS AND REINSTATEMENT
- --------------------------------------------------------------------------------
4.1 PREMIUM PAYMENT
Premium payments are flexible as to both timing and amount. Each premium is to
be paid at our home office.
4.2 PAYMENT FREQUENCY
The first premium is due on or prior to the policy date. We will send periodic
reminder notices to the owner upon request. The minimum amount for which such
notice will be sent will be $100. A reminder notice may be sent for different
periods, which may be 12, 6, 3 or 1 month intervals. The reminder notice period
may be changed upon request.
4.3 GRACE PERIOD
A grace period of 61 days will be allowed for payment of a premium that, when
reduced by the premium expense charge, is at least equal to three times the
monthly deduction charge due on such date. The grace period applies:
a) During the first three policy years, if the net accumulated value is not
large enough on any monthly deduction day to cover the monthly deduction
due; and
b) During the first three policy years, if you have taken out a policy loan
and during this period, the net surrender value is not large enough to
cover the monthly deduction due; and
c) During subsequent years, if the net surrender value is not large enough on
any monthly deduction day to cover the monthly deduction due.
The grace period begins on the date we send the owner of record written notice
of the required
11
<PAGE>
payment. Such premium shall be due on such monthly deduction day and if not
received by us within the grace period, all coverage under this policy will
terminate without value at the end of the 61-day period. If a claim by
death during the grace period becomes payable under the policy, any due and
unpaid monthly deductions will be deducted from the proceeds.
4.4 REINSTATEMENT
Prior to the maturity date, a lapsed policy which has not been surrendered for
its accumulated value may be reinstated at any time within 5 years of the
monthly deduction day immediately preceding the grace period which expired
without payment of the required premium, subject to the following rules:
a) You and the owner must send a written request to us.
b) You must provide proof of your good health and insurability satisfactory to
us.
c) A premium sufficient to keep the policy in force for three months must be
paid.
d) The owner must pay a charge equal to the cost of insurance for the coverage
provided during the 61-day grace period which was in effect prior to the
termination of this policy.
e) The effective date of the reinstated policy will be the monthly deduction
day on or next following the date we approve reinstatement.
4.5 UNSCHEDULED PREMIUMS
Unscheduled premium payments of at least $100 may be made at any time prior to
the maturity date. The Company may, in its discretion, waive the $100 minimum
requirements. The Company reserves the right to limit the number and amount of
unscheduled premium payments.
4.6 PREMIUM LIMITATIONS
The company reserves the right to limit the number and amount of premium
payments in order to maintain this policy's qualifications under federal tax
law. We will refund any portion of a premium payment that would cause the policy
to lose such qualification.
4.7 PREMIUM APPLICATION
While any policy loan is outstanding, unless the owner requests otherwise,
premium payments will be applied as a payment to reduce the outstanding balance
of the loan, When such loan has been repaid, the balance of any premium payment
remaining after payment of the loan, plus any subsequent payments, will be
allocated as described in the following provision.
4.8 ALLOCATION OF PREMIUM
The owner will determine the percentage of net premium that will be allocated to
each subaccount of the variable account and to the declared interest option. The
owner may choose to allocate all the net premium, a percentage or nothing to a
particular subaccount or to the declared interest option. Any allocation must be
for at least 10% of the net premium. A fractional percent may not be chosen.
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. For any premium received after we receive
the signed form, the net premium will be allocated in accordance with the net
premium allocation percentages shown in the application or the most recent
written instructions of the owner.
The owner may change the allocation for future net premiums at any time, subject
to the following rules:
a) the policy must be in force;
b) there must be a net accumulated value;
c) the change must be in writing on a form acceptable to us;
d) the form must be signed by the owner; and
e) the change will take effect on the business day on or next following the
date we receive the signed form at our home office.
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SECTION 5 - POLICY CHANGE
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5.1 CHANGE OF SPECIFIED AMOUNT
The owner may change the specified amount at any time after the policy has been
in effect for one policy year, subject to the following rules:
a) The change must be in writing on a form acceptable to us.
b) It must be signed by the owner.
c) The change will take effect on the monthly deduction day coinciding with or
next following the date the request is approved by us.
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d) We will issue a new the policy data page for any change in specified
amount.
5.2 SPECIFIED AMOUNT DECREASE
Any decrease in specified amount will reduce such amount in the following order:
a) the specified amount provided by the most recent increase will be reduced;
then
b) the next most recent increases will be reduced in succession; and
c) the initial specified amount will be reduced last.
A specified amount decrease will not reduce the surrender charge.
The total specified amount which remains in force after a requested decrease may
not be less than the minimum specified amount in effect for the policy on the
date of decrease, as published by us.
5.3 SPECIFIED AMOUNT INCREASE
In addition to the rules for change in specified amount, an increase in
specified amount is subject to the following:
a) proof of insurability acceptable to us; and
b) payment of the first month's cost of insurance or sufficient accumulated
value for deduction of such cost of insurance.
5.4 CHANGE OF DEATH BENEFIT OPTION
The owner may request to change the death benefit option. The change will take
effect on the monthly deduction day coinciding with or next following the date
we approve the request.
If Option A is changed to Option B, the current specified amount will not
change.
If Option B is changed 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.
5.5 LIFE INSURANCE QUALIFICATION
If following a requested change of specified amount or a change of death benefit
option, this policy would no longer qualify as life insurance under federal tax
law, we will limit the change to an amount that would maintain such
qualification. 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.
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SECTION 6 - VARIABLE ACCOUNT
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6.1 VARIABLE ACCOUNT
We own the assets of the variable account. We will value the assets of the
variable account each business day. The assets of such account will be kept
separate from the assets of our general account and any other separate accounts.
Income, and realized and unrealized gains or losses from assets in the variable
account will be credited to or charged against such account without regard to
our other income, gains or losses.
That portion of the assets of the variable account which equals the reserves and
other policy liabilities of the policies which are supported by the variable
account will not be charged with liabilities arising from any other business we
conduct. We have the right to transfer to our general account any assets of the
variable account which are in excess of such reserves and other policy
liabilities.
While the variable account is registered with the SEC and thereby subject to SEC
rules and regulations, it is also subject to the laws of the State of Iowa which
regulate the operations of insurance companies incorporated in Iowa. The
investment policy of the variable account will not be changed without the
approval of the Insurance Commissioner of the State of Iowa. The approval
process is on file with the insurance commissioner of the state in which this
policy was delivered.
We also reserve the right to transfer assets of the variable account, which we
determine to be associated with the class of policies to which this policy
belongs, to another separate account. If this type of transfer is made, the term
"variable account," as used in this policy, shall then mean the variable account
to which the assets were transferred.
When permitted by law, we also reserve the right to:
a) deregister the variable account under the Investment Company Act of 1940;
b) manage the variable account under the direction of a committee;
c) restrict or eliminate any voting rights of
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owners, or other persons who have voting rights as to the variable account;
and
d) combine the variable account with other separate accounts.
6.2 SUBACCOUNTS
The variable account is divided into subaccounts. The subaccounts are listed on
the policy data page. Subject to obtaining any approvals or consents required by
applicable law, we reserve the right to eliminate or combine any subaccounts and
the right to transfer the assets of one or more subaccounts to any other
subaccount. We also reserve the right to add new subaccounts and make such
subaccounts available to any class or series of policies as we deem appropriate.
Each new subaccount would invest in a new investment option of the Fund, or in
shares of another investment company. The owner will determine the percentage of
net premium that will be allocated to each subaccount in accordance with the
allocation of premium provision.
6.3 FUND INVESTMENT OPTIONS
The fund has several investment options each of which corresponds to one of the
subaccounts of the variable account. The investment options are listed on the
policy data page. Net premiums allocated to a subaccount will automatically be
invested in the fund investment option associated with that subaccount. The
owner will share only in the income, gains or losses of the investment option(s)
to which net premiums have been allocated through the subaccounts.
We have the right, subject to compliance with any applicable laws, to make:
a) additions to;
b) deletions from; or
c) substitutions for
the shares of a fund investment option that are held by the variable account
or that the account may purchase.
We also reserve the right to dispose of the shares of a investment option of the
fund listed on the policy data page and to substitute shares of another
investment option of such fund or another mutual fund investment option, if:
a) the shares of the investment option are no longer available for investment;
or
b) if in our judgment further investment in the investment option should
become inappropriate in view of the purposes of the variable account.
In the event of any substitution or change, we may, by appropriate endorsement,
make such changes in this and other policies as may be necessary or appropriate
to reflect the substitution or change.
6.4 TRANSFERS
The owner may transfer all or part of the accumulated value among the
subaccounts of the variable account and between the subaccounts and the declared
interest option, subject to the following rules:
a) The change must be in writing on a form acceptable to us.
b) The form must be signed by the owner.
c) The transfer will take effect as of the end of the valuation period during
which we receive the signed form at our Home Office.
d) The owner may transfer amounts among the subaccounts of the variable
account an unlimited number of times in a policy year.
e) The owner may transfer amounts between the declared interest option and the
variable account only once in a policy year.
f) The first transfer in each policy year will be made without a transfer
charge. Thereafter, each time amounts are transferred a transfer charge
will be imposed. This transfer charge is shown on the policy data page.
g) The accumulated value on the date of the transfer will not be affected by
the transfer except to the extent of the transfer charge. Unless paid in
cash, the transfer charge will be deducted on a pro rata basis from the
declared interest option and/or the subaccounts to which the transfer is
made.
h) The owner must transfer at least:
(1) a total of $100; or
(2) the total accumulated value in the subaccount or the total accumulated
value in the declared interest option less any policy loan, if the
total amount transferred is less than $100.
The following additional rules apply to transfers from the declared interest
option:
a) The accumulated value in the declared interest option after a transfer from
such option must at
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least equal the amount of all policy loans.
b) No more than 50% of the net accumulated value in the declared interest
option may be transferred unless the balance in the declared interest
option after the transfer, would be less than $1,000. If the balance in
the declared interest option would fall below $1,000, the full net
accumulated value in the declared interest option may be transferred.
6.5 SPECIAL TRANSFER PRIVILEGE
The owner may transfer, at any time, all of the amounts in the subaccounts to
the declared interest option. This policy will then become one in which the
benefits do not vary with the investment performance of the variable account.
The owner must tell us this special transfer privilege is being exercised. We
will then waive the transfer charge. The owner may exercise this special
transfer privilege once per policy year.
If the owner exercises this special transfer privilege, we will automatically
credit all future premium payments to the declared interest option until the
owner requests a change in the allocation. At the time of the transfer, there is
no effect on the policy's death benefit, accumulated value, specified amount, or
net amount at risk, or on your premium class or attained age.
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SECTION 7 - ACCUMULATED VALUE
BENEFITS
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7.1 ACCUMULATED VALUE DETERMINATION
The accumulated value in the policy is equal to:
a) the variable accumulated value; plus
b) the declared interest option accumulated value.
7.2 NET ACCUMULATED VALUE DETERMINATION
The net accumulated value of this policy will be:
a) the accumulated value; less
b) the amount of any policy loan; less
c) any policy loan interest due; plus
d) any unearned loan interest.
7.3 SURRENDER VALUE
The surrender value of this policy will be:
a) the accumulated value; minus
b) the surrender charge.
7.4 NET SURRENDER VALUE
The net surrender value of this policy will be:
a) the surrender value; minus
b) any policy loan; minus
c) any policy loan interest due; plus
d) any unearned loan interest.
7.5 VARIABLE ACCUMULATED VALUE
On the business day on or next following the day we receive notice that the
owner has received and accepted the policy, the variable accumulated value is
the total amount of net premium, if any, credited to the subaccounts of the
variable account, minus the monthly deduction applicable to those subaccounts if
the net premium is allocated on a monthly deduction day. After such date, the
policy's variable accumulated value is equal to the sum of the policy's
accumulated value in each subaccount. The accumulated value in a subaccount is
equal to a) multiplied by b) where:
a) is the current number of account units; and
b) is the current unit value.
The variable accumulated value will vary from business day to business day
reflecting changes in a) and b) above.
7.6 ACCOUNT UNITS
When transactions are made which affect the variable accumulated value, dollar
amounts are converted to account units. The number of account units for a
transaction is found by dividing the dollar amount of the transaction by the
current unit value.
The number of account units for a subaccount
increases when:
a) net premiums are credited to that subaccount; or
b) transfers from the declared interest option or other subaccounts are
credited to that subaccount.
The number of account units for a subaccount
decreases when:
a) the owner takes out a policy loan from that subaccount;
b) the owner makes a surrender or partial withdrawal from that subaccount;
c) we take a portion of the monthly deduction from that subaccount; or
d) transfers are made from that subaccount to the declared interest option or
other subaccounts.
7.7 UNIT VALUE
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The unit value for each subaccount was set initially at $10.00 when the
subaccounts first purchased fund shares. 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 net assets 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 net
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;
minus
(5) the mortality and expense risk charge shown on the policy data page.
This charge may go up or down but will never exceed 0.0028618% of the
daily net assets in that subaccount for each day in the valuation
period. The maximum charge corresponds to a charge of 1.05% per year
of the average daily net assets of the subaccount for mortality and
expense risks.
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. We
will value the net assets in each subaccount at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
7.8 DECLARED INTEREST OPTION ACCUMULATED VALUE
The declared interest option accumulated value as of the policy date is the net
premium credited to the declared interest option as of that date minus the
monthly deduction applicable to the declared interest option for the first
policy month.
After the policy date, the declared interest option accumulated value is
computed as a) + b) + c) + d) - e) -f), where:
a) is the declared interest option value on the preceding monthly deduction
day plus any interest from the preceding monthly deduction day to the date
of calculation;
b) is the total of net premiums credited to the declared interest option since
the preceding monthly deduction day, plus interest from the date premiums
are credited to the date of calculation;
c) is the total of the transfers from the variable account to the declared
interest option since the preceding monthly deduction day, plus interest
from the date of transfer to the date of calculation;
d) is the total amount transferred from the variable account to the declared
interest option to secure policy loans since the preceding monthly
deduction day, plus interest from the date of transfer to the date of
calculation;
e) is the total of the transfers to the variable account from the declared
interest option since the preceding monthly deduction day, plus interest
from the date of transfer to the date of the calculation; and
f) is the total of surrenders or partial withdrawals from the declared
interest option since the preceding monthly deduction day, plus interest
from the date of surrender to the date of calculation.
If the date of calculation is a monthly deduction day, we also reduce the
declared interest option accumulated value by the applicable monthly deduction
for the policy month following the monthly deduction day.
7.9 DECLARED INTEREST OPTION INTEREST
The minimum interest rate applied to the declared interest option accumulated
value is an effective rate of 4.00% per year. Interest in excess of the minimum
rate may be applied. The amount of the excess interest and the manner in which
it is determined will be set by us.
The interest credited on the portion of the declared interest option accumulated
value which equals any policy loan will be equal to the greater of 4.00% or:
a) the current effective loan interest rate; minus
b) no more than 3.00%.
Interest will be credited to the declared interest
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option accumulated value on each monthly deduction day.
7.10 MONTHLY DEDUCTION
The monthly deduction is a charge made each monthly deduction day from the
declared interest option accumulated value and the variable accumulated value on
a proportionate basis as of the close of business on the monthly deduction day.
For the purpose of determining the proportion of the deduction, the declared
interest option accumulated value is reduced by the amount of any policy loans.
We make the deduction from each subaccount of the variable account based on each
subaccount's proportional percentage of the variable accumulated value.
The monthly deduction for a policy month will be computed as a) plus b) plus c)
plus d) plus e), where:
a) is the cost of insurance as described in the cost of insurance provision;
b) is the charge for all additional benefit riders attached to this policy;
c) is the monthly policy expense charge shown on the policy data page. This
amount may go up or down, but is guaranteed never to exceed $7; and
d) is the first year monthly per $1,000 charge shown on the policy data page.
This charge may go up or down, but is guaranteed not to exceed $0.07 per
$1,000.
This charge will be deducted for 12 months following issue of this
policy and during the 12 months following the effective date of an
increase in the specified amount. Should this policy lapse and later be
reinstated, to the extent that the monthly per $1,000 charge was not
deducted for a total of twelve policy months prior to lapse, the charges
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.
e) is the first year monthly policy expense charge shown on the policy data
page. This amount may go up or down, but is guaranteed never to exceed $7
per month.
7.11 COST OF INSURANCE
If the owner chooses death benefit option B, the cost of insurance is computed
as a) multiplied by the result of b) minus c). If death benefit option A is
chosen, the cost of insurance is computed as a) multiplied by b). In either
case:
a) is the cost of insurance rate as described in the cost of insurance rate
provisions, divided by 1000;
b) is the specified amount as described in the death benefit provisions as of
the close of business on the monthly deduction day, divided by 1.0032737;
and
c) is the accumulated value as of the close of business on the monthly
deduction day.
The cost of insurance is determined separately for the initial specified amount
and any increases made later. If the premium class for the initial specified
amount is different from that of any increases, the accumulated value will first
be considered a part of the initial specified amount. If the accumulated value
as of the close of business on the monthly deduction day 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.
7.12 COST OF INSURANCE RATE
The cost of insurance rate is subject to the following rules:
a) The rate for the initial specified amount is based on your sex, premium
class and attained age. For any increase in the specified amount, age will
be determined from your age as of your last birthdate on the effective date
of the increase.
b) The monthly rates will be determined by us based on our expectation as to
future mortality experience.
c) If we change the rates, we will change them for everyone in your premium
class.
d) The monthly guaranteed rates shown on the policy data page are based on the
1980 Commissioners' Standard Ordinary Smoker and Nonsmoker Mortality Table.
The monthly rate will never be more than the rates shown on the policy data
page.
7.13 BASIS OF VALUES
All reserves for the policy are based on the Commissioners' 1980 Standard
Ordinary Smoker and Non-Smoker Mortality Table with interest at the rate shown
on the policy data page.
All of the values are the same or more than the minimums set by the laws of the
state where the policy is delivered. We have filed a detailed
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statement of the way these values are determined with the insurance department
in that state. It shows the figures and methods used.
7.14 SURRENDER
While you live and prior to the maturity date, the owner may surrender the
policy subject to the following rules:
a) The request must be in writing to us.
b) The amount of any such surrender may be paid in cash or we will apply
part or all of it under a payment option.
c) We have the right to defer payment of a surrender from the declared
interest option for up to 6 months.
d) A surrender charge may apply. If the surrender charge is not paid in
cash, such charge will be deducted from the amount surrendered.
e) Upon surrender, all insurance in force will terminate.
7.15 WAIVER OF SURRENDER CHARGE
The owner may make a surrender of this policy without incurring a surrender
charge if the insured becomes eligible for waiver of the surrender charge.
The waiver of the surrender charge is subject to the following rules:
a) We must receive a written request on our form signed by the owner.
b) The policy must be in force or not providing benefits under any payment
option.
c) Proof must be provided that the conditions of eligibility requirements for
waiver of the surrender charge have been met, including an attending
physician's statement and any other proof we may require. We reserve
the right to seek a second medical opinion or have an examination
performed at our expense by a physician we choose.
e) The insured must become eligible for waiver of surrender charge after
the first policy year ends.
7.16 PARTIAL WITHDRAWAL
While you live and prior to the maturity date, the owner may obtain a partial
withdrawal of the net accumulated value, subject to the following rules:
a) The amount of any partial withdrawal must be at least $500 and may not
exceed the lesser of:
(1) the net accumulated value less $500; or
(2) 90% of the net accumulated value.
b) The death benefit will be reduced as a result of any partial withdrawal.
c) At the time of the partial withdrawal, if the death benefit option in
effect is:
(1) Option A: there will be no effect on the specified amount.
(2) Option B: the specified amount will be reduced by the amount of
accumulated value surrendered.
d) 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.
e) The accumulated value will be reduced by the amount of any partial
withdrawal and any partial withdrawal fee. The owner may tell us how to
allocate a partial withdrawal among the subaccounts and the declared
interest option. If the owner does not so instruct, we will allocate
the partial withdrawal 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 of the declared interest option
reduced by any outstanding policy loans bears to the total accumulated
value reduced by any outstanding policy loans on the date we receive
the request.
7.17 USE OF PAYMENT OPTION
If all of the accumulated value is applied under payment option 2, 3, 4 or 5,
the surrender charge will be reduced as follows:
a) if option 3 or 5 is used, the surrender charge will be zero; or
b) if option 2 or 4 is used, the surrender charge will be applied, however,
the surrender charge will be determined by adding the fixed number of years
for which payment will be made to the Surrender Date shown on the Policy
Data Page.
