<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
FILE NO. 333-46597
FILE NO. 811-08665
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. / /
------------------------
EQUITRUST LIFE ANNUITY ACCOUNT
(Exact Name of Registrant)
EQUITRUST LIFE INSURANCE COMPANY
(Name of Depositor)
5400 University Avenue
West Des Moines, Iowa 50266
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: 1-800-247-4170
------------------------
STEPHEN M. MORAIN, ESQUIRE
5400 University Avenue
West Des Moines, Iowa 50266
(Name and Address of Agent for Service of Process)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQUIRE
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
SECURITIES BEING OFFERED: FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
CONTRACTS.
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>
CROSS REFERENCE SHEET
PURSUANT TO RULES 481(a) AND 495(a)
Showing location in Part A (prospectus) and Part B (statement of additional
information) of registration statement of information required by Form N-4
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ----------------------------------------- --------------------------------------------------------------------------------
<C> <S> <C>
1. Cover Page......................... Cover Page
2. Definitions........................ Definitions
3. Synopsis........................... Expense Tables; Summary
4. Condensed Financial Information.... Condensed Financial Information; Yields and Total Returns
5. General
(a) Depositor...................... EquiTrust Life Insurance Company
(b) Registrant..................... EquiTrust Life Annuity Account
(c) Portfolio Company.............. Investment Options
(d) Fund Prospectus................ Investment Options
(e) Voting Rights.................. Voting Rights
(f) Administrators................. N/A
6. Deductions and Expenses
(a) General........................ Charges and Deductions; Summary
(b) Sales Load %................... Charges and Deductions; Summary
(c) Special Purchase Plan.......... N/A
(d) Commissions.................... Distribution of the Contracts
(e) Expenses -- Registrant......... Charges and Deductions; Summary
(f) Fund Expenses.................. Investment Options; Charges and Deductions
(g) Organizational Expenses........ N/A
7. Contracts
(a) Persons with Rights............ Summary; Addition, Deletion or Substitution of Investments; Description of
Annuity Contract; Payment Options; Voting Rights
(b) (i) Allocation of Purchase
Payments.................. Summary; Premiums; Free-Look Period; Allocation of Premiums
(ii) Transfers................. Summary; Transfer Privilege
(iii) Exchanges................. Transfers, Assignments or Exchanges of a Contract
(c) Changes........................ Additions, Deletions or Substitutions of Investments; Description of Annuity
Contract; Modification;
(d) Inquiries...................... Cover page; Inquiries
8. Annuity Period..................... Summary; Payment Options
9. Death Benefit...................... Death Benefit Before the Retirement Date; Death Benefit After the Retirement
Date
10. Purchases and Contract Value
(a) Purchases...................... Summary; Issuance of a Contract; Premiums; Free Look Period; Allocation of
Premiums; Variable Cash Value;
(b) Valuation...................... Definitions; Variable Cash Value;
(c) Daily Calculation.............. Definitions; Variable Cash Value;
(d) Underwriter.................... Issuance of a Contract; Distribution of the Contracts
11. Redemptions
(a) -- By Owners................... Summary; Transfer Privilege; Surrenders and Partial Surrenders; Proceeds on the
Retirement Date; Payments; Payment Options; Federal Tax Matters
-- By Annuitant................ Summary; Transfer Privilege; Surrenders and Partial Surrenders; Proceeds on the
Retirement Date; Payments; Payment Options; Federal Tax Matters
(b) Taxes ORP...................... N/A
(c) Check Delay.................... Payments
(d) Lapse.......................... N/A
(e) Free Look...................... Summary; Free Look Period
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
12. Taxes.............................. Summary; Federal Tax Matters
13. Legal Proceedings.................. Legal Proceedings
14. Table of Contents for the Statement
of Additional Information......... Statement of Additional Information
Table of Contents
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PART B CAPTION
- ----------------------------------------- --------------------------------------------------------------------------------
<C> <S> <C>
15. Cover Page......................... Cover Page
16. Table of Contents.................. Table of Contents
17. General Information and History.... General Information About the Company