7.18 DELAY OF PAYMENT
Proceeds from surrenders, partial withdrawals, and policy loans will usually
be mailed to the owner within seven days after the owner's signed request is
received in our home office. We will usually mail any death claim proceeds
within seven days after we receive due proof of death. We will usually mail
the maturity proceeds within seven days after the maturity date. We have the
right to delay any payment whenever:
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a) the New York Stock Exchange is closed other than on customary weekend and a
holiday closing;
b) trading on the New York Stock Exchange is restricted as determined by
the SEC;
c) the SEC, by order, permits postponement for the protection of policyowners;
d) as a result of an emergency, as determined by the SEC, it is not reasonably
possible to dispose of securities; or
e) it is not reasonably possible to determine the value of the net assets of
the variable account.
We have the right to defer payment which is derived from any amount paid to
us by check or draft until we are satisfied the check or draft has been paid
by the bank on which it is drawn.
We also have the right to delay making a surrender, partial withdrawal, or
policy loan from the declared interest option for up to six months from the
date we receive the owner's request.
7.19 CONTINUANCE OF INSURANCE
The insurance under this policy will continue until the earlier of:
a) the end of any grace period during which a required premium payment is
not made;
b) the date the owner surrenders this policy for its entire net accumulated
value;
c) the date of your death; or
d) the date the policy matures.
This provision will not continue the policy beyond the maturity date or continue
any rider beyond its termination date as specified in the rider.
7.20 ANNUAL REPORT
At least once each year we will send a report, without charge, to the owner
which shows:
a) all premiums paid and charges made since the last report;
b) the current accumulated value including the value in each subaccount and
the declared interest option;
c) any partial withdrawals since the last report;
d) any policy loans; and
c) the current death benefit.
An illustrative report will be sent to the owner upon request. A fee may be
charged for this report.
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SECTION 8 - POLICY LOANS
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8.1 CASH LOAN
The owner may obtain a cash loan at any time on the sole security of this
policy, if:
a) the policy is in force;
b) there is a net surrender value.
We have the right to delay making a policy loan from the declared interest
option for up to six months from the date we receive the owner's request.
8.2 LOAN VALUE
The total of all loans may not exceed 90% of the net surrender value as of the
date of the most recent loan. For any loan that is made we will deduct interest
in advance on the requested loan to the next policy anniversary.
8.3 LOAN INTEREST
The loan interest rate is an annual rate. We may change this rate at the
beginning of each policy year. The annual loan interest is to be paid in advance
on each policy anniversary. Interest not paid when due will be added to the loan
and will bear interest at the same rate. Any change in the interest rate will
apply to any existing or new policy loans on this policy.
The maximum annual loan interest rate will be the higher of:
a) 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
b) 5.50%; but it will never exceed the usury rate, if applicable.
If the Monthly Average is no longer published, we will use a substantially
similar average which will be substituted by the insurance supervisory official
of the state in which this policy was delivered.
We will not make a change of less than 0.5% in this policy's loan interest rate.
We will inform you of the loan interest rate at the time a loan is made. Notice
of any loan interest rate change on existing loans will be made in advance of
the policy anniversary on which the change becomes effective.
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8.4 LOAN ALLOCATION
When the owner takes out a policy loan, an amount equal to the loan will be
segregated within the declared interest option as security for the loan. Amounts
held as security for the loan will first be allocated to the accumulated value
in the declared interest option. If the accumulated value in the declared
interest option less any existing policy loan is not sufficient to cover the
amount of the policy loan, the balance necessary will be transferred from the
subaccounts on a proportional basis. This transfer is not treated as a transfer
for the purpose of the transfer charge or the limit of one transfer in a policy
year.
A transfer will also be made from the subaccounts on a proportional basis for
any due and unpaid loan interest if the accumulated value in the declared
interest option is not sufficient to cover such interest.
8.5 LOAN REPAYMENT
All or part of any policy loan may be repaid at any time while the policy is
still in force. Loan amounts repaid will be allocated to the declared interest
option. The portion of the accumulated value in the declared interest option
securing the repaid portion of the loan will no longer be segregated within the
declared interest option as security for the loan, but will remain in the
declared interest option until transferred to the subaccounts by the owner.
Any outstanding policy loans will be deducted from the proceeds at death,
maturity or surrender.
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SECTION 9 - PAYMENT OF PROCEEDS
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9.1 CHOICE OF OPTIONS
The owner may choose to have the proceeds of this policy paid under a payment
option. After your death, the beneficiary may choose an option if the owner had
not done so before your death. If no payment option is chosen, we will pay the
proceeds of this policy in one sum. We may also fulfill our obligation under
this policy by paying the proceeds in one sum if:
a) the proceeds are less than $2,000;
b) periodic payments become less than $20; or
c) the payee is an assignee, estate, trustee,
partnership, corporation, or association.
9.2 PAYMENT OPTIONS
The choice of payment options are:
1) INTEREST INCOME -- The proceeds will be left with us to earn interest.
The interest will be paid every 1, 3, 6 or 12 months as the payee
chooses. The rate of interest will be determined by us. The payee may
withdraw all or part of the proceeds at any time.
2) INCOME FOR FIXED TERM -- The proceeds will be paid out in equal
installments for a fixed term of years.
3) LIFE INCOME WITH TERM CERTAIN -- The proceeds will be paid out in
equal installments for as long as the payee lives, but for not less
than a term certain. The owner or payee may choose one of the terms
certain shown in the payment option tables.
4) INCOME FOR FIXED AMOUNT -- The proceeds will be paid out in equal
installments of a specified amount. The payments will continue until
all proceeds plus interest have been paid out.
5) JOINT AND TWO-THIRDS TO SURVIVOR MONTHLY LIFE INCOME -- The proceeds
will be paid out in equal monthly installments for as long as two
joint payees live. When one payee dies, installments of two-thirds of
the first installment will be paid to the surviving payee. Payments
will stop when the surviving payee dies.
The proceeds may be paid in any other manner requested and agreed to by us, or
under any other payment options made available by the Company.
9.3 INTEREST AND MORTALITY
Proceeds applied under a payment option no longer earn interest at the rate
applied to the declared interest option or participate in the investment
experience of the variable account. The minimum interest rate used in computing
any payment option is 3% per year. Higher interest rates may be used on the
effective date of the payment contract. We may at any time declare additional
interest on these funds. The amount of additional interest and how it is
determined will be set by us.
The mortality table which is used for options 3) and 5) is the "1983 Table a"
individual annuity mortality table.
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9.4 REQUIREMENTS
For the owner to choose or change a payment option:
a) this contract must be in force;
b) the request must be in writing to us at our
home office; and
c) any prior option must be canceled.
After your death, and before this contract is settled, for a beneficiary to
choose or change a payment option:
a) a prior option by the owner cannot be in effect,
b) the request must be in writing to us at our
home office; and
c) any prior option must be canceled.
9.5 EFFECTIVE DATE
If a payment option has been chosen by the owner, it is effective on the date
the proceeds of this policy are due. If a beneficiary chooses a payment option,
it is effective on the date of election. The first payment under options 2, 3,
4, or 5 is due on the effective date. The first payment under payment option 1
is due at the end of the period chosen.
9.6 DEATH OF PAYEE
If a payee dies, any remaining payments will be paid to a contingent payee. If
no payee survives, we will pay the commuted value of any remaining payments to
the last payee's estate.
9.7 WITHDRAWAL OF PROCEEDS
The payee may not withdraw the funds under a payment option unless agreed to in
the payment contract. We have the right to defer a withdrawal for up to 6
months. We may also refuse to allow partial withdrawals of less than $250.
9.8 CLAIMS OF CREDITORS
Payments under any payment option will be exempt from the claims of creditors
to the maximum extent allowed by law.
21
<PAGE>
Payment Option Tables
(Per $1,000 of proceeds)
- --------------------------------------------------------------------------------
Option 2 - Income for Fixed Term
Installments per $1,000 of Proceeds
- --------------------------------------------------------------------------------
Number of
Years Annual Monthly
- --------- ----------- ------------
5 211.99 17.91
10 113.82 9.61
15 81.33 6.87
20 65.26 5.51
25 55.76 4.71
30 49.53 4.18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Guaranteed Settlement Option 5
Joint and Two-thirds to Survivor Monthly Life Income
Monthly Installments per $1,000 of Proceeds
- --------------------------------------------------------------------------------
Female Age
Male
Age 55 60 62 65 70
- ------ -----------------------------------------------------------------------
60 4.44 4.71 4.82 5.01 5.34
62 4.53 4.81 4.93 5.13 5.50
65 4.65 4.97 5.11 5.33 5.75
70 4.88 5.24 5.41 5.68 6.20
75 5.11 5.52 5.71 6.04 6.68
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GURANTEED SETTLEMENT OPTION 3
LIFE INCOME WITH TERM CERTAIN
MONTHLY INSTALLMENTS PER $1,000 PROCEEDS
- --------------------------------------------------------------------------------
MALE FEMALE
- --------------------------------------------------------------------------------
YEARS CERTAIN YEARS CERTAIN
Age 0 5 10 15 20 0 5 10 15 20
- --- ------------------------------------ -------------------------------------
55 $4.70 4.68 4.62 4.53 4.39 4.25 4.25 4.22 4.18 4.11
56 4.80 4.78 4.72 4.61 4.45 4.34 4.33 4.30 4.25 4.17
57 4.91 4.89 4.82 4.69 4.51 4.42 4.41 4.38 4.32 4.23
58 5.03 5.00 4.92 4.78 4.58 4.52 4.50 4.47 4.40 4.30
59 5.15 5.12 5.03 4.87 4.64 4.61 4.60 4.56 4.48 4.37
60 5.28 5.25 5.14 4.96 4.71 4.72 4.70 4.66 4.57 4.44
- --- ------------------------------------ -------------------------------------
61 5.42 5.39 5.26 5.06 4.78 4.83 4.81 4.76 4.66 4.51
62 5.57 5.53 5.39 5.16 4.84 4.95 4.93 4.86 4.75 4.58
63 5.74 5.69 5.52 5.26 4.90 5.07 5.05 4.98 4.85 4.65
64 5.91 5.85 5.66 5.36 4.96 5.21 5.18 5.10 4.95 4.72
65 6.10 6.03 5.81 5.46 5.02 5.35 5.32 5.22 5.05 4.79
- --- ------------------------------------ -------------------------------------
66 6.29 6.21 5.96 5.56 5.08 5.51 5.47 5.36 5.16 4.86
67 6.50 6.41 6.11 5.66 5.13 5.67 5.63 5.50 5.26 4.93
68 6.73 6.62 6.28 5.76 5.18 5.85 5.80 5.65 5.37 5.00
69 6.97 6.84 6.44 5.86 5.23 6.04 5.98 5.80 5.49 5.06
70 7.23 7.07 6.61 5.96 5.27 6.25 6.18 5.96 5.60 5.12
- --- ------------------------------------ -------------------------------------
71 7.51 7.32 6.78 6.05 5.31 6.47 6.39 6.14 5.71 5.18
72 7.80 7.58 6.96 6.14 5.34 6.71 6.62 6.31 5.83 5.23
73 8.12 7.85 7.14 6.23 5.37 6.97 6.86 6.50 5.94 5.28
74 8.45 8.14 7.32 6.31 5.40 7.26 7.12 6.69 6.04 5.32
75 8.82 8.44 7.49 6.38 5.42 7.56 7.39 6.89 6.14 5.35
- --------------------------------------------------------------------------------
22
<PAGE>
NON-PARTICIPATING
FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
If you have any questions concerning this policy or if anyone
suggests that you change or replace this policy, please contact
your Farm Bureau Life agent or our home office. (515-225-5400)
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE [LOGO]
WEST DES MOINES, IOWA 50266-5997 FARM BUREAU
FINANCIAL SERVICES
- --------------------------------------------------------------------------------
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
WAIVER OF CHARGES RIDER
This rider is part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 EFFECTIVE DATE
means the date shown for this rider on the policy data page of the policy.
1.3 TOTAL DISABILITY
means continuous total disability caused by injury or sickness which:
a) starts after the effective date of this rider and while this rider is in
force;
b) starts before the policy anniversary on which you are age 65 while this
rider is in force; and
c) prevents you from engaging in the substantial and material duties of an
occupation:
i) For the first 24 months of such total disability, occupation means
your occupation at the time such total disability began.
ii) After 24 months of such total disability, occupation means any gainful
occupation for which you are reasonably fitted by education, training
or experience.
To be considered disabled you must be under the care of a physician and
receiving appropriate treatment. You will not be considered totally disabled
for any period during which you are engaged in any occupation for wage or
profit or for any period that you are not under the care of a physician.
1.4 WAITING PERIOD
means the number of days at the beginning of a period of total disability before
benefit payments begin.
1.5 COMPLICATIONS OF PREGNANCY
mean conditions whose diagnoses are distinct from normal pregnancy but are
adversely affected by pregnancy or are caused by pregnancy. These include,
but are not limited to acute nephritis, cardiac decompensation, toxemia,
eclampsia, non-elective abortion, caesarean section and ectopic pregnancy
which is terminated.
Complications of pregnancy do not include false labor, occasional spotting, rest
prescribed by a doctor, morning sickness, pre-eclampsia, or similar conditions
which make a pregnancy difficult but do not constitute a medically distinct
pregnancy complication. Elective induced abortion is also not a complication of
pregnancy.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 DISABILITY BENEFIT
We will waive the payment of monthly deductions under the policy during your
continuous total disability:
a) if the policy and this rider are in force on the date you become totally
disabled with all monthly deductions are paid;
b) upon receipt by us of due proof of your total disability;
c) after a 90 day period; and
d) subject to the terms and conditions of the policy and this rider.
2.2 AMOUNTS TO BE WAIVED
The waiting period begins on the date that you become totally disabled.
Monthly deductions falling due after the waiting period will be waived during
the insured's continuous total disability. After the waiting period is
satisfied, monthly deductions that were due and paid during the waiting
period will be refunded. Monthly deductions are waived until total disability
ends. If a monthly deduction is in default, benefits will be allowed if:
a) your total disability began before the due date or during the grace period
of the monthly deduction in default;
b) notice of claim was given within one year after such due date; and
<PAGE>
c) the first monthly deduction in default is paid with interest not to exceed
6% per year if your total disability began during the grace period of such
monthly deduction.
2.3 CLAIM PROCEDURES
Before any monthly deduction is waived, written notice of claim and proof of
total disability must be received by us:
a) while you live;
b) while your total disability continues; and
c) no later than one year after this rider terminates.
Waiver of any monthly deduction will be subject to the following rules:
a) We may require a medical examination by a physician of our choice, at our
expense.
b) If you fail to give us notice and proof of your total disability on time,
your rights to benefits will not be impaired if you prove you complied as
soon as reasonably possible.
2.4 PROOF OF CONTINUING DISABILITY
You must furnish proof, as often as we request, that your total disability
continues. We may require a medical examination by a physician of our choice,
at our expense, as part of such proof.
2.5 RISKS NOT ASSUMED
No monthly deduction will be waived if your disability results from:
a) suicide or any attempt at suicide, whether sane or insane, or any
intentionally self-inflicted injury;
b) war or any act of war, whether declared or undeclared;
c) committing or trying to commit a felonious act;
d) service while a member of any armed forces; or
e) pregnancy or childbirth except complications of pregnancy.
2.6 TERMINATION
All rights and benefits under this rider will terminate on the earliest of:
a) the policy anniversary on which you are age 65 (but this will not affect a
claim which began before such date);
b) the owner requests that the policy or this rider be cancelled;
c) the grace period specified in the policy ends without payment of the
monthly deductions, except as provided in the amounts to be waived
provision;
d) the continuation of the policy in force under a cash value option; or
e) conversion, expiry, maturity or termination of the policy.
2.7 POLICY PROVISIONS APPLY
The incontestable clause and cash value benefits provision of the policy, if
any, will not apply to this rider. All other provisions of the policy not in
conflict with this rider will apply to this rider. In the event of a conflict
between the provisions of the policy and this rider, the provisions of this
rider will prevail.
- --------------------------------------------------------------------------------
SECTION 3 - MONTHLY DEDUCTIONS AND
REINSTATEMENT
- --------------------------------------------------------------------------------
3.1 MONTHLY DEDUCTIONS
The table of percentages of monthly deductions for this rider as shown herein
are to be deducted on the same dates, in the same manner, and under the same
conditions as monthly deductions for the policy to which this rider is attached.
Monthly deductions for this rider are due until this rider terminates. The
monthly deductions for this rider are based on your attained age at the
beginning of each policy year. Any monthly deductions deducted after
termination, as provided in this rider, will not continue this rider in force
and will be refunded. The table on the following page shows the monthly
deduction as a percentage of the cost of insurance and charges for all
additional benefit riders attached to this policy
3.2 REINSTATEMENT
This rider may be reinstated along with the policy subject to the requirements
of the policy and the following:
a) You must provide proof of your good health and insurability satisfactory to
us.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
/s/ Edward M. Wiederstein
President
<PAGE>
TABLE OF PERCENTAGES OF
MONTHLY DEDUCTIONS FOR WAIVER OF CHARGES
FOR STANDARD RATE CLASS
(APPLIES ONLY IF WAIVER OF CHARGES RIDER IS ATTACHED TO THE POLICY.
FOR SUBSTANDARD CLASSES TAKE RATING ON POLICY DATA PAGE TIMES THE PREMIUM
OBTAINED BY USING PERCENTAGES BELOW.)
<TABLE>
<CAPTION>
Male Male Female Female Male Male Female Female
Non- Non- Non- Non-
Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco
Age Rate Rate Rate Rate Age Rate Rate Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
18 4.6% 6.1% 9.3% 12.6% 42 6.5% 8.9% 11.3% 15.4%
19 4.6 6.1 9.3 12.6 43 6.9 9.3 11.5 15.6
20 4.6 6.1 9.3 12.6 44 7.2 9.7 11.8 16.1
21 4.6 6.1 9.3 12.6 45 7.5 10.1 12.2 16.6
22 4.6 6.1 9.3 12.6 46 7.8 10.5 12.6 17.0
23 4.6 6.1 9.3 12.6 47 8.1 10.9 12.9 17.6
24 4.6 6.1 9.3 12.6 48 8.4 11.3 13.3 18.1
25 4.6 6.1 9.3 12.6 49 8.7 11.8 13.7 18.6
26 4.8 6.5 9.3 12.6 50 9.1 12.2 14.1 19.2
27 4.8 6.5 9.3 12.8 51 9.4 12.7 14.6 19.8
28 4.8 6.5 9.5 13.0 52 9.8 13.2 15.0 20.4
29 4.8 6.5 9.5 13.0 53 10.2 13.8 15.5 21.0
30 4.8 6.5 9.8 13.2 54 10.6 14.3 15.9 21.6
31 5.0 6.7 9.8 13.2 55 11.0 14.9 16.4 22.2
32 5.0 6.7 9.8 13.2 56 11.5 15.5 16.9 22.9
33 5.2 6.9 10.2 13.7 57 11.9 16.1 17.4 23.6
34 5.2 7.2 10.2 13.7 58 12.4 16.7 17.9 24.3
35 5.4 7.4 10.2 13.7 59 12.9 17.4 18.5 25.0
36 5.4 7.4 10.2 13.9 60 13.4 18.1 19.0 25.8
37 5.6 7.6 10.2 13.9 61 14.0 18.8 19.6 26.6
38 5.6 7.6 10.4 14.1 62 14.5 19.6 20.2 27.4
39 6.1 8.0 10.6 14.3 63 15.1 20.4 20.8 28.2
40 6.1 8.0 10.8 14.5 64 15.7 21.2 21.4 29.0
41 6.1 8.5 11.1 14.7
</TABLE>
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
LIVING BENEFIT RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 POLICY BENEFIT
means the amount of death benefits we would pay to your beneficiaries upon your
death if this endorsement were not a part of the policy. It includes:
a) the death benefit of the policy;
b) any insurance provided by paid-up additions;
c) the amount of any one-year term insurance purchased with dividends; and
d) the face amount of any term insurance riders which cover you and are
attached to the policy.
It does not include the amount of any accidental death benefit rider that may be
attached to the policy or any death benefit from any rider that covers another
person or another family member.
1.3 LIVING BENEFIT
means the portion of the policy benefit we will pay the owner under this
endorsement if we receive proof that the insured is eligible for such benefit.
1.4 TERMINALLY ILL
means having a life expectancy of 12 months or less as certified by a physician.
1.5 PHYSICIAN
means a licensed medical practitioner performing within the scope of his/her
license. Such person must be someone other than you, the owner, or a member of
the immediate family of either you or the owner.
- --------------------------------------------------------------------------------
SECTION 2 - GENERAL PROVISIONS
- --------------------------------------------------------------------------------
2.1 LIVING BENEFIT PAYMENT
We will pay a living benefit in a lump sum to the owner if you are terminally
ill. We may make payments other than as a lump sum in any manner requested by
the owner and agreed to by us, except an option involving life contingencies.
2.2 AMOUNT OF LIVING BENEFIT
The maximum amount you may request for a living benefit is the lessor of:
a) the policy benefit; or
b) $250,000.
The $250,000 maximum will be applied in sum to all the policies under which you
are insured with us.
The amount requested for the living benefit will be adjusted as follows:
a) A 12 month discount will be applied which reflects the early payment of
amounts held under your policy. The discount will be based on the policy's
loan interest rate. If a loan interest rate provision is not included in
your policy, the discount will be based on an annual interest rate of 7.40%
in advance. The policy's loan interest rate will be multiplied by the
benefit amount to determine the amount of discount.
b) If there is an existing policy loan on your policy on the date you request
a living benefit, the living benefit payment will be reduced. The purpose
of this reduction is to repay a portion of the policy loan. The deduction
will be computed as follows:
Amount of Reduction = Existing Policy Loan X Requested Portion Of Policy Benefit
----------------------------------------------------------
Policy Benefit
The actual amount of living benefit paid to the owner will be equal to the
requested amount minus the 12 month discount and the reduction for existing
policy loans. This is the living benefit payment.
<PAGE>
If the requested amount of living benefit is less than the policy benefit, the
policy will remain in force. To remain in force, the face amount of the policy
after the living benefit has been paid must be greater than or equal to the
minimum issue limits for the plan of insurance on the date of the living benefit
request. The premiums due under the policy, all remaining values and policy
benefits will be reduced proportionately.
2.3 BENEFIT CONDITIONS
Payment of the living benefit is subject to the following rules:
a) We must receive a written request on our form signed by you and the owner.
b) The policy must be in force other than as extended term insurance.
c) The policy or an eligible term rider must not be within five years of
expiration or endowment at the time a living benefit is requested.
d) The living benefit is not available for any last
survivor life insurance policy.
e) If there is an irrevocable beneficiary or assignee, they must consent in
writing to payment of the benefit.
f) We reserve the right to require you or any beneficiary, a spouse, assignee,
or any other party in interest to consent to the payment of the living
benefit if, in our discretion, such agreement is needed to protect our
interests.
g) Your policy is not eligible for this benefit if:
i) you or the owner are required by law to use this endorsement to meet
the claims of creditors, whether in bankruptcy or otherwise; or
ii) you are required by a government agency to use this endorsement to
apply for, obtain, or keep a government benefit or entitlement.
h) You must provide proof that you meet conditions under the living benefit
provision, including an attending physician's statement and any other proof
we may require. We reserve the right to seek a second medical opinion or
have you examined at our expense by a physician we choose.
2.4 TERMINATION
All rights and benefits under this endorsement will end when any one of the
following events occurs:
a) the owner requests that the policy or this rider be cancelled;
b) the grace period ends without payment of the premium; or
c) conversion, expiry, maturity or termination of the policy.
2.5 POLICY PROVISIONS APPLY
The policy is modified to add the provisions of this rider. All provisions of
the policy not in conflict with this rider will apply to this rider. In the
event of a conflict between the provisions of the policy and this rider, the
provisions of the rider will prevail.
/s/ Edward M. Wiederstein
President
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
LIVING BENEFIT RIDER
DISCLOSURE STATEMENT
1. This Living Benefit Rider is NOT a long term care policy. The amount this
rider pays may not be enough to cover nursing home or other bills. The
owner may use the money received from this rider for any purpose.
2. Benefits payable under this rider MAY be taxable. We make no
representations concerning any potential tax consequences of this
endorsement. You should consult your personal tax adviser.
3. This rider MAY affect Medicaid eligibility. If you use the endorsement
benefit, you MAY be required to spend all of the available funds to become
eligible for Medicaid or other government assistance programs.
4. Payment of the accelerated benefit will be allowed if you are determined to
have a terminal illness. This means you have a life expectancy of 12 months
or less as certified by a physician.
5. The maximum amount you may request for an accelerated benefit is the lesser
of the policy benefit, or $250,000. The $250,000 maximum will be applied in
sum to all the policies under which you are insured with us.
6. The amount requested for the accelerated benefit will be reduced by a 12
month discount which reflects the early payment of amounts held under your
policy. The discount will be based on the policy's loan interest rate, or
7.4% for policies not having a loan provision. There will be no other
administrative charge.
7. The amount requested will also be reduced if there is an existing policy
loan on your policy on the date you request an accelerated benefit. The
purpose of this reduction is to repay a portion of the policy loan.
8. Payment of the accelerated benefit may decrease or eliminate the death
benefit your beneficiary will receive by the amount of the accelerated
benefit requested. If a portion of the policy remains in force following
payment of the accelerated benefit, the premiums due under the policy, all
remaining values and policy benefits, including any policy loans will be
reduced proportionately.
- ---------------------------------- ----------------------------
Policyowner's Signature Agent's Signature
- ---------------------------------- ----------------------------
Date Date
First copy - Home Office Second Copy - Owner/Insured
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
COST OF LIVING INCREASE RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 -DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 EFFECTIVE DATE
means the date shown for this rider on policy data page.
1.3 CONSUMER PRICE INDEX
means the Consumer Price Index For All Urban Consumers, U.S. City Average, All
Items (CPI) as published by the U.S. Department of Labor.
1.4 CPI FACTOR
The CPI Factor is calculated as follows:
(a)-(b) where:
-------
(b)
a) is the CPI 6 months prior to the increase date;
and
b) is the CPI 42 months prior to the increase date.
We reserve the right to use some other similar measurement if the U.S.
Department of Labor changes or stops publishing the CPI.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 INCREASE BENEFIT
The specified amount on your life will increase automatically every third policy
anniversary without proof of insurability. Such increase will be subject to the
following rules:
a) The policy and this rider must be in force with all needed monthly
deductions paid.
b) The increase will take place every third policy anniversary after the
policy date. Such anniversary will be the effective date of the increase.
c) The increase amount will be the lessor of:
i) the initial specified amount plus any prior increases under this rider
multiplied by the CPI Factor;
ii) 20% of the initial specified amount; or
iii) $25,000.
d) The minimum increase amount is $2,000
e) The total amount of all increases under this rider will be the lessor of:
i) four times the initial specified amount on this policy; or
ii) $200,000.
f) The cost of insurance rate for the increase will be based on your sex,
attained age and rate class at the time of increase.
g) We will send the owner a new policy data policy data page showing the new
specified amount following an increase.
h) Any increase will be subject to per $1,000 charges shown in the policy.
i) The increase will not be allowed if your mortality class is other than
standard.
2.2 REJECTION OF INCREASE
We will mail you a new policy data page on the effective date of any increase.
Acceptance is automatic. You may reject the cost of living increase by notice to
us and return of the new policy data page within 30 days of the increase date.
2.3 TERMINATION
All rights and benefits under this rider will terminate when any of the
following occur:
a) any automatic cost of living increase is rejected;
b) the later of:
<PAGE>
i) the policy anniversary on which you are age 65; or
ii) the 10th policy anniversary;
c) the owner requests that the policy or this rider be canceled;
d) the grace period specified in the policy ends without payment of the
monthly deductions; or
e) conversion, expiry, maturity or termination of the policy.
2.4 POLICY PROVISIONS APPLY
All provisions of the policy not in conflict with this rider will apply to this
rider. In the event of a conflict between the provisions of the policy and this
rider, the provisions of this rider will prevail.
- --------------------------------------------------------------------------------
SECTION 3 - MONTHLY DEDUCTIONS AND REINSTATEMENT
- --------------------------------------------------------------------------------
3.1 MONTHLY DEDUCTIONS
The monthly deduction for this rider will be deducted on the same dates, in the
same manner and under the same conditions as the monthly deductions for the
policy to which this rider is attached. Monthly deductions for this rider are
due until the rider terminates. Any monthly deductions deducted after
termination, as provided in this rider, will not continue this rider in force
and will be refunded.
The current monthly deduction rates for this rider will be determined by us. If
we change the rates, we will change them for everyone in your premium class. The
current monthly deduction rates for this rider will never be more than 6% of the
guaranteed maximum monthly insurance rates shown on the policy data page.
3.2 REINSTATEMENT
This rider may be reinstated along with the policy subject to the requirements
of the policy and the following:
a) You must provide proof of your good health and insurability satisfactory to
us.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
/s/ Edmund M. Wiederstein
President
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
GUARANTEED INSURABILITY OPTION RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 EFFECTIVE DATE
means the date shown for this rider on page 3 of the policy.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 OPTION BENEFIT
The owner may increase the specified amount of insurance on your life without
proof of insurability on each of the option dates, if the policy and this rider
are in force with all needed monthly deductions paid.
Such purchase is subject to the following rules:
a) The owner must send us a written request, on our form and pay the monthly
deductions on or before the option date.
b) The policy date of the increase will be the option date.
c) In no event will the increase in specified amount become effective unless
you are living on the option date.
d) The increase in specified amount will not exceed the basic amount of this
rider.
e) Each Option will expire if not used on or before its option date. The
expiration will not affect future options.
f) The monthly deductions for the increased amount will be based on your sex,
attained ago and rate class on the option date.
g) The increased amount will be subject to the same exceptions, exclusions and
restrictions, if any, as this policy.
h) The increased amount will not be effective unless the net cash value on the
option date is sufficient to pay monthly deductions for the policy plus the
increased amount.
i) We will send the owner a new policy data page 3 showing the new specified
amount following exercise of an option.
j) The increased amount will be subject to the first year per $1,000 charges
shown in the policy.
2.2 AMOUNT OF THIS RIDER
The amount of this rider is shown on page 3 of the policy.
2.3 OPTION DATES
Option dates will be the policy anniversaries on which your age is 22, 25, 28,
31, 34, 37 and 40. Use of the advance purchase option will cancel the next
unused option.
2.4 ADVANCE PURCHASE OPTION
If the policy and this rider are in force with all needed deductions paid, the
owner may make immediate use of the next unused option within 60 days of the
following:
a) your marriage;
b) the birth of each living child to you during your lifetime; or
c) upon your legal adoption of a child.
Use of the advance purchase option is subject to the same rules which apply to
any other option benefit plus the following:
a) The next option date will be cancelled.
b) In the event of a multiple birth, the specified amount of the new policy
may be increased to an amount equal to the amount of this rider times the
number of live children born.
c) You must send us proof of such marriage, birth or adoption.
<PAGE>
d) The increased amount under this option will not be effective unless the net
cash value on the effective date of such increase is sufficient to pay
monthly deductions for the policy plus the amount of the increase resulting
from the exercise of this option.
e) The effective date of the increase will be the monthly deduction day
coinciding with or next following the date the signed request was received
in the Home Office.
If you die without using an advance purchase option during the 60 days it is
available, a death benefit will be paid equal to the amount that would have been
paid had the owner exercised such option.
2.5 TERMINATION
All rights and benefits under this rider will terminate on the earliest of:
a) the policy anniversary on which you are age 40;
b) you die;
c) the owner requests that the policy or rider be cancelled;
d) the grace period specified in the policy ends without payment of the
monthly deductions;
e) the continuation of the policy in force under a cash value option; or
f) conversion, expiry, maturity or termination of the policy.
2.6 POLICY PROVISIONS APPLY
All provisions of the policy not in conflict with this rider will apply to this
rider. In the event of a conflict between the provisions of the policy and this
rider, the provisions of this rider will prevail.
- --------------------------------------------------------------------------------
SECTION 3 - MONTHLY DEDUCTIONS AND REINSTATEMENT
- --------------------------------------------------------------------------------
3.1 MONTHLY DEDUCTIONS
The monthly deductions for this rider as shown herein are to be deducted on the
same dates, in the same manner, and under the same conditions as the monthly
deductions for the policy to which this rider is attached. Monthly deductions
for this rider are due until this rider terminates. Any monthly deductions
deducted after termination, as provided in this rider, will not continue this
rider in force and will be refunded.
The monthly deductions for this rider are based on your attained age at the
beginning of each policy year. The table on the following page shows the monthly
deduction per $1,000 of rider amount based on your attained age at the beginning
of each policy year.
3.2 REINSTATEMENT
This rider my be reinstated along with the policy subject to the requirements of
the policy and the following:
a) You must provide proof of your good health and insurability satisfactory to
us.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
/s/ Edmund M. Wiederstein
President
<PAGE>
TABLE OF GUARANTEED INSURABILITY OPTION
MONTHLY DEDUCTION RATES PER $1,000
FOR STANDARD CLASS
Attained Male Female Attained Male Female
Age Rate Rate Age Rate Rate
0 .01 .01 20 .06 .04
1 .02 .02 21 .06 .04
2 .02 .02 22 .06 .04
3 .02 .02 23 .07 .05
4 .02 .02 24 .07 .05
5 .02 .02 25 .07 .06
6 .02 .02 26 .08 .06
7 .03 .02 27 .08 .06
8 .03 .02 28 .08 .06
9 .03 .02 29 .08 .07
10 .03 .02 30 .08 .07
11 .03 .02 31 .08 .07
12 .03 .02 32 .09 .07
13 .04 .02 33 .09 .08
14 .04 .03 34 .09 .08
15 .04 .03 35 .09 .08
16 .04 .03 36 .09 .09
17 .04 .03 37 .10 .10
18 .05 .03 38 .12 .12
19 .05 .03 39 .14 .13
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
CHILDREN'S TERM LIFE INSURANCE RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 COVERED CHILD
means your child, your stepchild or your legally adopted child, who:
a) is named in the application for this rider and who is less than age 18 on
the date of such application; or
b) after the date of such application, is born to you or legally adopted by
you before such child is age 18.
1.3 EFFECTIVE DATE
means the date shown for this rider on the policy data page.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 DEATH BENEFIT
We will pay the amount of this rider to the beneficiary of this rider.
a) within two months after receipt by us of due proof of a covered child's
death;
b) if a covered child dies:
i) after such covered child is 7 days old; and
ii) before such covered child's 23rd birthday;
c) if the policy and this rider are in force on the date of a covered child's
death with all needed monthly deductions paid; and
d) subject to the terms and conditions of the policy and this rider.
2.2 AMOUNT OF THIS RIDER
The amount of term insurance under this rider is shown on the policy data page.
2.3 DEATH BENEFIT CHANGES
The owner may change the amount of this rider at any time after the first policy
year subject to the following rules:
a) The change must be in writing in a form acceptable to us.
b) It must be signed by the owner.
c) The form must be sent to us and, if proof of insurability is required, such
proof must be acceptable to us.
d) We will issue a new policy data page for any change in amount of this
rider.
Any decrease will be effective on the monthly deduction day coinciding with or
next following our receipt of the request. Any reduction will be in the
following order:
a) against the most recent increase in insurance;
b) against the next most recent increases reduced in succession;
c) against the initial amount.
In no event will the current amount of this rider be more than the specified
amount of the policy. Any decrease is also subject to a minimum amount remaining
of $10,000.
Any increase will require proof of insurability. An approved increase will have
an effective date as shown on the new policy data page.
2.4 INCONTESTABLE CLAUSE
We will not contest payment of this rider for any reason other than fraud after
this rider has been in force during such covered child's lifetime for two years
from the effective date.
We will not contest payment of any increases in the amount of this rider for any
reason other than fraud after the increases have been in force during such
covered child's lifetime for two years from the effective date of each increase.
2.5 MISSTATEMENT OF AGE OR SEX
We have the right to correct benefits for misstated age or sex. In such an
event, benefits will be the amount the monthly deduction actually made would
have bought at the correct age or sex.
<PAGE>
2.6 SUICIDE
If, within one year of the effective date, a covered child dies by suicide,
whether sane or insane, our liability is limited to the monthly deductions paid
for this rider.
Any increase in death benefits resulting from an increase in the amount of this
rider will not be paid if a covered child dies from suicide, while sane or
insane, within one year of the date of such increase. Instead, we will return an
amount equal to the cost of insurance for such increase in the amount of this
rider.
2.7 TERMINATION
All rights and benefits under this rider will end when any one of the following
events occurs:
a) the owner requests that the policy or rider be cancelled or fully
converted;
b) the grace period specified in the policy ends without payment of the
monthly deductions; or
c) conversion, expiry, maturity or termination of the policy.
2.8 POLICY PROVISIONS APPLY
The cash value and policy loan provisions of the policy, if any, will not apply
to this rider. All other provisions not in conflict with this rider will apply
to this rider. In the event of a conflict between the provisions of the policy
and this rider, the provisions of this rider will prevail.
- --------------------------------------------------------------------------------
SECTION 3 - OWNERSHIP AND BENEFICIARY
- --------------------------------------------------------------------------------
3.1 OWNERSHIP
The owner of the policy will be the owner of this rider.
3.2 BENEFICIARY
Beneficiaries for this rider are as named in the application, unless changed by
the owner. The rider's beneficiaries may be different from the policy's
beneficiaries.
- --------------------------------------------------------------------------------
SECTION 4 - MONTHLY DEDUCTIONS AND REINSTATEMENT
- --------------------------------------------------------------------------------
4.1 MONTHLY DEDUCTIONS
The monthly deductions for this rider are to be paid on the same dates, in the
same manner, and under the same conditions as the monthly deductions for
the policy to which this rider is attached. Monthly deductions for this rider
are due until this rider terminates. The monthly deduction for this rider will
be $0.25 per $1,000 of coverage under this rider.
4.2 REINSTATEMENT
This rider may be reinstated along with the policy subject to the requirements
of the policy and the following:
a) You must provide proof of good health and insurability satisfactory to us
for each covered child who would be insured under this rider upon such
reinstatement.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
- --------------------------------------------------------------------------------
SECTION 5 - CONVERSION
- --------------------------------------------------------------------------------
5.1 CONVERSION PRIVILEGE
The owner may convert coverage under this rider to a new policy on any covered
child without proof of insurability if the policy and this rider are in force
with all needed monthly deductions paid. Application for conversion must be made
during such child's conversion period and before termination of this policy and
rider.
5.2 CONVERSION PERIOD
The conversion period for each covered child expires on the earlier of:
a) such covered child's 23rd birthday; or
b) 60 days after your death.
5.3 CONVERSION REQUIREMENTS
Such conversion is subject to the following rules:
a) The owner must send us a written request, on our form.
b) The owner must pay the first premium on the new policy.
c) The policy date of the new policy will be the date of termination of the
covered child's coverage under this rider.
d) In no event will the new policy become effective, unless such covered child
is living on the policy date of the new policy.
e) The face amount of the new policy may not exceed the face amount of this
rider in effect on the date of the request.
f) The new policy must comply with our published rules in effect on the date
of issue of the new policy.
<PAGE>
g) The premium for the new policy will be our rate for such covered child's
age on the policy date of the new policy for the same premium class as this
rider.
h) The new policy will be subject to the same exceptions, exclusions and
restrictions, if any, as this rider.
i) The new policy may be any form of single-life permanent life insurance
policy then being offered by us.
j) Our consent and proof of such covered child's insurability are required to
add any other benefit riders to the new policy, including the waiver of
charges rider.
/s/ Edward M. Wiederstein
President
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
OTHER ADULT UNIVERSAL LIFE INSURANCE RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 COVERED ADULT
means the person whose life is insured under this rider and who is age 18 or
older.
1.3 AGE
means age at the last birthday.
1.4 ATTAINED AGE
means the covered adult's age on the effective date plus the number of policy
years since the effective date.
1.5 EFFECTIVE DATE
means the effective date of this rider shown on the policy data page.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 DEATH BENEFIT
We will pay the amount of this rider to the beneficiary of this rider:
a) within two months after receipt by us of due proof of the covered adult's
death;
b) if the policy and this rider are in force on the date of the covered
adult's death with all needed monthly deductions paid; and
c) subject to the terms and conditions of the policy and this rider.
2.2 AMOUNT OF THIS RIDER
The amount of insurance under this rider is shown on the policy data page.
2.3 DEATH BENEFIT CHANGES
The owner may change the amount of this rider at any time after the first policy
year subject to the following rules:
a) The change must be in writing in a form acceptable to us.
b) It must be signed by the owner.
c) The form must be sent to us and, if proof of insurability is required, such
proof must be acceptable to us.
d) We will issue a new policy data page for any change in the amount of this
rider.
Any decrease will be effective on the monthly deduction day coinciding with or
next following our receipt of the request. Any reduction will be in the
following order:
a) against the most recent increase in insurance;
b) against the next most recent increases reduced in succession;
c) against the initial amount.
In no event will the current amount of this rider be more than the specified
amount of the policy. Any decrease is also subject to a minimum amount remaining
of $50,000.