18. Services
(a) Fees and Expenses of
Registrant........................ N/A
(b) Management Contracts........... N/A
(c) Custodian...................... N/A
Independent Public Accountant...... Experts
(d) Assets of Registrant........... N/A
(e) Affiliated Persons............. N/A
(f) Principal Underwriter.......... Distribution of the Contracts (prospectus)
19. Purchase of Securities
Being Offered...................... Distribution of the Contracts (prospectus)
Offering Sales Load................ N/A
20. Underwriters....................... Distribution of the Contracts (prospectus)
21. Calculation of Performance Data.... Calculation of Yields and Total Returns; Yields and Total Returns (prospectus)
22. Annuity Payments................... Payment Options (prospectus)
23. Financial Statements............... Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PART C CAPTION
- ----------------------------------------- --------------------------------------------------------------------------------
<C> <S> <C>
24. Financial Statements and
Exhibits.......................... Financial Statements and Exhibits
(a) Financial Statements........... (a) Financial Statements
(b) Exhibits....................... (b) Exhibits
25. Directors and Officers of the
Depositor......................... Directors and Officers of EquiTrust Life Insurance Company
26. Persons Controlled By or Under
Common Control with the Depositor
or Registrant..................... Persons Controlled By or In Common Control with the Depositor or Registrant
27. Number of Contractowners........... Number of owners
28. Indemnification.................... Indemnification
29. Principal Underwriters............. Principal Underwriter
30. Location of Accounts and Records... Location of Books and Records
31. Management Services................ Management Services
32. Undertakings....................... Undertakings and Representations
Signature Page..................... Signatures
</TABLE>
<PAGE>
PROSPECTUS
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EquiTrust Life Annuity Account
Individual Flexible Premium Deferred
Variable Annuity Contract
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This Prospectus describes the individual flexible premium deferred variable
annuity contract (the "Contract") being offered by EquiTrust Life Insurance
Company (the "Company"). The Contract may be sold to or in connection with
retirement plans, including those that qualify for special federal tax treatment
under the Internal Revenue Code.
Premiums and accumulated values are allocated, as designated by the owner, to
one or more of the subaccounts of the EquiTrust Life Annuity Account (the
"Account"), the Declared Interest Option, or both. The assets of each Subaccount
will be invested solely in shares of the corresponding Investment Options: Value
Growth Portfolio, High Grade Bond Portfolio, High Yield Bond Portfolio, Money
Market Portfolio and Blue Chip Portfolio of EquiTrust Variable Insurance Series
Fund; Equity Income Portfolio, Mid-Cap Growth Portfolio, New America Growth
Portfolio and Personal Strategy Balanced Portfolio of T. Rowe Price Equity
Series, Inc.; International Stock Portfolio of T. Rowe Price International
Series, Inc.; or Capital Appreciation Portfolio, Disciplined Stock Portfolio,
Growth and Income Portfolio, International Equity Portfolio and Small Cap
Portfolio of Dreyfus Variable Investment Fund. The accompanying prospectus for
each Fund describes the investment objectives and attendant risks of each
Investment Option. The accumulated value of the Contracts prior to the
retirement date, except for amounts in the Declared Interest Option, will vary
according to the investment performance of each Investment Option in which the
selected Subaccounts are invested. THE OWNER BEARS THE ENTIRE INVESTMENT RISK ON
AMOUNTS ALLOCATED TO THE ACCOUNT.
This Prospectus sets forth basic information about the Contract and the Account
that a prospective investor should know before investing. Additional information
about the Contract and the Account is contained in the Statement of Additional
Information, which has been filed with the Securities and Exchange Commission.
The Statement of Additional Information is dated the same as this Prospectus and
is incorporated herein by reference. The table of contents for the Statement of
Additional Information is on page 31 of this Prospectus. You may obtain a copy
of the Statement of Additional Information free of charge by writing or calling
the Company at the address or phone number shown below.
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PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR EACH
FUND'S INVESTMENT OPTIONS.
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.