Any increase will require proof of insurability. An approved increase will have
an effective date as shown on the new policy data page.
2.4 INCONTESTABLE CLAUSE
We will not contest payment of this rider for any reason other than fraud after
this rider has been in force during the covered adult's lifetime for two years
from the effective date of this rider.
We will not contest payment of any increases in the amount of this rider for any
reason other than fraud after the increases have been in force during the
covered adult's lifetime for two years from the effective date of each increase.
2.5 MISSTATEMENT OF AGE OR SEX
We have the right to correct benefits for misstated
<PAGE>
age or sex. In such an event, benefits will be the amount the monthly deductions
actually paid would have bought at the correct age or sex.
2.6 SUICIDE
If, within one year of the effective date, the covered adult dies by suicide,
whether sane or insane, our liability is limited to the monthly deductions paid
for this rider.
Any increase in death benefits resulting from an increase in the amount of this
rider will not be paid if a covered adult dies from suicide, while sane or
insane, within one year of the date of such increase. Instead, we will return an
amount equal to the cost of insurance for such increase in the amount of this
rider.
2.7 TERMINATION
All rights and benefits under this rider will end when any one of the following
events occurs:
a) the earlier of the policy anniversary on which you are age 115 or the
policy anniversary on which the covered adult is age 115;
b) the covered adult dies;
c) the owner requests that the policy or rider be cancelled or fully
converted;
d) the grace period specified in the policy ends without payment of the
monthly deductions; or
e) conversion, expiry, maturity or termination of the policy.
2.8 POLICY PROVISIONS APPLY
The accumulated value benefits and policy loan provisions of the policy, if any,
will not apply to this rider. All other provisions not in conflict with this
rider will apply to this rider. In the event of a conflict between the
provisions of the policy and this rider, the provisions of this rider will
prevail.
- --------------------------------------------------------------------------------
SECTION 3 - OWNERSHIP AND BENEFICIARY
- --------------------------------------------------------------------------------
3.1 OWNERSHIP
The owner of the policy will be the owner of this rider.
3.2 BENEFICIARY
Beneficiaries for this rider are as named in the application, unless changed by
the owner. The rider's beneficiaries may be different from the policy's
beneficiaries.
- --------------------------------------------------------------------------------
SECTION 4 - MONTHLY DEDUCTIONS AND REINSTATEMENT
- --------------------------------------------------------------------------------
4.1 MONTHLY DEDUCTIONS
The monthly deductions for this rider are to be paid on the same dates, in
the same manner, and under the same conditions as the monthly deductions for
the policy to which this rider is attached. Monthly deductions for this rider
are due until the rider terminates. The monthly deduction for this rider is
computed as the sum of a) plus b), where:
a) is the cost of insurance rate (as defined in section 4.2) multiplied by the
amount of the rider; and
b) is the monthly per $1,000 charge from the policy data page, multiplied by
the current amount or the amount of any increase in the amount of this
rider. This charge applies only during the first policy year or during the
12 months following an increase in the amount of this rider.
4.2 COST OF INSURANCE RATE
The cost of insurance rate is subject to the following rules:
a) The rate is based on the covered adult's sex, rate class and attained age.
For any increase in the specified amount, the attained age will be the
covered adult's age on the effective date of the increase.
b) The monthly rates will be determined by us based on our expectation as to
future mortality experience.
c) If we change the rates, we will change them for everyone in a rate class.
d) The monthly guaranteed rates shown in the policy are based on the 1980
Commissioner's Standard Ordinary Mortality Table, Age Last Birthday. The
monthly rate will never be more than these rates.
4.3 REINSTATEMENT
This rider may be reinstated along with the policy subject to the requirements
of the policy and the following:
<PAGE>
a) You must provide proof of good health and insurability satisfactory to us
for the covered adult who would be insured under this rider upon such
reinstatement.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
- --------------------------------------------------------------------------------
SECTION 6 - CONVERSION
- --------------------------------------------------------------------------------
6.1 CONVERSION PRIVILEGE
The owner may convert this rider to a new policy on the covered adult without
proof of insurability if the policy and this rider are in force with all needed
monthly deductions paid. Application for conversion must be made before
termination of the policy and rider and before the covered adult's 75th
birthday, or within 60 days after your death.
6.2 CONVERSION REQUIREMENTS
Such conversion is subject to the following rules:
a) The owner must send us a written request, on our form.
b) The owner must pay the first premium on the new policy.
c) The policy date of the new policy will be the date of termination of
this rider.
d) In no event will the new policy become effective, unless the covered
adult is living on the policy date of the new policy.
e) The face amount of the new policy may not exceed the face amount of
this rider in effect on the date of the request.
f) The new policy must comply with our published rules in effect on the
date of issue of the new policy.
g) The premium for the new policy will be our rate for the covered
adult's age on the policy date of the new policy for the same premium
class as this rider.
h) The new policy will be subject to the same exceptions, exclusions and
restrictions, if any, as this rider.
i) The new policy may be any form of single-life permanent life insurance
policy then being offered by us.
j) Our consent and proof of the covered adult's insurability are required
to add any other benefit riders to the new policy, including the
waiver of charges rider.
/s/ Edward M. Wiederstein
President
<PAGE>
SEP 30 1996
SECRETARY OF STATE
ARTICLES OF MERGER
OF
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to section 1105 of the Iowa Business Corporation Act, the
undersigned corporation, formerly known as Century Life Insurance Company,
adopts the following Articles of Merger:
1. That the Plan of Merger is as set forth in the Acquisition and Merger
Agreement attached hereto and made a part hereof.
2A. The designation, number of outstanding shares, and number of votes
entitled to be cast by each voting group entitled to vote separately on the Plan
as to each corporation is as follows:
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
Votes Entitled to be
Designation of Group Shares Outstanding Cast on Merger
-------------------- ------------------ --------------------
Common 2,500,000 2,500,000
2A.2 The total number of undisputed votes cast for the Plan by each voting
group was:
Voting Group Votes for
------------ ---------
Common 2,500,000
The number of votes cast for the Plan by each voting group was sufficient
for approval by that voting group.
CENTURY LIFE INSURANCE COMPANY
Votes Entitled to be
Designation of Group Shares Outstanding Cast on Merger
-------------------- ------------------ --------------------
Common 750,000 750,000
<PAGE>
2A.2 The total number of undisputed votes cast for the Plan by each
voting group was:
Voting Group Votes for
------------ ---------
Common 750,000
The number of votes cast for the Plan by each voting group was sufficient
for approval by that voting group.
The effective date and time of this document is September 30, 1996 at 1:00 p.m.,
Central Daylight Time.
AMERICAN EQUITY INVESTMENT
LIFE INSURANCE COMPANY
By: /s/ D. J. Noble
-----------------------
D. J. Noble, President
-2-
<PAGE>
CERTIFICATE OF ATTORNEY GENERAL
I hereby certify that on this date I examined the within Articles of Merger
of American Equity Investment Life Insurance Company, formerly known as Century
Life Insurance Company, and the same are found to be in conformity with the
Constitution and the laws of the United States and the State of Iowa.
Dated this 25th day of September, 1996.
/s/ Scott M. Galenbeck
---------------------------
Assistant Attorney General
CERTIFICATE OF COMMISSIONER OF INSURANCE
I hereby certify that the within Articles of Merger between American Equity
Investment Life Insurance Company, formerly known as Century Life Insurance
Company, and are hereby approved by me this 25th day of September, 1996.
/s/ Robert L. Howe
-------------------------------
Deputy Commissioner of Insurance
of the State of Iowa
<PAGE>
-------------------------------------------------------
ACQUISITION AND MERGER AGREEMENT
BETWEEN
CENTURY LIFE INSURANCE COMPANY
CENTURY LIFE OF AMERICA
AND
AMERICAN EQUITY INVESTMENT
LIFE INSURANCE COMPANY
AMERICAN EQUITY INVESTMENT
LIFE HOLDING COMPANY
-------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
ONE Identity of Merging Corporation and Surviving Corporation 1
1.1 Name of Each Corporation Planning to Merge 1
1.2 Surviving Corporation 2
TWO The Merger 2
2.1 Effective Time and Closing 2
2.2 Rights of Surviving Corporation 2
2.3 Claims Against Constituent Corporations 2
2.4 Tax Election 2
THREE Change of Name, Restated Articles of Incorporation and 3
Amended Bylaws, and Officers and Directors
3.1 Change of Name 3
3.2 Articles of Incorporation and Bylaws 3
3.3 Officers and Directors 3
FOUR Conversion and Payment of Shares 3
4.1 Liquidating Distribution by Century 3
4.2 American Equity Shares Owned by AEI Holding 3
4.3 Century Shares Owned by CLA 4
4.4 Shares of Surviving Corporation after Merger 4
4.5 Actions by Board of Directors of Surviving Corporation 4
FIVE Capital and Surplus and Existing Business of Century 4
5.1 Capital and Surplus 4
5.2 Existing Business 4
SIX Representations and Warranties of Century and CLA 5
6.1 Corporate Status 5
6.2 Capitalization 5
6.3 Financial Statements 5
6.4 Title to Property 6
6.5 Corporate Action 6
6.6 Litigation 6
6.7 Taxes 7
6.8 Employment and Other Contracts 7
6.9 Contracts and Other Commitments 7
6.10 Insurance Filings 8
6.11 Execution and Delivery 8
-i-
<PAGE>
Section Page
- ------- ----
SEVEN Representations and Warranties of American Equity 8
7.1 Corporate 8
7.2 Capitalization 8
7.3 Financial Statements 8
7.4 Title to Property 9
7.5 Corporation Action 9
7.6 Litigation 9
7.7 Taxes 10
7.8 Employment and Other Contracts 10
7.9 Contracts and Other Commitments 10
7.10 Insurance Filings 10
7.11 Execution and Delivery 11
7.12 Approvals 11
7.13 Capitalization 11
EIGHT Nature and Survival of Representations, Warranties, 11
Covenants, Agreements, Guarantees, Indemnifications and
Hold Harmless
8.1 American Equity and AEI Holding 11
8.2 Century and CLA 11
NINE Conditions Precedent to American Equity's and/or AEI 12
Holding's Obligations
9.1 Satisfaction by Century and CLA 12
(a) Representations and Warranties are True and 12
Correct
(b) Performance and Compliance 12
(c) Delivery of Certificate of Century 13
(d) Opinion of Century's and CLA's Counsel 13
(e) Certificate of CLA 13
9.2 Other Conditions 13
TEN Conditions Precedent to CLA's and Century's Obligations 14
10.1 Satisfaction by American Equity 14
(a) Representations and Warranties and True and
Correct 14
(b) Opinion of American Equity's and AEI Holding's 14
Counsel
(c) Delivery of Certificate of American Equity 14
(d) Certificate of AEI Holding 15
10.2 Other Conditions 15
(a) Tax Matters 15
(b) Approvals 15
-ii-
<PAGE>
Section Page
- ------- ----
ELEVEN Obligations and Restrictions Pending Merger 15
11.1 Conduct of Business 15
11.2 Absence of Change 15
11.3 Access to Records 15
11.4 Approvals 16
11.5 Dividends 16
11.6 Stock Options 16
TWELVE Statutory Representation 16
THIRTEEN Termination and Abandonment 16
13.1 Mutual Consent 16
13.2 By a Constituent Corporation 16
13.3 By a Party 17
13.4 Passage of Time 17
FOURTEEN Closing Procedures and Documents 17
14.1 Delivery by Century and CLA 17
A. Shares of Century 17
B. Resignation of Directors and Officers 17
C. Opinion of Counsel 17
D. Certificates 17
E. Corporate Documents 17
F. Financial Statements 17
G. Assumption Reinsurance Agreement 17
H. List of Business 18
I. Other 18
14.2 Delivery by American Equity and AEI Holding 18
A. Payment of Funds 18
B. Opinion of Counsel 18
C. Certificates 18
D. Approvals 18
E. Other 18
-iii-
<PAGE>
Section Page
- ------- ----
FIFTEEN Miscellaneous 18
15.1 Insurance Department Approval 18
15.2 Reserve Guaranty 18
15.3 Brokerage 18
15.4 Addition of Exhibits 19
15.5 Specific Performance 19
15.6 Press Releases 19
15.7 Confidentiality 19
15.8 Expenses 19
15.9 Notices 19
15.10 Waiver of Conditions 20
15.11 Registered Office of Surviving Corporation 20
15.12 Entire Agreement 21
15.13 Governing Law 21
15.14 Severability 21
15.15 Parties in Interest 21
15.16 Amendment 21
15.17 Counterparts 21
15.18 Dispute Resolution: Arbitration 21
EXHIBITS
Exhibit No. 1 Procedures and Fees for Administration of 23
and Valuation of Retained Business
Exhibit No. 2 Century Life Insurance Company Licenses 24
Exhibit No. 3 Century Life Insurance Company Litigation, 25
Taxes, and Contracts and Commitments
-iv-
<PAGE>
ACQUISITION AND MERGER AGREEMENT
THIS ACQUISITION AND MERGER AGREEMENT ("Agreement") is entered into this
18th day of April, 1996, between Century Life Insurance Company, an insurance
corporation organized and existing under the laws of the State of Iowa, which
has its principal place of business in Waverly, Bremer County, Iowa (hereinafter
called "Century"), Century Life of America, an insurance company organized and
existing under the laws of the State of Iowa, with its principal place of
business in Waverly, Bremer County, Iowa (hereinafter called "CLA"), American
Equity Investment Life Insurance Company, an insurance corporation organized and
existing under the laws of the State of Iowa, with its principal place of
business in Des Moines, Polk County, Iowa (hereinafter called "American Equity")
and American Equity Investment Life Holding Company, a corporation organized and
existing under the laws of the State of Delaware, with its principal place of
business in Des Moines, Polk County, Iowa (hereinafter called "AEI Holding").
WHEREAS, CLA desires to sell the stock of Century and AEI Holding desires
to purchase the stock of Century and simultaneously merge (the "Merger")
American Equity into Century (hereinafter sometimes referred to together as
"Constituent Corporations") pursuant to the applicable statutes of the State of
Iowa in accordance with the terms and conditions hereinafter set forth, wherein
Century will be the surviving corporation (hereinafter sometimes referred to as
"Surviving Corporation" when reference is made to it after the Effective Time);
and
WHEREAS, Century is duly organized and existing under the corporate
and insurance laws of the State of Iowa, having been incorporated on December
19, 1980, and having authorized capital stock consisting of Seven Hundred
Fifty Thousand (750,000) shares of common stock with a par value of $2.00 per
share, of which all Seven Hundred Fifty Thousand (750,000) shares are now
issued and outstanding; and
WHEREAS, American Equity is duly organized and existing under the
corporate and insurance laws of the State of Iowa, having been incorporated on
December 28, 1995, and having authorized capital stock consisting of Four
Million (4,000,000) shares of common stock with a par value of $1.00 per
share, of which Two Million Five Hundred Thousand (2,500,000) shares are
issued and outstanding, and 500,000 shares of Series Preferred Stock, of
which none are issued or outstanding.
NOW, THEREFORE, for good and valuable consideration, including the
mutual covenants contained herein, the parties intending to be legally bound
do hereby agree that AEI Holding shall purchase the stock of Century and
simultaneously American Equity shall be merged with and into Century pursuant
to the applicable statutes of the State of Iowa on the following terms and
conditions:
SECTION ONE
Identity of Merging Corporations and Surviving Corporation
1.1 NAME OF EACH CORPORATION PLANNING TO MERGE. The corporations
which are merging pursuant to this Agreement are American Equity Investment Life
Insurance Company and Century Life Insurance Company, both of which are
insurance corporations organized and
<PAGE>
existing under the laws of the State of Iowa, each with its principal place of
business in the State of Iowa.
1.2 SURVIVING CORPORATION. Century shall be the Surviving
Corporation: provided, however, that simultaneously with the Merger, the name of
the Surviving Corporation will be change to American Equity Investment Life
Insurance Company.
SECTION TWO
The Merger
2.1 EFFECTIVE TIME AND CLOSING. Subject to the terms and conditions
of this Agreement, the closing pursuant to this Agreement ("Closing") shall take
place on September 30,1996 at the offices of Whitfield & Eddy, P.L.C., Des
Moines, Iowa, or at such other place as the parties may agree. At the Closing,
the Articles of Merger shall be executed and AEI Holding shall immediately file
such Articles with the Iowa Secretary of State. The Articles of Merger shall
state that the Merger is to be effective on September 30, 1996 ("Effective
Date") at 1:00 p.m. ("Effective Time").
2.2 RIGHTS OF SURVIVING CORPORATION. The Surviving Corporation shall
succeed to and possess all of the rights, privileges, powers, immunities and
franchises, public or private, of each of the Constituent Corporations which,
together with all property (real, personal or mixed) of each of the Constituent
Corporations, shall be vested in the Surviving Corporation without further act
or deed and thereafter shall constitute the same rights, powers, immunities,
franchises and property of the Surviving Corporation as they were of the
respective Constituent Corporations, and the title of any real estate vested by
deed or otherwise in either of the Constituent Corporations is vested in the
Surviving Corporation without reversion or impairment.
2.3 CLAIMS AGAINST CONSTITUENT CORPORATIONS. Any claims existing
or action or proceeding pending by or against either of the Constituent
Corporations on the Effective Date may be prosecuted by or against it as if
the Merger had not taken place, subject, however, to any indemnifications
granted in this Agreement.
2.4 TAX ELECTION. AEI Holding agrees to make an election under
Section 338(g) of the Internal Revenue Code and the parties hereto shall make a
timely joint election under Section 338(h)(10) of the Internal Revenue Code on
Internal Revenue Service Form 8023-A. Comparable elections, if available, shall
be made under state law in order to have the acquisition of Century by AEI
Holding treated as an asset acquisition for state tax purposes in the same
manner as it will be treated under Section 338 of the Internal Revenue Code for
federal income tax purposes. American Equity and CLA shall agree upon the
allocation of the Purchase Price to the various assets of Century which it owns
immediately preceding the Effective Time.
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SECTION THREE
Change of Name,
Restated Articles of Incorporation and Amended Bylaws,
and Officers and Directors
3.1 CHANGE OF NAME. As part of this Agreement, Century, which is
the Surviving Corporation, shall change its name to American Equity
Investment Life Insurance Company to be effective at the Effective Time. AEI
Holding covenants and agrees that the name change will occur in all
jurisdictions listed in Exhibit No. 2 prior to January 1, 1997, and all
affected policyholders of Century will be provided with a name change
endorsement in accordance with applicable law. If for any reason the
Surviving Corporation cannot change its name to American Equity Investment
Life Insurance Company prior to January 1, 1997, AEI Holding covenants and
agrees that the Surviving Corporation shall, by January 1, 1997, nonetheless
effect a name change to a name that does not include any of the words
"Century," "CEN-TRAC," "CENTURION," or numeral "21."
3.2 ARTICLES OF INCORPORATION. The Articles of Incorporation and
Bylaws of American Equity shall be adopted by the Surviving Corporation and
shall be the Restated Articles of Incorporation and Amended Bylaws of the
Surviving Corporation upon consummation of the Merger, and AEI Holding shall
prepare and file such Restated Articles of Incorporation with the Iowa
Insurance Commissioner and the Iowa Secretary of State to be effective at the
Effective Time.
3.3 OFFICERS AND DIRECTORS. The officers and directors of American
Equity shall become all of the officers and directors of the Surviving
Corporation at the Effective Time.
SECTION FOUR
Conversion and Payment of Shares
4.1 LIQUIDATING DISTRIBUTION BY CENTURY. The parties acknowledge
that for federal income tax purposes, CLA and Century intend to enter into
transactions that will be treated as a tax-free liquidation of Century and to
liquidate Century in a tax-free manner that allows Century's corporate shell,
charter and licenses to be maintained for sale to AEI Holding, which sale
shall be accomplished through the Merger. As such, as of the Effective Date,
Century's assets will consist solely of assets on deposit with state
insurance departments and cash in the amount of Five Million Dollars
($5,000,000) (the "Retained Assets"), its licenses and charter and any
Retained Business as defined in SECTION 5.2 of this Agreement. At the
Closing, Century shall distribute its cash to CLA as a liquidating
distribution.
4.2 AMERICAN EQUITY SHARES OWNED BY AEI HOLDING. On the Effective
Date, American Equity shall merge with and into Century and the Two Million
Five Hundred Thousand (2,500,000) shares of common stock of American Equity
outstanding and owned of record by AEI Holding, shall be converted into Two
Million Five Hundred Thousand
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(2,500,000) shares, having a par value of $1.00 per share, of
newly-authorized common stock of the Surviving Corporation by exchanging each
share of common stock of American Equity for one share of common stock of the
Surviving Corporation.
4.3 CENTURY SHARES OWNED BY CLA. At the Closing, to be effective
at the Effective Time, the Seven Hundred Fifty Thousand (750,000) shares of
common stock of Century outstanding and owned by record by CLA shall be
transferred to AEI Holding in exchange for an amount equal to Seven Hundred
Thousand Dollars ($700,000), plus (i) the amount of any Retained Assets not
distributed to Century under SECTION 4.1 above and (ii) the value of the
Retained Business, determined in accordance with Exhibit No. 1, payable by
wire transfer to an account designated by CLA, and, simultaneously, Century
will redeem said stock from AEI Holding for the same amount.
4.4 SHARES OF SURVIVING CORPORATION AFTER MERGER. Upon
consummation of the Merger, Two Million Five Hundred Thousand (2,500,000)
fully paid shares of common stock of the Surviving Corporation (American
Equity Investment Life Insurance Company, formerly Century Life Insurance
Company), having par value of $1.00 per share, will be issued and outstanding
and all such common shares will be owned by AEI Holding, and One Million Five
Hundred Thousand (1,500,000) shares of common stock will be authorized, but
unissued. Additionally, Five Hundred Thousand (500,000) shares of Series
Preferred Stock will be authorized, none of which will be issued or
outstanding.
4.5 ACTIONS BY BOARD OF DIRECTORS OF SURVIVING CORPORATION. The
Board of Directors of the Surviving Corporation is empowered to adopt further
rules and regulations not inconsistent with the provisions of this Agreement.
SECTION FIVE
Capital and Surplus
and Existing Business of Century
5.1 CAPITAL AND SURPLUS. Prior to the Closing, Century shall
distribute to CLA all of its assets other than the Retained Assets, licenses
and charter, and Retained Business.
5.2 EXISTING BUSINESS. On or before September 13, 1996, Century
shall, to the extent permitted by applicable state laws, enter into an
assumption reinsurance or similar agreement with CLA with respect to some or
all of Century's insurance business which is on the books of Century as of
the date of this Agreement. Century may continue to be directly liable under
an assumption reinsurance or similar agreement with respect to such policies.
Century shall take all actions it deems necessary to complete and give effect
to said assumption reinsurance agreement. Any insurance business on the
books of Century which Century and CLA conclude cannot be assumed by CLA
under an assumption reinsurance agreement ("Retained Business") shall be
handled in accordance with the terms and conditions set forth in Exhibit
No. 1 attached hereto.
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SECTION SIX
Representations and Warranties of Century and CLA
Century and CLA represent and warrant to American Equity that:
6.1 CORPORATE STATUS. Century is an insurance company duly
organized and licensed, validly existing and in good standing under the laws
of the State of Iowa and has the corporate power and authority to own its
property and to carry on its business as presently conducted. Century is
duly qualified and licensed to transact business as a foreign insurance
company in good standing in each jurisdiction where the ownership of its
property or the conduct of its business makes such qualification and
licensing necessary. A list setting forth all of the states in which Century
is qualified and licensed to transact the business of insurance is attached
hereto as Exhibit No. 2. Additionally, Century is an accredited reinsurer
in the State of New York. Copies of the Articles of Incorporation and Bylaws
of Century, including all amendments thereto, to be delivered to American
Equity pursuant to SECTION 14.1.E will be complete and correct and, to the
best of its knowledge, the minute books of Century to be delivered to
American Equity pursuant to SECTION 14.1.E will be complete and will
correctly reflect, in all material respects, all corporate actions taken at
all meetings of Directors and Shareholders of Century and will correctly
record all resolutions with respect to which certified copies have been
delivered to other parties.
6.2 CAPITALIZATION. The authorized capital stock of Century
consists of Seven Hundred Fifty Thousand (750,000) shares of common stock,
having a par value of $2.00 per share, all of which shares are issued and
outstanding and owned by CLA. All of the issued and outstanding shares of
common stock of Century are free and clear of all security interests, liens,
hypothecations, pledges, charges and assessments, voting trusts, or other
encumbrances of any kind whatsoever; and have been validly issued and are
fully paid and nonassessable. There are no outstanding options, warrants,
subscriptions, calls, commitments or other claims of any sort whatsoever in
respect of, or securities convertible into, any shares of common stock of
Century. Prior to the Closing, Century and CLA will take such action as is
necessary to change the par value of Century's stock to $2.67 per share.
6.3 FINANCIAL STATEMENTS.
i. Century has furnished to American Equity the 1995 Annual
Statement of Century as filed with the Iowa Insurance Division and the
certified audit report of Century's December 31, 1995 financial statement.
Within thirty-five (35) days, respectively, after the end of the first and
second quarters of 1996, Century will provide American Equity with the
unaudited financial statements of Century for the year-to-date periods ended
March 31 and June 30, 1996. At least ten (10) days prior to the Closing,
Century will provide unaudited financial statements of Century for the
year-to-date period ended August 31, 1996. Within twenty (20) business days
following the Effective Date, Century will provide an unaudited financial
statement of Century for the year-to-date period ended September 30, 1996.
All said documents are sometimes hereinafter collectively called the
"Financial Statements." Century and CLA warrant that the existing Financial
Statements are, and the future Financial Statements will be, complete and
correct in all material respects, except as reflected in Exhibit No. 3; are
and will
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be in accordance with statutory accounting principles, and fairly present the
results of operations of Century for the period indicated. Immediately prior
to the Effective Time, Century's assets will consist solely of the Retained
Assets, its licenses and charter, and the Retained Business.
ii. Except as and to the extent reflected and reserved
against in the Financial Statements, Century has no liability, commitment or
obligation of any nature, whether absolute, accrued, contingent or otherwise,
and whether due or to become due including, without limitation, any liability
for taxes.
iii. Since the 1995 Annual Statement of Century, there have
been no material changes in the balance sheet of Century, except those which
are reflected on the Financial Statements or have occurred in the ordinary
transaction of business or are the result of permitted actions taken by
Century under SECTION FIVE hereof.
6.4 TITLE TO PROPERTY. Century owns and has good and marketable
title to all of its property and assets, free and clear of all mortgages,
security interests, pledges, liens, conditional sales agreements, options,
hypothecations, encumbrances or charges, except for pledges to state
insurance departments.
6.5 CORPORATE ACTION. Century has or by the Effective Date will
have taken, all corporate action required to authorize the execution and
delivery to American Equity and AEI Holding of this Agreement and the
consummation of the transactions contemplated hereby. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby and in accordance with this Agreement, will violate any
provisions of, or result in the breach of, or default under, or accelerate or
permit the acceleration of the performance required by the terms of (a) any
provision of any federal, state, local or foreign law, regulation, ordinance,
order, rule or administrative rule of any governmental authority or
instrumentality applicable to CLA or Century, including, without limitation,
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934,
as amended, or the "Blue Sky" laws of any state having jurisdiction; (b) the
Articles of Incorporation or Bylaws of Century or CLA; (c) any agreement to
which Century or CLA is a party or by which either of them may be bound, or
(d) any order, judgment, writ, injunction or decree of any court or other
governmental agency or instrumentality applicable to Century or CLA, or
result in the creation of any security interests, claims, liens, charges, or
encumbrances of any kind whatsoever, upon any of the outstanding shares of
Century or upon any of the property or assets of Century, or in any way
affect or violate the terms or conditions of, or result in the cancellation,
modification, revocation or suspension of, any of the licenses, approvals,
certificates, permits or authorities referred to in SECTION 6.1 hereof,
assuming all approvals are obtained for the transactions contemplated herein.
6.6 LITIGATION. Except as described on Exhibit No. 3 attached
hereto, there are no actions, suits, proceedings or investigations pending,
or to the knowledge of Century or CLA, threatened against Century; there are
no actions, suits, proceedings or investigations pending, or to the knowledge
of CLA, threatened against CLA which would prevent the consummation of this
Agreement or any of the transactions contemplated hereby or declare the same
unlawful or invalid or cause the rescission thereof. AEI Holding agrees that
CLA may, at its option, control the defense of any claim or proceeding
against Century or the Surviving Corporation
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which arises out of any occurrence or occurrences prior to the Effective
Date, including the claims described on Exhibit No. 3 hereto, and such claims
as may be asserted hereafter or any claim or proceeding for which CLA may be
liable under SECTION 8.2.B. In such situations, CLA shall pay the costs of
the defense of such claims directly to the appropriate third parties and any
judgments, awards or settlements to the parties entitled thereto, provided
suitable releases are provided to the Surviving Corporation. AEI Holding
further agrees that CLA may, at CLA's own expense, prosecute or continue the
prosecution of any claim or proceeding against third parties which arise out
of any occurrence or occurrences prior to the Effective Date, including
claims described on Exhibit No. 3 hereto or such claims as may be asserted
hereafter, and CLA shall be entitled to receive and retain all damages and
other sums payable to CLA or Century in connection with such claims. Century
or the Surviving Corporation shall take any and all action and execute such
documents as may be necessary to convey to CLA any of the rights described in
this paragraph.
6.7 TAXES. To the best of its knowledge, Century has filed all tax
returns and reports required by applicable foreign, federal, state and local
law to be filed by it and such returns and reports are true, complete and
correct. All taxes and other governmental charges with respect to Century
have been paid or accrued on its books, and the provision for taxes shown in
the Financial Statements is adequate to cover the liability of Century as of
the date of each such Financial Statement for all taxes based on income,
gross receipts, premiums, sales or purchases, capital stock or surplus, and
business or assets of Century. Except as described in Exhibit No. 3, neither
the Internal Revenue Service nor any other taxing authority has notified
Century of any proposed additional taxes, interest or penalties in respect to
Century. No extension of time for assessments of deficiences has been
granted by Century to any taxing authority. At the Effective Date, all tax
payment obligations of Century will have been paid or accrued.
To the best of Century's knowledge, proper accurate amounts
have been withheld from employees and agents of Century for all periods in
full and complete compliance with the tax withholding provisions of
applicable state and federal laws; proper and accurate federal and state tax
returns have been filed by Century for all periods for which returns were due
with respect to income tax withholding, social security and unemployment
taxes and the amounts shown thereon to be due and payable have been paid in
full or adequate provision therefor is shown on the Financial Statements; and
the hours worked by, and payments made to, employees of Century have not been
in violation of the Fair Labor Standards Act or any applicable state laws
dealing with similar matters. CLA has caused, or will cause Century to file,
prior to the Effective Date and on a timely basis, its income tax returns for
the year ended December 31, 1995.
6.8 EMPLOYMENT AND OTHER CONTRACTS. Century is not a party to or
bound by any written or oral employment, consulting or similar contract with
any person. Century is currently a party to a number of brokerage agreements
which will be terminated or assumed by CLA on or before the Effective Date.
6.9 CONTRACTS AND OTHER COMMITMENTS. Century is not a party to or
bound by any written or oral contract, agreement, commitment or understanding
not made in the ordinary course of its business, or similar businesses, or
which is materially adverse to it, except for the settlement agreement with
Century 21, described in Exhibit No. 3, nor does it have any present
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or future obligation to pay any commissions to agents, except under the
brokerage agreements referenced in SECTION 6.8. Century has materially complied
with all the provisions of all such instruments and of all other contracts,
agreements and commitments or understandings to which it is a party and it is
not in default under any provisions thereof. CLA has made no financial
guaranties on behalf of Century to any state or any regulatory body, except as
described in Exhibit No. 3.
6.10 INSURANCE FILINGS. Century has filed on a timely basis its 1995
Annual Statement with each state listed in Exhibit No. 2 attached hereto.
6.11 EXECUTION AND DELIVERY. When executed and delivered to American
Equity and AEI Holding by CLA and Century, this Agreement will constitute a
valid and legally binding obligation of CLA and Century, as applicable, in
accordance with the terms hereof.
SECTION SEVEN
Representation and Warranties of American Equity
American Equity and AEI Holding represent and warrant to Century that:
7.1 CORPORATE STATUS. American Equity is an insurance company duly
organized and licensed, validly existing and in good standing under the laws of
the State of Iowa and has the corporate power and authority to own its property
and to carry on its business as presently conducted. American Equity is duly
qualified and licensed to transact business in the State of Iowa. Copies of the
Articles of Incorporation and Bylaws of American Equity, as amended, to be
delivered to Century will be complete and correct and the minute books of
American Equity to be delivered to the Surviving Corporation will be complete
and will correctly reflect, in all material respects, all corporate actions
taken at all meetings of Directors and Shareholders of American Equity and will
correctly record all resolutions with respect to which certified copies have
been delivered to other parties.
7.2 CAPITALIZATION. The authorized capital stock of American Equity
consists of Four Million (4,000,000) shares of common stock, $1.00 par value per
share, of which Two Million Five Hundred Thousand (2,500,000) shares are issued
and outstanding and owned by AEI Holding, and Five Hundred Thousand (500,000)
shares of Series Preferred Stock, none of which are issued or outstanding. All
of the issued and outstanding shares of common stock of American Equity are free
and clear of all security interests, liens, hypothecations, pledges, charges and
assessments, voting trusts, or other encumbrances of any kind whatsoever, and
have been validly issued and are fully paid and nonassessable. There are no
outstanding options, warrants, subscriptions, calls, commitments or other claims
of any sort whatsoever in respect of, or securities convertible into, any shares
of common stock of American Equity.
7.3 FINANCIAL STATEMENTS.
i. American Equity has furnished to Century the 1995 Annual
Statement of American Equity as filed with the Iowa Insurance Division, and will
furnish to Century the
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certified audit report of American Equity's December 31, 1995 financial
statement when completed, said documents sometimes hereinafter collectively
called the "Financial Statements." American Equity warrants that the existing
Financial Statements are, and the future Financial Statements will be, complete
and correct in all material respects; are and will be in accordance with
statutory accounting principles, and fairly present the results of operations of
American Equity for the period indicated.
ii. Except as and to the extent reflected and reserved against
in its Financial Statements, American Equity has no liability, commitment or
obligation of any nature, whether absolute, accrued, contingent or otherwise,
and whether due or to become due including, without limitation, any liability
for taxes in respect to or measured by the income of American Equity.
iii. Since the 1995 Annual Statement of American Equity, there
have been no material changes in the balance sheet of American Equity which
would adversely affect its ability to consummate the Merger.
7.4 TITLE TO PROPERTY. American Equity owns and has good and
marketable title to all of its property and assets, free and clear of all
mortgages, security interests, pledges, liens, conditional sales agreements,
options, hypothecations, encumbrances or charges.
7.5 CORPORATE ACTION. American Equity has or by the Effective Date
will have taken, all corporate action required to authorize the execution and
delivery to Century of this Agreement and the consummation of the transactions
contemplated hereby. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby, including the Closing
hereunder, will violate any provisions of, or result in the breach of, or
default under, or accelerate or permit the acceleration of the performance
required by the terms of (a) any provision of any federal, state, local or
foreign law, regulation, ordinance, order, rule or administrative rule of any
governmental authority or instrumentality applicable to AEI Holding or American
Equity, including, without limitation, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, or the "Blue Sky" laws of any state having
jurisdiction; (b) the Articles of Incorporation or American Equity or AEI
Holding; (c) any agreement to which American Equity or AEI Holding is a party
or by which either of them may be bound, or (d) any order, judgment, writ,
injunction or decree of any court or other governmental agency or
instrumentality applicable to American Equity or AEI Holding, or result in the
creation of any security interests, AEI claims, liens, charges, or encumbrances
of any kind whatsoever, upon any of the outstanding shares of American Equity or
upon any of the property or assets of American Equity, or in any way affect or
violate the terms or conditions of, or result in the cancellation, modification,
revocation or suspension of, any of the licenses, approvals, certificates,
permits or authorities referred to in SECTION 7.1.
7.6 LITIGATION. Except for suits of a character incident to the
normal conduct of business of American Equity, there are no actions, suits,
proceedings or investigations pending, or to the knowledge of American Equity or
AEI Holding, threatened against American Equity; there are no actions, suits,
proceedings or investigations pending, or to the knowledge of AEI Holding,
threatened against AEI Holding which would prevent the consummation of this
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Agreement or any of the transactions contemplated hereby or declare the same
unlawful or invalid or cause the rescission thereof.
7.7 TAXES. To the best of its knowledge, American Equity has filed
all tax returns and reports required by applicable foreign, federal, state and
local law to be filed by it and such returns and reports are true, complete and
correct. All taxes and other governmental charges with respect to American
Equity have been paid or accrued on its books through the Effective Date, and
the provision for taxes shown in the Financial Statements is adequate to cover
the liability of American Equity as of the date of such Financial Statement for
all taxes based on income, gross receipts, premiums, sales or purchases, capital
stock or surplus, and business or assets of American Equity. Neither the
Internal Revenue Service nor any other taxing authority has notified American
Equity of any proposed additional taxes, interest or penalties in respect to
American Equity. No extension of time for assessments of deficiencies has been
granted by American Equity to any taxing authority. At the Effective Date, all
tax payment obligations of American Equity will have been paid or accrued.
To the best of American Equity's knowledge, proper accurate
amounts have been withheld from employees of American Equity for all periods in
full and complete compliance with the tax withholding provisions of applicable
state and federal laws; proper and accurate federal and state tax returns have
been filed by American Equity for all periods for which returns were due with
respect to income tax withholding, social security and unemployment taxes and
the amounts shown thereon to be due and payable have been paid in full or
adequate provision therefor is shown on the Financial Statements; and the hours
worked by, and payments made to, employees of American Equity have not been in
violation of the Fair Labor Standards Act or any applicable state laws dealing
with similar matters. AEI Holding has caused, or will cause American Equity to
file, subsequent to the Effective Date and on a timely basis, its income tax
returns for the year ended December 31, 1995, and the income tax returns of the
Surviving Corporation.
7.8 EMPLOYMENT AND OTHER CONTRACTS. American Equity is not a party to
or bound by any written or oral employment, consulting or similar contract with
any person.
7.9 CONTRACTS AND OTHER COMMITMENTS. American Equity is not a party
to or bound by any written or oral contract, agreement, commitment or
understanding not made in the ordinary course of its business, or similar
businesses, or which is materially adverse to it. American Equity has complied
with all the provisions of all such instruments and of all other contracts,
agreements and commitments or understandings to which it is a party and it is
not in default under any provisions thereof.
7.10 INSURANCE FILINGS. American Equity has filed on a timely basis
its 1995 Annual Statement with the State of Iowa and such Statement is true,
correct and complete. In addition, American Equity will file on a timely basis
prior to the Effective Date, all other reports and documents required by
applicable state laws, including notification and/or requests for approval of
this Agreement. All such reports and documents are or will be true, correct and
complete.
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7.11 EXECUTION AND DELIVERY. When executed and delivered to Century by
American Equity and AEI Holding, this Agreement will constitute a valid and
legally binding obligation of American Equity and AEI Holding, as applicable, in
accordance with the terms hereof.
7.12 APPROVALS. American Equity and AEI Holding have obtained or will
obtain prior to Closing, any required approval from the appropriate regulatory
bodies for the transactions contemplated by this Agreement, including AEI
Holding's acquisition of control of Century and the Merger. AEI Holding agrees
to obtain approval or a waiver of the approvals requirements from California,
Iowa, Michigan, Colorado and Arizona related to AEI Holding's acquisition of
control of Century and the Merger and agrees to notify all other states listed
in Exhibit No. 2. If a state notified requires approval or any other compliance
activity, AEI Holding will obtain such approval and/or follow the required
compliance activity. CLA and Century agree to cooperate in seeking such
approvals and to supply such documents and information as is required in
connection therewith.
7.13 CAPITALIZATION. At the Effective Time, American Equity and AEI
Holding shall cause the Surviving Corporation to have sufficient capitalization
to satisfy the minimum capitalization requirements of and maintain the Surviving
Corporation's license in the State of Iowa.
SECTION EIGHT
Nature and Survival of Representations, Warranties,
Covenants, Agreements, Guarantees, Indemnifications
and Hold Harmless
8.1 AMERICAN EQUITY AND AEI HOLDING.
A. SURVIVAL OF REPRESENTATIONS, ETC. The representation,
warranties, covenants and agreements of American Equity and AEI Holding set
forth in this Agreement and in any documents delivered pursuant to the terms
hereof shall survive the Closing and any examination made by or on behalf of
Century and CLA.
B. INDEMNIFICATION AND HOLD HARMLESS. AEI Holding agrees
to indemnify CLA, and to hold it harmless from and against, and will pay to CLA
upon demand, the full amount of any loss, claim, damage, liability or expense
(including reasonable attorneys' fees resulting to CLA, directly or indirectly,
from any breach of the representations, warranties, covenants and agreements of
AEI Holding and American Equity contained in this Agreement if discovered by CLA
on or before August 1, 2001. AEI Holding shall indemnify and hold CLA harmless
from any loss or damage sustained by CLA arising out of any claim, action or
proceeding against American Equity or AEI Holding prior to the Effective Time.