- --------------------------------------------------------------------------------
Issued By
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
1-888-349-4656
THE DATE OF THIS PROSPECTUS IS
JULY 1, 1998
<PAGE>
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TABLE OF CONTENTS
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PAGE
DEFINITIONS............................................................... 3
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EXPENSE TABLES............................................................ 4
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SUMMARY................................................................... 7
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THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS............................... 8
EquiTrust Life Insurance Company................................ 8
EquiTrust Life Annuity Account.................................. 8
Investment Options.............................................. 9
Addition, Deletion or Substitution of Investments............... 11
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DESCRIPTION OF ANNUITY CONTRACT........................................... 12
Issuance of a Contract.......................................... 12
Premiums........................................................ 12
Free-Look Period................................................ 12
Allocation of Premiums.......................................... 12
Variable Accumulated Value...................................... 13
Transfer Privilege.............................................. 14
Partial Withdrawals and Surrenders.............................. 14
Special Transfer and Withdrawal Options......................... 15
Death Benefit Before the Retirement Date........................ 15
Death Benefit After the Retirement Date......................... 16
Proceeds on the Retirement Date................................. 16
Payments........................................................ 16
Modification.................................................... 17
Reports to Owners............................................... 17
Inquiries....................................................... 17
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THE DECLARED INTEREST OPTION.............................................. 17
Minimum Guaranteed and Current Interest Rates................... 18
Transfers From Declared Interest Option......................... 18
Payment Deferral................................................ 18
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CHARGES AND DEDUCTIONS.................................................... 18
Surrender Charge (Contingent Deferred Sales Charge)............. 18
Annual Administrative Charge.................................... 19
Transfer Processing Fee......................................... 20
Mortality and Expense Risk Charge............................... 20
Investment Option Expenses...................................... 20
Premium Taxes................................................... 20
Other Taxes..................................................... 20
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PAYMENT OPTIONS........................................................... 20
Election of Options............................................. 21
Description of Options.......................................... 21
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YIELDS AND TOTAL RETURNS.................................................. 21
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FEDERAL TAX MATTERS....................................................... 23
Introduction.................................................... 23
Tax Status of the Contract...................................... 24
Taxation of Annuities........................................... 25
Transfers, Assignments or Exchanges of a Contract............... 26
Withholding..................................................... 27
Multiple Contracts.............................................. 27
Taxation of Qualified Plans..................................... 27
Possible Charge for the Company's Taxes......................... 28
Other Tax Consequences.......................................... 28
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DISTRIBUTION OF THE CONTRACTS............................................. 29
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LEGAL PROCEEDINGS......................................................... 29
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VOTING RIGHTS............................................................. 29
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YEAR 2000................................................................. 30
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FINANCIAL STATEMENTS...................................................... 30
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS..................... 31
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2
<PAGE>
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DEFINITIONS
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<TABLE>
<S> <C>
ACCOUNT............................ EquiTrust Life Annuity Account.
ACCUMULATED VALUE.................. The total amount invested under the Contract. It
is the sum of the values of the Contract in each
Subaccount of the Account plus the value of the
Contract in the Declared Interest Option.
ANNUITANT.......................... The person or persons whose life (or lives)
determines the annuity benefits payable under the
Contract and whose death determines the death
benefit.
BENEFICIARY........................ The person to whom the proceeds payable on the
death of the owner/annuitant will be paid.
BUSINESS DAY....................... Each day that the New York Stock Exchange is open
for trading, except the day after Thanksgiving,
the day before Christmas (in 1998) and any day on
which the Home Office is closed because of a
weather-related or comparable type of emergency
and is unable to segregate orders and redemption
requests received on that day.
THE CODE........................... The Internal Revenue Code of 1986, as amended.
CONTRACT ANNIVERSARY............... Same date in each Contract Year as the Contract
Date.
CONTRACT DATE...................... The date on which a properly completed application
is received by the Company at the Home Office. It
is the date set forth on the data page of the
Contract which is used to determine Contract Years
and Contract Anniversaries.
CONTRACT YEAR...................... A twelve-month period beginning on the Contract
Date or on a Contract Anniversary.
DECLARED INTEREST OPTION........... An investment option under the Contract funded by
the Company's General Account. It is not part of,
nor dependent upon, the investment performance of
the