8.2 CENTURY AND CLA
A. SURVIVAL OF REPRESENTATIONS, ETC. The representation,
warranties, covenants and agreements of Century and CLA set forth in this
Agreement and in any documents
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delivered pursuant to the terms hereof shall survive the Closing and any
examination made by or on behalf of American Equity and AEI Holding.
B. INDEMNIFICATION AND HOLD HARMLESS. CLA agrees to
indemnify AEI Holding and/or the Surviving Corporation as applicable, and to
hold them harmless from and against, and will pay to AEI Holding and/or the
Surviving Corporation upon demand, the full amount of any loss, claim,
damage, liability or expense (including reasonable attorneys' fees) resulting
to AEI Holding and/or the Surviving Corporation, as applicable, directly or
indirectly, (i) from any activity of Century or CLA (including a claim in
excess of the corresponding reserve incurred by a Century policyholder
related to Retained Business if the event giving rise to the claim occurs
prior to the Effective Time) which takes place prior to the Effective Time,
(including matters referred to in Exhibit No. 3) and from any breach of the
representations, warranties, covenants and agreements of CLA and Century
contained in this Agreement if discovered by AEI Holding or the Surviving
Corporation on or before August 1, 2001; provided, however, that if the
breach results in the loss of a license of the Surviving Corporation, the
amount of the indemnification because of the loss of the license shall be
limited to $30,000 per license and CLA shall not be liable for lost profits,
the cost to replace the license or any other damages/amounts; (ii) from any
assessment made by any state guaranty fund against Century (or the Surviving
Corporation if such assessment is due to the Century being the Surviving
Corporation) which consists of a flat fee assessed prior to the Effective
Date or is based on premiums generated by Century prior to the Effective
Date; (iii) arising out of any insurance business of Century which has been
assumed and/or reinsured by CLA or any other company prior to the Effective
Date, and (iv) any claim asserted by any broker or agent for commissions or
other monies due in the past or in the future as a result of any business
conducted by Century prior to the Effective Date or contracts or agreements
entered into by Century prior to the Effective Date. Any taxes of any kind
(other than guaranty fund accounts, which shall be handled in the manner set
forth in (ii) above) assessed against Century or the Surviving Corporation as
a result of activity of Century prior to the Effective Date shall be paid by
CLA and any refunds or overpayments of taxes of any kind attributable to
activity of Century prior to the Effective Date shall be paid to CLA.
SECTION NINE
Conditions Precedent to American Equity's
and/or AEI Holding's Obligations
9.1 SATISFACTION BY CENTURY AND CLA. The obligations of American
Equity and/or AEI Holding under this Agreement shall be subject to the
satisfaction by Century and CLA of each of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES ARE TRUE AND CORRECT. The
representations and warranties of Century and CLA set forth in this Agreement
shall be true and correct in all material respects at the Effective Date.
(b) PERFORMANCE AND COMPLIANCE. Century and CLA shall have performed
and complied with all agreements and conditions required by this Agreement to be
performed or complied with by them prior to the Effective Date.
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(c) DELIVERY OF CERTIFICATE OF CENTURY. Century shall have delivered
to American Equity a certificate of the President or any Vice President and the
Secretary or any Assistant Secretary of Century, dated as of the Effective Date,
certifying that the conditions set forth in SECTIONS 11.1, 11.5 and 11.6 hereof
are true and correct as of the Effective Date.
(d) OPINION OF CENTURY'S AND CLA'S COUNSEL. Century and CLA shall
have delivered to American Equity and AEI Holding a favorable opinion of their
legal counsel, dated as of the Effective Date, to the effect that: (i) Century
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, has full power and authority to own its
property and to carry on its business as presently conducted, and is duly
licensed to transact the business of insurance in those states as set forth in
Exhibit No. 2 attached hereto, (ii) Century's entire authorized capital stock
consists of Seven Hundred Fifty Thousand (750,000) shares of common stock, $2.67
par value per share, all of which are outstanding. All of such issued and
outstanding shares of common stock of Century are validly issued, fully paid and
nonassessable, are owned by CLA, free and clear of any security interests,
liens, hypothecations, pledges, encumbrances, charges and assessments, voting
trusts, or other encumbrances of any kind whatsoever; (iii) the execution of
this Agreement and the consummation of the transactions contemplated hereby have
not, or will not at the time of Closing, result in a breach of or default under
the Articles of Incorporation or Bylaws of Century or the Bylaws and governing
instruments of CLA or of any agreement, instrument or understanding to which CLA
or Century is a party or by which any of them may be bound; (iv) Century and CLA
have obtained all necessary consents, approvals, authorizations or orders of any
court or governmental authority or instrumentality necessary for the assumption
reinsurance and the transfer of assets contemplated by SECTION 5; (v) this
Agreement has been duly and validly authorized, executed and delivered by CLA
and Century and is the valid and binding agreement of CLA and Century, as
applicable, and is enforceable in accordance with its terms; (vi) except as
described in Exhibit No. 3, such counsel has no knowledge of any actions, suits,
proceedings or investigations pending or threatened in any court or before any
governmental agency or instrumentality against, by or affecting Century or its
business (financial or otherwise).
(e) CERTIFICATE OF CLA. CLA shall have delivered to AEI Holding a
certificate of the President or any Vice President and of the Secretary or any
Assistant Secretary of CLA certifying that the representations and warranties of
CLA set forth in this Agreement and set forth in each Exhibit hereto are true
and complete in all material respects as of the Effective Date.
9.2 OTHER CONDITIONS. The obligations of AEI Holding and American
Equity under this Agreement shall also be subject to the receipt of all
regulatory approvals required for the transactions contemplated herein.
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SECTION TEN
Conditions Precedent to
CLA's and Century's Obligations
10.1 SATISFACTION BY AMERICAN EQUITY. The obligations of Century and
CLA under this Agreement shall be subject to the satisfaction by American Equity
and AEI Holding of each of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES ARE TRUE AND CORRECT. The
representations and warranties of American Equity and AEI Holding set forth in
this Agreement shall be true and correct in all material respects at the
Effective Date.
(b) OPINION OF AMERICAN EQUITY'S AND AEI HOLDING'S COUNSEL.
American Equity and AEI Holding shall have delivered to Century and CLA a
favorable opinion of their legal counsel, dated as of the Effective Date, to
the effect that: (i) American Equity is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation,
has full power and authority to own its property and to carry on its business
as presently conducted, and is duly licensed to transact the business of
insurance in the State of Iowa, (ii) American Equity's entire authorized
capital stock consists of Four Million (4,000,000) shares of common stock,
$1.00 par value per share, of which Two Million Five Hundred Thousand
(2,500,000) shares are outstanding. All of such issued and outstanding
shares of common stock of American Equity are validly issued, fully paid and
nonassessable, are owned by AEI Holding, free and clear of any security
interests, liens, hypothecations, pledges, encumbrances, charges and
assessments, voting trusts, or other encumbrances of any kind whatsoever;
(iii) the execution of this Agreement and the consummation of the
transactions contemplated hereby have not, or will not at the time of
closing, result in a breach of or default under the Articles of Incorporation
or Bylaws of American Equity or AEI Holding or of any agreement, instrument
or understanding to which AEI Holding or American Equity is a party or by
which any of them may be bound; (iv) American Equity has obtained all
required consents, approvals, authorizations or orders of any court or
governmental authority or instrumentality which are required for the
consummation by American Equity or AEI Holding of the transactions
contemplated by this Agreement; (v) this Agreement has been duly and validly
authorized, executed and delivered by AEI Holding and American Equity and is
the valid and binding agreement of AEI Holding and American Equity, as
applicable, and is enforceable in accordance with its terms; (vi) such
counsel have no knowledge of any actions, suits, proceedings or
investigations (other than those which would be of a character incident to
the normal conduct of the business of American Equity) pending or threatened
in any court or before any governmental agency or instrumentality against, by
or affecting American Equity or its business, prospects or condition
(financial or otherwise); and (vii) AEI Holding and American Equity are
legally authorized to execute this Agreement and be bound by all of its terms.
(c) DELIVERY OF CERTIFICATE OF AMERICAN EQUITY. American Equity shall
have delivered to Century a certificate of the President or any Vice President
and the Secretary of any Assistant Secretary of American Equity, dated as of the
Effective Date, certifying that the conditions set forth in SECTIONS 7.12 and
11.1 hereof are true and correct as of the Effective Date.
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(d) CERTIFICATE OF AEI HOLDING. AEI Holding shall have delivered to
Century a certificate of the President or any Vice President and of the
Secretary or any Assistant Secretary of Century certifying that the
representations and warranties of American Equity set forth in this Agreement
and set forth in each Exhibit hereto are true and complete in all material
respects as of the Effective Date.
10.2 OTHER CONDITIONS. The obligations of Century and CLA under this
Agreement shall also be subject to the satisfaction of each of the following
precedents:
(a) TAX MATTERS. Century determining that the "liquidation" of
Century can be accomplished in a tax-free manner if Century's existence, charter
and licenses are maintained. Century must notify American Equity on or before
May 15, 1996, if this condition cannot be met, otherwise this condition shall be
deemed waived.
(b) APPROVALS. All approvals required for the transactions
contemplated herein as described in SECTIONS 7.12 AND 9.1(d) shall have been
obtained.
SECTION ELEVEN
Obligations and Restrictions Pending Merger
Each of the Constituent Corporations (except as otherwise indicated
herein) respectively agrees with the other that, subject to the terms of this
Agreement and except as may be permitted elsewhere in the Agreement or
otherwise consented to by the other in writing, it will, from the date
hereof, to and including the Effective Date, take or refrain from taking, as
the case may be, the following actions with respect to its own organization,
business and affairs:
11.1 CONDUCT OF BUSINESS. It shall conduct its business only in the
usual and ordinary course, except for activities and transactions which in the
aggregate are not material or are contemplated or permitted by this Agreement.
In addition, CLA will cause Century to file on a timely basis prior to the
Closing, all reports and documents required by applicable state laws to be filed
on or before the Effective Date in order for Century to continue to be duly
qualified and licensed to transact the business of insurance in each state
listed in Exhibit No. 2 attached hereto. Century and/or CLA shall provide
policyholders of Century with any endorsements or certificates required in
connection with CLA's assumption of Century's policies.
11.2 ABSENCE OF CHANGE. It shall not cause any event, and shall use
its best efforts to prevent the occurrence of any event within its sole control,
which would cause its representations and warranties made herein to be untrue as
of the Effective Date.
11.3 ACCESS TO RECORDS. It shall permit authorized representatives
of the other Constituent Corporation to have access, during ordinary business
hours, to its offices, properties, books and records in order that the other
may make such investigation of its affairs as the other deems desirable, and
it shall furnish, and shall cause its certified public accountants to furnish
the other with such financial and other information concerning itself, its
businesses and properties as the other may from time to time request,
including (without limitation) information
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required for inclusion, or the preparation of, any information required in
connection with the Merger.
11.4 APPROVALS. It shall cause this Agreement to be submitted to its
shareholders in a manner provided by applicable state law as promptly as is
practicable after the date of execution of this Agreement and shall use its best
efforts to obtain the necessary affirmative vote of its shareholders in favor of
this Agreement as may be required to authorize this Agreement and the Merger.
11.5 DIVIDENDS. Century will not declare or pay any dividend in
cash, stock or property, or make any distribution on, or directly or
indirectly redeem, purchase or otherwise acquire any shares of its
outstanding capital stock or make any other distribution of assets to its
shareholders, except for distributions or dividends reasonably necessary or
appropriate for Century to achieve the results contemplated by SECTIONS 4.1,
5.1 and 5.2 hereof.
11.6 STOCK OPTIONS. Century will not issue or sell, grant options or
issue warrants to purchase or the right to subscribe to any shares of its
capital stock or any of its other securities, or make any other changes in its
capital structure.
SECTION TWELVE
Statutory Representation
No officer, director or shareholder of either of the Constituent
Corporations shall receive any compensation, gratuity or otherwise, directly or
indirectly, for in any manner aiding, promoting or assisting in this Merger,
except for legal fees in the event such person, other than an employee of a
Constituent Corporation, performs legal services in connection with the Merger.
SECTION THIRTEEN
Termination and Abandonment
Anything in this Agreement to the contrary notwithstanding, this
Agreement may be terminated and the Merger abandoned (in which case the
Constituent Corporations shall notify their respective shareholders in
accordance with applicable law), at any time, whether before or after approval
by shareholders and notwithstanding favorable shareholder action, prior to the
Effective Date, under the following conditions:
13.1 MUTUAL CONSENT. By the mutual consent of the parties;
13.1 BY A CONSTITUENT CORPORATION. If any of the conditions to its
obligations under this Agreement specified in SECTIONS TEN and ELEVEN, as
applicable to said Constituent Corporation, have not been satisfied or waived at
or prior to the Closing;
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13.3 BY A PARTY. If any action, proceeding or governmental
investigation is instituted and pending, or threatened against any party, or any
of their respective directors or officers, seeking to restrain or prohibit the
consummation of the Merger, or to change the terms of this Agreement, or to
obtain damages or other relief in connection with the Merger, if such action,
proceeding or governmental investigation makes the consummation of the Merger,
in the reasonable judgment of the party, inadvisable;
13.4 PASSAGE OF TIME. Subject to SECTION 10.2(a), by any party, if the
Merger has not been consummated on or before September 30, 1996, or such later
date as may be agreed to in writing by the Constituent Corporations.
SECTION FOURTEEN
Closing Procedures and Documents
14.1 DELIVERY BY CENTURY AND CLA. The obligations of AEI Holding and
American Equity are subject to the delivery on or before the Effective Date by
Century and CLA of:
A. SHARES OF CENTURY. Certificates representing Seven Hundred
Fifty Thousand (750,000) shares of the common stock of Century.
B. RESIGNATIONS OF DIRECTORS AND OFFICERS. Resignations of
the Directors and all Officers of Century.
C. OPINION OF COUNSEL. Opinion of counsel as provided in
SECTION 9.1(d) hereof.
D. CERTIFICATES. Certificates by the respective officers of
Century and CLA as provided in SECTIONS 9.1(c) and 9.1(e) hereof.
E. CORPORATE DOCUMENTS. Copies of the Articles of
Incorporation of Century, as amended, certified by the Secretary of State of
Iowa or the Iowa Insurance Commissioner, and of its Bylaws, as amended,
certified by the Secretary or Assistant Secretary of Century, all as of a
date not more than fifteen (15) days prior to the Effective Date, together
with the minute books, stock transfer books, and all other books and records
of Century;
F. FINANCIAL STATEMENTS. The unaudited balance sheet of
Century as of August 31, 1996 as provided in SECTION 6.3(i) hereof;
G. ASSUMPTION REINSURANCE AGREEMENT. An executed original
Assumption Reinsurance Agreement for all insurance business of Century which has
been assumed and reinsured by CLA;
H. LIST OF BUSINESS. A list of all of Century's policies of
insurance and annuity contracts which are in effect on the Closing Date that
will constitute Retained Business; and
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I. OTHER. Such other instruments and documents required or
contemplated under this Agreement.
14.2 DELIVERY BY AMERICAN EQUITY AND AEI HOLDING. The obligations of
Century and CLA are subject to delivery on or before the Effective Date by
American Equity and AEI Holding of:
A. PAYMENT OF FUNDS. A wire transfer at Closing to an
account designated by CLA for the payment of funds owed to CLA as provided in
SECTIONS 4.1 and 4.3 hereof.
B. OPINION OF COUNSEL. Opinion of counsel as provided in
SECTION 10.1(b) hereof.
C. CERTIFICATES. Certificates by the respective officers of
American Equity and AEI Holding as provided in SECTIONS 10.1(c) and 10.1(d)
hereof.
D. APPROVALS. Evidence of compliance with SECTION 7.12 to
CLA's reasonable satisfaction.
E. OTHER. Such other instruments and documents required or
contemplated under this Agreement.
SECTION FIFTEEN
Miscellaneous
15.1 INSURANCE DEPARTMENT APPROVAL. The Merger is subject to approval
by the Iowa Insurance Division, and the approval, if required, of a Form A
filing with the Iowa Insurance Division. American Equity agrees forthwith to
use its best efforts to obtain such approval and the approval of any comparable
regulatory authority in any other state which requires such approval, including,
but not limited to, those states listed in SECTION 7.12 or which indicate that
approval is required. Century and CLA shall fully cooperate in this approval
process. The Merger contemplated by this Agreement is expressly subject to such
approval where required by law.
15.2 RESERVE GUARANTY. If the Retained Business consists of fewer than
200 policies and such Retained Business requires legal reserves, CLA hereby
warrants and guarantees that the reserves of Century, as of the Effective Date,
will meet or exceed all regulatory requirements, as of the Effective Date, for
the Retained Business on the books of Century.
15.3 BROKERAGE. CLA agrees to indemnify and hold AEI Holding harmless
from all liabilities arising from any claim for brokerage commission or finder's
fees in connection with the transactions contemplated by this Agreement arising
out of any action on the part of CLA or Century. AEI Holding agrees to
indemnify and hold CLA harmless from all liabilities arising out of any claim
for brokerage commission or finder's fees in connection with the transactions
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contemplated by this Agreement arising out of any action of AEI Holding or
American Equity. Neither party hereto is aware of any brokerage fee liability
arising as a result of the transactions contemplated by this Agreement.
15.4 ADDITION OF EXHIBITS. If any Exhibit referred to herein, other
than Exhibit Nos. 1 and 2 attached hereto, shall not have been attached hereto
at the time of the execution of this Agreement, or if such Exhibit is incomplete
at such time, such Exhibit may be later attached and completed and initialed by
Century and American Equity, and such Exhibit shall, as later attached or
completed, for all purposes, be deemed part of this Agreement as if attached
hereto at the time of execution. Any such Exhibit will be made available for
attachment or completion no later than the Effective Date.
15.5 SPECIFIC PERFORMANCE. The parties acknowledge that the nature of
this transaction is unique and that the parties will be taking significant
actions or refraining from taking actions in reliance on this Agreement and, for
these reasons and others, the parties agree that each party shall be entitled as
a matter of right to specifically enforce this Agreement in any court of
competent jurisdiction. This right to specific performance shall be cumulative
and in addition to whatever remedies a party may have at law or in equity,
including, without limitation, recovery of damages.
15.6 PRESS RELEASES. All signing parties to this Agreement agree to
consult with each other in issuing any press release or otherwise making any
public statement with respect to this Agreement and all of the transactions
contemplated hereby and further agree not to issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law after consultation with counsel. More specifically, no
announcements or other releases shall be made and the fact that a sale or merger
is pending shall not be disclosed before May 15, 1996, except as required by law
or as is reasonably necessary to obtain approvals required herein.
15.7 CONFIDENTIALITY. All signing parties shall use their best efforts
to maintain the confidentiality of the negotiations of the matters set forth in
this Agreement, and in the case there is no closing under this Agreement, each
party agrees to return to and maintain as confidential all information obtained
from the other party.
15.8 EXPENSES. Each of the parties will bear its own expenses incurred
with this Agreement and a closing hereunder, including without limitation, all
legal, accounting, travel and other similar fees and expenses.
15.9 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, first class, postage prepaid or sent via telefax:
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If to AEI Holding or American Equity:
American Equity Investment Life Insurance Company
P.O. Box 71216
Des Moines, Iowa 50325
Attention: D. J. Noble, President
Telephone: 515-284-7510
Telefax: 515-242-0479
With copy to:
Harley A. Whitfield
and William L. Fairbank
Whitfield & Eddy, P.L.C.
317 Sixth Avenue, Suite 1200
Des Moines, Iowa 50309-4110
Telephone: 515-288-6041
Telefax: 515-246-1474
If to Century or CLA:
Century Life of America
2000 Heritage Way
Waverly, Iowa 50677
Attention: Kevin Lentz
Telephone: 319-352-1000
Telefax: 319-352-1272
With copy to:
John Waggoner
Century Life of America
5910 Mineral Point Road
Madison, Wisconsin 53705
Telephone: 608-231-7318
Telefax: 608-238-2472
15.10 WAIVER OF CONDITIONS. Any failure of either of the Constituent
Corporations and/or CLA and/or AEI Holding to comply with any obligation,
covenant, agreement or condition herein may be expressly waived in writing
signed by the other Constituent Corporation and its parent company (i.e., CLA or
AEI Holding), but such waiver or failure to insist upon strict compliance with
such obligations, a covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
15.11 REGISTERED OFFICE OF SURVIVING CORPORATION. The registered
executive office of the Surviving Corporation shall be at P.O. Box 71216, Des
Moines, Iowa 50325.
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15.12 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter of this Agreement,
and this Agreement (including each Exhibit hereto) supersedes all prior and
contemporaneous agreements between the parties hereto in connection with the
subject matter of this Agreement.
15.13 GOVERNING LAW. This Agreement and the provisions hereof shall be
governed by the laws of the State of Iowa.
15.14 SEVERABILITY. The provisions of this Agreement are severable. If
any provision, phrase, clause or word hereof be rendered or declared illegal, as
violative of public policy or otherwise, then any such provision, phrase, clause
or word hereof shall be deemed stricken and deleted from this Agreement, and it
shall not violate, invalidate, impair or otherwise affect any other provision,
phrase, clause or word hereof.
15.15 PARTIES IN INTEREST. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the successors and assigns of each of the signing parties.
15.16 AMENDMENT. Subject to applicable law, this Agreement may be
amended, modified and supplemented by mutual consent of the respective Boards of
Directors of the Constituent Corporations or by the respective officers
authorized by such Boards of Directors at any time prior to the Effective Date
with respect to any of the terms contained herein, in such manner as may be
agreed upon in writing by such Boards of Directors or such officers.
15.17 COUNTERPARTS. For the convenience of the parties, and to
facilitate the filing hereof with appropriate governmental authorities, this
Agreement may be executed in one or more counterparts, each of which together
shall be deemed to be an original.
15.18 DISPUTE RESOLUTION; ARBITRATION. In the event of any controversy
or dispute relating to this Agreement, the parties shall refer the matter to
their respective senior management for resolution. If they are not able to
resolve the matter after a period of thirty days, any party may refer the matter
for settlement by arbitration in accordance with the rules of the American
Arbitration Association. The parties shall jointly agree upon an arbitrator.
If they are unable to agree, they shall each select one arbitrator and those two
arbitrators shall select a third arbitrator who will arbitrate the matter.
Notwithstanding anything to the contrary in the rules of the American
Arbitration Association, the arbitrator shall take evidence directly from
witnesses and documents presented by the parties and all witnesses shall be made
available for cross-examination. Each party shall bear its own expenses of any
arbitration and shall share equally the fees and expenses of the arbitrator
unless otherwise ordered by the arbitrator.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CENTURY LIFE INSURANCE COMPANY
By: /s/
------------------------------
Its: President and Chief Executive Officer
-------------------------------------
CENTURY LIFE OF AMERICA
By: /s/
------------------------------
Its: President and Chief Executive Officer
-------------------------------------
AMERICAN EQUITY INVESTMENT
LIFE INSURANCE COMPANY
By: /s/ D. J. Noble
------------------------------
Its: President
------------------------------
AMERICAN EQUITY INVESTMENT
LIFE HOLDING COMPANY
By: /s/ D. J. Noble
------------------------------
Its: President
------------------------------
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EXHIBIT NO. 1
Procedures and Fees for
Administration and Valuation of Retained Business
In accordance with SECTION 5.2 of the Agreement, any insurance business
remaining on the books of Century on the Effective Date is defined as
Retained Business. If the Retained Business consists of 200 or more policies
(including life insurance and annuities), CLA will, prior to the Effective
Date, one-hundred percent reinsure all of the Retained Business and the
parties shall mutually agree upon a reinsurance treaty to be executed, if
necessary. The reinsurance treaty shall provide that the Surviving
Corporation shall pay CLA all premiums received, that CLA shall assume all
risk for the Retained Business, and that CLA will determine all nonguaranteed
elements of the Retained Business (e.g., dividend liability, excess interest
liability, dividend rate assumption and excess credits). This Retained
Business shall be administered by the Surviving Corporation for a fee of
$3.00 per policy per month. This administration fee shall be increased
annually by three and one-half percent (3.5%) on September 30 of each year
beginning in 1997. For purposes of SECTION 4.3 of the Agreement, such
Retained Business which is reinsured shall have no "value" attributed to it.
If the Retained Business consists of fewer than 200 policies, it will not be
reinsured by CLA, and the value of the Retained Business shall be determined as
follows:
(a) Life Insurance Policies: The value of the life insurance policies
shall be an amount which is equal to (i) 50% of the annualized
premiums, plus (ii) 15% of the total reserves excluding deficiency
reserves, if any.
(b) Annuities: The value of annuities shall be an amount equal to 2% of
the total reserves attributable to said annuities.
The total value of the life insurance policies and annuities, as calculated
above, shall be the value of the Retained Business pursuant to SECTION 4.3 of
the Agreement.
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EXHIBIT NO. 2
CENTURY LIFE INSURANCE COMPANY
LICENSED STATES
Arizona
California
Colorado
Delaware
District of Columbia
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Michigan
Minnesota
Montana
Nebraska
North Dakota
Ohio
Oregon
Pennsylvania
South Dakota
Texas
Washington
Wisconsin
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EXHIBIT NO. 3
Century Life Insurance Company Litigation,
Taxes and Contracts and Commitments
6.3 FINANCIAL STATEMENTS. The Articles of Incorporation for Century Life
Insurance Company are being amended to reflect the $2.67 par value for its
stock.
6.6 LITIGATION.
1. MAIER V. CENTURY LIFE OF AMERICA AND CENTURY LIFE INSURANCE COMPANY.
2. LEVENSON V. CENTURY LIFE INSURANCE COMPANY, ET. AL.
3. PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY AND NATIONAL LIBERTY
CORPORATION V. CUNA MUTUAL INSURANCE SOCIETY, MEMBERS LIFE
INSURANCE COMPANY, CUNA MUTUAL INVESTMENT CORPORATION, CENTURY
LIFE OF AMERICA AND CENTURY LIFE INSURANCE COMPANY.
4. PFLUGER V. CENTURY COMPANIES OF AMERICA.*
5. SPITZER V. DLC FINANCIAL SERVICES, INC., ET. AL. V. CENTURY COMPANIES
OF AMERICA ET. AL.*
6. Century Life Insurance Company is currently under audit for tax years
1993-94. At this time there is no indication on the possible
outcome of the audit.
*Filed against Century Companies of America. It is unclear whether this
will include Century Life Insurance Company.
6.7 TAXES.
Century Life Insurance Company is currently under audit for tax years
1993-94. At this time there is no indication on the possible outcome of
the audit.
6.8 CONTRACTS AND COMMITMENTS.
CENTURY 21 SETTLEMENT AGREEMENT. This is a settlement agreement through
which Century Life of America agreed, on its own behalf and on behalf of
its subsidiaries (including Century Life Insurance Company) to discontinue
the use of all names and marks incorporating the words "Century,"
"CEN-TRAC" or "CENTURION" or the numeral "21" on or before
December 31, 1997.
GUARANTEES. The Board of Directors of Century Life of America adopted a
resolution which guarantees that it will make contributions to Century Life
Insurance Company as necessary to maintain Century Life Insurance Company's
capital and surplus at $2,500,000. Copies of the resolution were provided
to Iowa, Idaho Century Life of America has not executed any
guarantee agreements.
filed by FILED
Whitfield & Eddy IOWA
Bill Fairbank SECRETARY OF STATE
317 6th Ave Ste 1200 9-30-96
DSM, IA 50309 2:33 pm
W124122
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[STAMP]
<PAGE>
SEP 30 1996
SECRETARY OF STATE
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
(formerly known as Century Life Insurance Company)
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to section 1007 of the Iowa Business Corporation Act, American
Equity Investment Life Insurance Company adopts the following Restated Articles
of Incorporation:
1. The name of the Corporation is American Equity Investment Life
Insurance Company. The original Articles of Incorporation were filed on December
16, 1980, effective December 19, 1980, under the name of Century Life Insurance
Company.
2. Restated Articles of Incorporation:
- --------------------------------------------------------------------------------
ARTICLE I
NAME
The name of this Corporation is American Equity Investment Life Insurance
Company.
ARTICLE II
PLACE OF BUSINESS AND REGISTERED OFFICE
The location of the Corporation's principal place of business and resident
office is 5000 Westown Parkway, West Des Moines, Polk County, Iowa 50266.
The street address of the registered office in Iowa and the name of its
initial registered agent at that office is:
Debra J. Richardson
5000 Westown Parkway
West Des Moines, Iowa 50266
ARTICLE III
PURPOSES
The purposes of this Corporation shall be:
(1) To insure the lives of persons on the stock legal reserve plan.
(2) To issue all forms of life insurance policies, including without
limitation, ordinary life, limited payment life, variable life, endowment
policies, fixed and variable annuities and hospitalization policies.
<PAGE>
(3) To insure persons against physical disability or death caused
by accident or disease, and to issue such life contracts either independently
or in conjunction with life insurance policies as may be determined by the
Board of Directors.
(4) To reinsure any part of its risk on the types of insurance
policies it issues.
(5) To do and perform such other activities which are incidental to
the foregoing.
ARTICLE IV
CAPITAL STOCK
The total number of shares that may be issued by this Corporation is
4,500,000 shares of which 500,000 shares of the par value of $1 per share
shall be designated Series Preferred Stock and 4,000,000 shares of the par
value of $1 per share shall be designated common stock.
A. COMMON SHARES. Each holder of the common stock shall have one
vote for each share of common stock held by him. Subject to the rights of
the holders of any outstanding Series Preferred Stock, the holders of the
common shares shall be entitled to receive dividends from the remaining
surplus of the Corporation, when and as such dividends shall be declared by
the Board of Directors. Subject to the rights of the holders of any
outstanding Series Preferred Stock, upon the dissolution of the Corporation
or upon its liquidation otherwise, or upon any distribution of its assets by
way of return of capital, the holders of common shares shall be entitled to
receive and be paid all the remaining assets of the Corporation.
B. SERIES PREFERRED SHARES. The following is (i) a statement of
the designations, voting powers, preferences and rights and the
qualifications, limitations or restrictions of the Series Preferred Stock
except as the designations, voting powers, preferences and rights and
qualifications, limitations or restrictions thereof of any series of Series
Preferred Stock may be stated and expressed in a resolution or resolutions
providing for the issuance of such series pursuant to authority herein
expressly vested in the Board of Directors of the Corporation; and (ii) a
statement of the authority referred to above expressly vested in the Board of
Directors.
(1) The Series Preferred Stock may be issued from time to
time in one or more series of any number of shares; provided that the
aggregate number of shares outstanding of all such series shall not exceed
the total number of shares of Series Preferred Stock authorized by this
Article IV. Each series of Series Preferred Stock shall be distinctively
designated. Except as otherwise provided by the resolutions creating the
series of Series Preferred Stock, all series of Series Preferred Stock shall
rank equally and be identical in all respects.
(2) Except as otherwise provided by the resolutions creating
any series of Series Preferred Stock, holders of such Series Preferred Stock
shall not have any right to vote for election of directors or on any other
matter or any right to notice of any meeting of stockholders.
(3) In the event of any complete, or substantially complete,
voluntary or involuntary, liquidation, dissolution or winding up of the
Corporation, before any distribution or payment shall be made to the holders
of the Common Stock, if one or more series of Series
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Preferred Stock has been created as authorized in this Article IV, all of the
assets of the Corporation shall be paid and distributed among the
shareholders of the Corporation as provided in the resolution or resolutions
creating such series.
Neither the merger nor consolidation of the Corporation
into or with any other corporation, nor the merger of any corporation into
the Corporation, nor the sale or transfer by the Corporation of all or any
part of its assets shall be deemed a liquidation, dissolution or winding up
of the Corporation for the purposes of this subsection (3).
(4) Authority is hereby vested in the Board of Directors
from time to time to authorize the issuance of Series Preferred Stock of any
series and to state and express, in the resolution or resolutions creating
and providing for the issue of shares of any series, the designations, voting
powers, if any, preferences and relative participating, optional or other
special rights and the qualifications, limitations and restrictions thereof
of such series to the full extent nor or hereafter permitted by the laws of
the State of Iowa in respect of the matters set forth in the following
clauses (a) through (h), inclusive.
(a) The designation of the series and the number of
shares which shall constitute such series, which number may be altered from
time to time by like action of the Board of Directors in respect of shares
then unissued.
(b) The annual dividend rate on the shares of that
series, the conditions upon which the time or times when such dividends are
payable, the preference to, or the relation to, the payment of the dividends
payable on shares of such series to the dividends payable on shares of any
other class or classes or any other series of stock, whether such dividends
shall be cumulative or noncumulative and, if cumulative, the dates from which
dividends on shares of such series shall be cumulative.
(c) The redemption price or prices, if any, and the
time or times at which the terms and conditions upon which shares of such
series shall be redeemable.
(d) The rights of shares of such series upon the
liquidation, dissolution or winding up of, or upon any distribution of the
assets of, the Corporation and the preference to, or the relation to, such
rights of shares of such series to the rights on any other class or classes
or any other series of stock of the Corporation.
(e) The voting rights, if any, of such series in
addition to the voting rights prescribed by law, and the terms of exercise of
such voting rights.
(f) The rights, if any, of the holders of such shares
of such series to convert such shares into, or to exchange such shares for,
shares of any other class or classes or of any other series of the same or
any other class or classes of stock of the Corporation and the price or
prices or the rates of exchange and the adjustments at which such shares
shall be convertible or exchangeable, and any other terms and conditions of
such conversion or exchange.
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<PAGE>
(g) The requirement of any sinking or purchase fund
or funds to be applied to the purchase or redemption of shares of such series
and, if so, the amount of such fund or funds and the manner of application.
(h) Any other preferences and relative participating,
optional or other special rights of shares of such series and qualifications,
limitations or restrictions thereof.
ARTICLE V
DIRECTORS AND OFFICERS
The affairs of this Corporation shall be managed by a Board of
Directors of not less than five (5) nor more than fifteen (15), the exact
number of Directors to be specified from time to time as set forth in the
Bylaws of the Corporation.
The Directors shall elect such officers as they see fit or as may be
provided for by the Bylaws of the Corporation.
As of the effective time of these Articles, the following persons will
serve as Directors until the next Annual Meeting of the Stockholders:
Carl M. Harris Des Moines, Iowa
Robert L. Hilton Destin, Florida
David S. Mulcahy Des Moines, Iowa
D.J. Noble Longboat Key, Florida
A.J. Strickland III Tuscaloosa, Alabama
Harley A. Whitfield Spirit Lake, Iowa
Directors and officers shall serve until their successors have been elected
and qualified. The Board of Directors shall have the authority to fill all
vacancies for the unexpired portion of a term.
ARTICLE VI
ANNUAL MEETINGS
The Annual Meeting of the Stockholders of the corporation, commencing
with the year 1997, may be held at the principal office of the Corporation in
the State of Iowa, and at such other place, within or without the State of
Iowa, and at such place therein, as may be designated from time to time by
the Board of Directors and stated in the notice of the meeting, on the third
Tuesday in May of each year (or if said day be a legal holiday, then on the
next succeeding day not a legal holiday), for the purpose of electing
directors and for the transaction of such other business as may properly be
brought before the meeting.
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ARTICLE VII
PROXIES
No Proxy shall be valid for more than eleven (11) months unless a
longer period is expressly provided in the appointment form. A Proxy may be
revoked at any time by the stockholder who executed it.
Corporate shareholders may vote through a properly designated
representative or through a properly executed proxy. All proxies must be
filed with the Secretary at least one (1) day prior to an election or meeting
at which they are to be used or such additional time as may be provided by
the Bylaws.
ARTICLE VIII
CORPORATE INSTRUMENTS - SEAL
All instruments executed by the Corporation which are required to be
acknowledged and which affect an interest in real estate, shall be executed
by the Chairman of the Board or President or Executive Vice President or any
Vice President attested by the Secretary or Assistant Secretary, and all
other instruments executed by the Corporation, including any releases or
mortgages or liens, may be executed by the Chairman of the Board or President
or Executive Vice President or any Vice President, or the Secretary or the
Treasurer or any Assistant Secretary or Assistant Treasurer. Notwithstanding
any of the foregoing provisions, any written instrument may be executed by an
officer or officers, agent or agents or other person or persons specifically
designated by resolution of the Board of Directors of this Corporation. The
Corporation shall have a corporate seal which shall bear the words, "American
Equity Investment Life Insurance Company" around the edge, with the words,
"Corporate Seal" in the middle.
ARTICLE IX
STOCKHOLDERS' LIABILITY
The private property of the shareholders of this Corporation shall be
exempt from corporate liabilities, and this Article shall not be amended.
ARTICLE X
BYLAWS
The Board of Directors, at any regular or special meeting, is
authorized to adopt, alter, amend or repeal the Bylaws and to adopt new
bylaws not inconsistent with the law or these Articles of Incorporation, by
an affirmative vote of a majority of the membership of the Board as
distinguished from a majority of a quorum.
The stockholders of the Corporation may at any regular or special
meeting called for the purpose, repeal, alter, or amend any existing Bylaws
made by the Board of Directors, or adopt such bylaws as they deem appropriate
by the affirmative vote of a majority of votes entitled to be cast by the
holders of shares of each voting group represented at such meeting, in person
or by proxy, if a quorum shall be present.
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<PAGE>
ARTICLE XI
AMENDMENTS
Subject to the approval of the Insurance Commissioner of the State of
Iowa, these Articles, except this Article XI, may be amended at any Annual
Meeting of the Shareholders or at any special meeting thereof called for that
purpose, and such amendment shall be made by the affirmative vote of a
majority of votes entitled to be cast by the holders of shares of each voting
group represented at said meeting, in person or by proxy; provided, however,
that a quorum is present at said meeting. At any meeting of the stockholders
to consider and act upon any proposed amendment to the Articles of
Incorporation, the stockholders may adopt any modification or revision
thereof proposed at said meeting.
ARTICLE XII
LIABILITY OF OFFICERS AND DIRECTORS
The Corporation shall:
(a) Indemnify any person who was or is a party or 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 corporation) by reason of the fact
that he is or was a director, officer, employee, or agent of the Corporation,
or is or was serving at the request of the Corporation 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 Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) Indemnify 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 Corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or another enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall 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 Corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite
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<PAGE>
the adjudication of liability but in view of all circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
(c) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in paragraphs (a) and (b), or in
defense of any claim, issue, or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless
ordered by a court) shall be made by the Corporation only as authorized in
the specific case upon a determination that the indemnification of the
director, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in paragraphs (a) and
(b). Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to
such action, suit, or proceeding, or (ii) if such a quorum is not obtainable,
or, even if obtainable, and a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (iii) by the
shareholders.
(e) Expenses, including attorneys' fees, incurred in defending a
civil or criminal action, suit, or proceeding may be paid by the Corporation
in advance of the final disposition of such action, suit, or proceeding as
authorized in the manners provided in paragraph (d) upon receipt of an
undertaking by or on behalf of the director, officer, employee, or agent to
repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Corporation as authorized in this section.
(f) The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of
such a person.
In the absence of fraud, or undisclosed conflict of interest
such as may be required to be reported by Insurance Department regulations or
action of the Board of Directors, no contract or transaction between this
Corporation and any other association or Corporation shall be affected by the
fact that any Director or Officer of this Corporation is interested in, or is
a Director or officer of such other association or Corporation, and any
Director or officer of this Corporation individually may be a party to, or
may be interested in any such contract or transaction of the Corporation, and
no such contract or transaction of the Corporation with any person, firm,
association or Corporation shall be affected by the fact that any Director or
officer of the Corporation is a party to or interested in any such contract
or transaction or in any way connected with any such person, firm,
association or Corporation, and each and every person who may become a
Director or officer of this Corporation is hereby relieved from all liability
which may otherwise exist by reason of contracting with the Corporation for
the benefit of himself or any other person, firm, association or corporation
in which he may be in any way interested, except as otherwise provided by
Section 508.8, Code of Iowa.
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A director of this Corporation shall not be personally liable
to the Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, or (iii) for any transaction from which the
director derived an improper personal benefit.
ARTICLE XIII
PROPORTIONATE REPRESENTATION
Notwithstanding any other provision of these Articles, the
holder or holders, jointly or severally, of not less than one-fifth, but less
than a majority of the shares of the capital stock of the Corporation shall
be entitled to nominate, to be elected, or appointed, as the case may be,
Directors of the Corporation as set forth in this Article XIII. In the event
nomination of a Director or Directors shall be made as provided herein, there
shall be elected to the extent that the total number to be elected is
divisible, such proportionate number from the persons nominated as the shares
of stock held by persons making such nominations bear to the whole number of
shares issued; provided, however, the holder or holders of the minority shares
of stock shall only be entitled to one-fifth (disregarding fractions) of the
total number of Directors to be elected for each one-fifth of the entire
capital stock of such Corporation so held by them; and provided, further,
that this Article shall not be construed to prevent the holders of a majority
of the outstanding stock of the Corporation from electing the majority of its
Directors. Vacancies occurring from time to time on the Board of Directors
shall be filled so as to preserve and secure to such minority and majority
shareholders a proportionate representation as provided in this Article.
ARTICLE XIV
PERPETUAL EXISTENCE
The existence of the Corporation shall be perpetual.
- -------------------------------------------------------------------------------
Dated this 30th day of September, 1996.
3. The duly adopted Restated Articles of Incorporation supersede
the original Articles of Incorporation and all amendments to them.
4. The restated Articles of Incorporation amend the Articles of
Incorporation requiring shareholder approval. The Restated Articles of
Incorporation were approved by the shareholders. The designation, number of
outstanding shares, number of votes entitled to be cast by each voting group
entitled to vote separately on the Restated Articles of Incorporation, and
the number of votes of each voting group indisputably represented at the
meeting is as follows:
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<PAGE>
VOTES ENTITLED VOTES
DESIGNATION SHARES TO BE CAST ON REPRESENTED
OF GROUP OUTSTANDING RESTATED ARTICLES AT MEETING
-------- ----------- ----------------- ----------
Common 2,500,000 2,500,000 2,500,000
4B. The total number of undisputed votes cast for the Restated
Articles of Incorporation by each voting group was:
VOTING GROUP VOTES FOR
------------ ---------
Common 2,500,000
The effective date and time of this document is September 30, 1996 at
1:00 p.m., Central Daylight Time.
/s/ D. J. Noble
-----------------------------
D. J. Noble
5000 Westown Parkway
West Des Moines, Iowa 50266
STATE OF IOWA )
)ss.
COUNTY OF POLK )
On this 30th day of September, 1996, before me, the undersigned, a
Notary Public in and for said County and said State, personally appeared
D. J. Noble, to me known to be the identical person named in and who executed
the foregoing instrument, and acknowledged that he executed the same as his
voluntary act and deed.
/s/ William L. Fairbank
-----------------------------
Notary Public in and for the
State of Iowa
[STAMP]
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<PAGE>
CERTIFICATE OF ATTORNEY GENERAL
I hereby certify that on this date I examined the within Restated
Articles of Incorporation of American Equity Investment Life Insurance
Company (formerly known as Century Life Insurance Company) and the same are
found to be in conformity with the Constitution and the laws of the United
States and the State of Iowa.
Dated this 25th day of September, 1996.
/s/ Scott M. Galenbeck
--------------------------
Assistant Attorney General
CERTIFICATE OF COMMISSIONER OF INSURANCE
I hereby certify that the within Restated Articles of Incorporation of
American Equity Investment Life Insurance Company (formerly known as Century
Life Insurance Company) are hereby approved by me this 25th day of September,
1996.
/s/ Robert L. Howe
--------------------------------
Deputy Commissioner of Insurance
of the State of Iowa
Filed by FILED
Whitfield & Eddy IOWA
Bill Fairbank SECRETARY OF STATE
317 6th Ave Ste 1200 9-30-96
DSM, IA 50309 2:45 pm
W124123
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<PAGE>
[STAMP]
<PAGE>
ARTICLES OF CORRECTION
OF
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
(FORMERLY KNOWN AS CENTURY LIFE INSURANCE COMPANY)
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to Section 490.124 of the Iowa Business Corporation Act,
American Equity Investment Life Insurance Company hereby adopts the following
Articles of Correction:
1. On September 30, 1996, American Equity Investment Life Insurance
Company (formerly known as Century Life Insurance Company) filed Restated
Articles of Incorporation.
2. Article III of the Restated Articles of Incorporation contained
an incorrect statement of the purposes of the corporation in that certain
types of insurance which the company intends to offer were inadvertently
omitted.
3. To correct this omission, subclause (2) of Article III will state
as follows:
(2) To issue all forms of life insurance policies, including
without limitation, ordinary life, limited payment life,
variable life, endowment policies, fixed and variable
annuities, accident policies, accident and health policies,
hospital and medical expense policies, group accident and
health policies and noncancellable accident and health policies.
AMERICAN EQUITY INVESTMENT
LIFE INSURANCE COMPANY
By: /s/ D. J. Noble
-----------------------------------
D. J. Noble, President
<PAGE>
CERTIFICATE OF APPROVAL
ATTORNEY GENERAL
Pursuant to provisions of the Iowa Code, the undersigned approves the
Articles of Correction of American Equity Investment Life Insurance Company
and finds them in conformance with the laws of the United States and with the
laws and Constitution of the State of Iowa.
THOMAS J. MILLER
Attorney General of Iowa
10-23-96 By: /s/ Scott M. Galenbeck
- ---------- -----------------------------
Date SCOTT M. GALENBECK
Assistant Attorney General
CERTIFICATE OF APPROVAL
COMMISSIONER OF INSURANCE
Pursuant to provisions the of the Iowa Code, the undersigned approves the
Articles of Correction of American Equity Investment Life Insurance Company
THERESE M. VAUGHAN
Commissioner of Insurance
10-23-96 By: /s/ Robert L. Howe
- ---------- -----------------------------
Date ROBERT L. HOWE
Deputy Commissioner and
Chief Examiner
FILED
IOWA
SECRETARY OF STATE
10-25-1996
3:59 pm
W125877
<PAGE>
RESTATED BYLAWS
OF
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
(FORMERLY KNOWN AS CENTURY LIFE INSURANCE COMPANY)
EFFECTIVE: SEPTEMBER 30, 1996
ARTICLE I
PRINCIPAL OFFICES
In addition to its principal office in the State of Iowa, the Corporation
may also have offices at such other places within or without the State of Iowa
as the Board of Directors shall from time to time determine.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 1. ANNUAL MEETINGS. The Annual Meeting of the Stockholders of the
Corporation for the election of Directors and for the transaction of such other
business as may properly come before the meeting shall be held at the offices of
the Corporation in the State of Iowa on the third Tuesday in May of each year at
the time established by resolution of the Board of Directors.
SECTION 2. SPECIAL MEETINGS. Meetings of the stockholders shall be held at
the principal offices of the Corporation. Special meetings of the stockholders
of the Corporation may be held, upon call of the Chairman of the Board,
President, a majority of the stockholders or a majority of the Board of
Directors. Such call shall state the time, place and purposes of the meeting.
SECTION 3. PLACE OF MEETINGS. Notwithstanding the provisions of Sections 1
and 2 hereof, a meeting of shareholders may be held in some other place in the
county where the Corporation has its principal place of business if notice
thereof is mailed at least twenty (20) days prior to the meeting informing the
shareholders of the place, time and hour of the meeting.
SECTION 4. NOTICE OF MEETINGS. Except as may otherwise be required by the
Corporation's Articles of Incorporation, notice of the time and place of every
meeting of stockholders and of the business to be acted on at such meeting shall
be given personally or mailed by the Secretary or an Assistant Secretary, at
least twenty (20) days before the meeting, to each stockholder of record voting
power and entitled to such notice at his last known post office address;
provided, however, that if a stockholder be present at a meeting, or in writing
waives notice thereof before or after the meeting, notice of the meeting to such
stockholder shall be unnecessary.
SECTION 5. QUORUM. The holders of the stock of the Corporation having a
majority of the voting power present, in person or by proxy, shall constitute a
quorum, but less than a quorum shall have power to adjourn any meeting from time
to time without notice. Except as otherwise provided in the Corporation's
Articles of Incorporation, the holders of a majority of the stock present and
entitled to vote at a duly qualified meeting of stockholders shall have power to
act.
<PAGE>
SECTION 6. VOTING. At every meeting of stockholders each stockholder
entitled to vote thereat shall be entitled to one vote for each share of stock
held by him. A stockholder may vote and otherwise act in person or by proxy; but
no proxy shall be voted more than three (3) years after its date unless such
proxy provides for a longer period.
ARTICLE III
BOARD OF DIRECTORS
The affairs of the Corporation shall be managed by its Board of Directors.
SECTION 1. NUMBER OF DIRECTORS. The number of directors of the corporation
shall be not less than five (5) nor more than fifteen (15), the exact number to
be fixed from time to time by the Board pursuant to a resolution adopted by a
majority of the entire Board, except that the initial Board of Directors shall
consist of six (6) persons.
SECTION 2. VACANCIES. Any vacancies in the Board shall be filled by the
affirmative vote of a majority of the remaining directors even though less than
a quorum of the Board, or by a sole remaining director. The term of any director
chosen to fill a vacancy shall expire at the next annual meeting of shareholders
and until that director's successor shall be elected and qualified.
SECTION 3. DIRECTORS MEETINGS.
(a) Meetings of the Board of Directors may be held at any place or
places within or without the State of Iowa.
(b) Meetings of the Board of Directors shall be held at the times
fixed by resolutions of the Board or upon call of the Chairman of the Board, the
President or any two directors. The Secretary or officer performing his duties
shall give reasonable notice (which need not in any event exceed two (2) days)
of all meetings of directors, provided that a meeting may be held without notice
immediately after the annual election, and notice need not be given of regular
meetings held at times fixed by resolution of the Board. Meetings may be held at
any time without notice if a waiver of such notice is executed by all of the
Directors either before or after the meeting. Notice by mail or telegraph to the
usual business or residence address of the directors not less than the time
above specified before the meeting shall be sufficient. A majority of the
directors then in office shall constitute a quorum and the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors. Less than such a quorum shall have power to
adjourn any meeting from time to time without notice. The Board may take action
without a meeting and without notice if a consent to such action is executed by
all of the Directors. The Board of Directors or any committee designated by the
Board, may participate in a meeting of the Board or Committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation
therein shall constitute presence in person at such meeting.
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<PAGE>
SECTION 4. DIRECTORS' FEES. The Board of Directors shall have power to
authorize the payment of compensation to the directors for services to the
Corporation, including fees for attendance at meetings of the Board of
Directors, of the Executive Committee and of other committees and to determine
the amount of such compensation and fees.
SECTION 5. COMMITTEES.
(a) The board of directors, by resolution adopted by the affirmative vote
of a majority of the number of directors then in office, may establish one or
more committees, including an executive committee, each committee to consist of
two (2) or more directors appointed by the board of directors. Any such
committee shall serve at the will of the board of directors. Each such committee
shall have the powers and duties delegated to it by the board of directors. The
board of directors may elect one or more of its members as alternate members of
any such committee who may take the place of any absent member or members at any
meeting of such committee upon request by the president or the chairperson of
such committee. Each such committee shall fix its own rules governing the
conduct of its activities as the board of directors may request.
(b) A committee of the board shall not: (i) authorize distributions by the
Corporation; (ii) approve or propose to shareholders of the Corporation action
that the law requires be approved by shareholders; (iii) fill vacancies on the
board of directors of the Corporation or on any of its committees; (iv) amend
the articles of incorporation of the Corporation; (v) adopt, amend or repeal
bylaws of the Corporation; (vi) approve a plan of merger not requiring
shareholder approval; (vii) authorize or approve reacquisition of shares by the
Corporation, except according to a formula or method prescribed by the board of
directors; or (viii) authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences
and limitations of a class or series of shares, except that the board of
directors may authorize a committee or a senior executive officer of the
Corporation to do so within limits specifically prescribed by the board of
directors.
ARTICLE IV
OFFICERS
SECTION 1. GENERALLY. The officers of the Corporation shall be a President,
one or more Vice Presidents (the number thereof to be determined by the board of
directors), a Secretary, a Treasurer and such other officers as may from time to
time be appointed by the board of directors. One person may hold the offices and
perform the duties of any two or more of said offices. In its discretion, the
board of directors may delegate the powers or duties of any officer to any other
officer or agents, notwithstanding any provision of these bylaws, and the board
of directors may leave unfilled for any such period as it may fix, any office
except those of President, Treasurer and Secretary. The officers of the
Corporation shall be appointed annually by the board of directors at the annual
meeting thereof. Each such officer shall hold office until the next succeeding
annual meeting of the board of directors and until his successor shall have been
duly chosen and shall qualify or until his death or until he shall resign or
shall have been removed.
-3-
<PAGE>
SECTION 2. REMOVAL. Any officer may be removed by the board of directors,
with or without cause, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
SECTION 3. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the
chief executive officer of the Corporation. Subject to the provisions of these
bylaws and to the direction of the board of directors, he or she shall have the
responsibility for the general management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or which are
delegated to him or her by the board of directors. He or she shall have power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision and direction of all of
the other officers, employees and agents of the Corporation.
SECTION 4. POWERS AND DUTIES OF THE VICE PRESIDENT(S). In the absence of
the President or in the event of the death, inability or refusal to act of
the President, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated at the time of
their election, or in the absence of any designation, the senior Vice
President in length of service) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or Assistant Secretary, certificates for shares of the Corporation;
and shall perform such other duties and have such authority as from time to
time may be assigned to such Vice President by the President or by the board
of directors.
SECTION 5. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall (a) keep
minutes of all meetings of the shareholders and of the board of directors; (b)
authenticate records of the Corporation and attend to giving and serving all
notices of the Corporation as provided by these bylaws or as required by law;
(c) be custodian of the corporate seal (if any), the stock certificate books and
such other books, records and papers as the board of directors may direct, and
see that the corporate seal (if any) is affixed to all stock certificates and to
all documents, the execution of which on behalf of the Corporation under its
seal (if any) is duly authorized; (d) keep a stock record showing the names of
all persons who are shareholders of the Corporation, their post office addresses
as furnished by each such shareholder, and the number of shares of each class of
stock held by them respectively, and at least ten (10) days before each
shareholders' meeting, prepare a complete list of shareholders entitled to vote
at such meeting arranged in alphabetical order; (e) sign with the President or a
Vice President certificates for shares of the Corporation, the issuance of which
shall have been duly authorized; and (f) in general, perform all duties incident
to the office of Secretary and such other duties as from time to time may be
assigned to the Secretary by the President or the board of directors.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall (a) have
custody of and be responsible for all monies and securities of the Corporation,
shall keep full and accurate records and accounts in books belonging to the
Corporation, showing the transactions of the Corporation, its accounts,
liabilities and financial condition and shall see that all expenditures are duly
authorized and are evidenced by proper receipts and vouchers; (b) deposit in the
name of the Corporation in such depository or depositories as are approved by
the directors, all monies that may come into the Treasurer's hands for the
Corporation's account;
-4-
<PAGE>
(c) render an account of the financial condition of the Corporation at least
annually; and (d) in general, perform such duties as may from time to time be
assigned to the Treasurer by the President or by the board of directors.
SECTION 7. ASSISTANTS. There shall be such number of Assistant Secretaries
and Assistant Treasurers as the board of directors may from time to time
authorize and appoint. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties as shall be assigned to them by the
Secretary, or the Treasurer, respectively, or by the president or the board of
directors. The board of directors shall have the power to appoint any person to
act as assistant to any other officer, or to perform the duties of any other
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or acting officer so appointed shall have the
power to perform all the duties of the office to which he or she is so appointed
to be assistant, or as to which he or she is so appointed to act, except as such
power may be otherwise defined or restricted by the board of directors.
ARTICLE V
TRANSFER OF CORPORATE STOCK
The stock of the Corporation shall be transferable or assignable only on
the books of the Corporation by the holders in person, or by attorney, on the
surrender of the certificates therefor, with an assignment and power of attorney
endorsed thereon or attached thereto, duly executed, with such proof or a
guarantee of the authenticity of the signature as the Corporation or its agents
may reasonably require. Lost or destroyed certificates may be replaced in
accordance with such regulations as the Board of Directors may prescribe. The
Board of Directors may appoint one or more transfer agents and registrars of the
stock.
ARTICLE VI
STOCK RIGHTS - EFFECTIVE DATE
The Board of Directors shall have the power to close the stock transfer
books of the Corporation for a period not exceeding fifty (50) days preceding
the date of any meeting of stockholders, or the date for payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital stock shall go into effect, or for a period
not exceeding fifty (50) days in connection with obtaining the consent of
stockholders for any purpose. In lieu of closing the stock transfer books as
aforesaid, the Board of Directors is hereby authorized to fix in advance a date,
not exceeding fifty (50) days preceding the date of any meeting of stockholders
or the date for the payment of any dividend or the date for the allotment of
rights, or the date when any change or conversion or exchange of capital stock
shall go into effect, or a date in connection with obtaining such consent, as a
record date for the determination of the stockholders entitled to notice of and
to vote at, any such meeting, or entitled to receive payment of any such
dividends, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, or to give
such consent, and in such case such stockholders and only such stockholders as
shall be stockholders of record on the date so fixed shall be entitled to such
notice of, and to vote, at such meeting or to receive payment of such dividend,
or to receive such allotment of rights, or to exercise such rights, or to give
such consent, as the case may be, notwithstanding any transfer of any stock on
the books of the Corporation.
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<PAGE>
ARTICLE VII
DEPOSITORIES
The Board of Directors is authorized to select such depositories as it
shall deem proper for the funds of the Corporation. All checks and drafts
against such deposited funds shall be signed and countersigned by persons to be
specified by the Board of Directors.
ARTICLE VIII
INSTRUMENTS AFFECTING REAL ESTATE
All instruments executed by the Corporation which are required to be
acknowledged and which affect an interest in real estate, shall be executed by
the Chairman of the Board or President or Executive Vice President or any Vice
President attested by the Secretary or Assistant Secretary, and all other
instruments executed by the Corporation, including any releases or mortgages or
liens, may be executed by the Chairman of the Board or President or Executive
Vice President or any Vice President, or the Secretary or the Treasurer or any
Assistant Secretary or Assistant Treasurer. Notwithstanding any of the foregoing
provisions, any written instrument may be executed by an officer or officers,
agent or agents or other person or persons specifically designated by resolution
of the Board of Directors of this Corporation. The Corporation shall have a
corporate seal which shall bear the words, "American Equity Investment Life
Insurance Company" around the edge, with the words, "Corporate Seal" in the
middle.
ARTICLE IX
AMENDMENTS
Either the Board of Directors or the stockholders may alter or amend these
Bylaws at any meeting duly held.
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<PAGE>
Exhibit 2
[LOGO]
[LETTERHEAD]
January 30, 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 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 EquiTrust 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,
Whitfield & Eddy, P.L.C.
By: /s/ Wendy L. Carlson
Wendy L. Carlson
<PAGE>
[Letterhead]
January 30, 1998
American Equity Investment
Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by American Equity
Life Insurance Company of a flexible premium variable life insurance policy
("Policy") under the Securities Act of 1933, as amended. The prospectus
included in this Initial Filing to the Registration Statement on Form S-6
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 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.
(2) 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 the Initial Filing
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, MAAA
American Equity Investment
Life Insurance Company
<PAGE>
Exhibit 7.(b)
[Letterhead of Sutherland, Asbill & Brennan LLP]
February 4, 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. 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>
POWER OF ATTORNEY
The undersigned directors of American Equity Investment Life Insurance Company,
an Iowa corporation (the "Company"), hereby constitute and appoint Debra J.
Richardson, and William J. Oddy, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him and on his behalf and in his name, place
and stead, to execute and file any of the documents referred to below relating
to registrations under the Securities Act of 1933 and under the Investment
Company Act of 1940 with respect to any life insurance policies or annuity
contracts: registration statements on any form or forms under the Securities Act
of 1933 and under the Investment Company Act of 1940, and any and all amendments
and supplements thereto, with all exhibits and all instruments necessary or
appropriate in connection therewith, each of said attorneys-in-fact and agents
and him or their substitutes being empowered to act with or without the others
or other, and to have full power and authority to do or cause to be done in the
name and on behalf of the undersigned each and every act and thing requisite and
necessary or appropriate with respect thereto to be done in and about the
premises in order to effectuate the same, as fully to all intents and purposes
as the undersigned might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may do or cause to
be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto set his or her hand on the date
set forth below.
NAME DATE
- ---- ----
/s/ D.J. Noble January 15, 1998
- ------------------------------ ----------------
D.J. Noble
/s/ James M. Gerlach January 15, 1998
- ------------------------------ ----------------
James M. Gerlach
/s/ David S. Mulcahy January 15, 1998
- ------------------------------ ----------------
David S. Mulcahy
/s/ William J. Oddy January 15, 1998
- ------------------------------ ----------------
William J. Oddy
/s/ Terry A. Reimer January 15, 1998
- ------------------------------ ----------------
Terry A. Reimer
/s/ Debra J. Richardson January 15, 1998
- ------------------------------ ----------------
Debra J. Richardson
/s/ Jack W. Schroeder January 15, 1998
- ------------------------------ ----------------
Jack W. Schroeder
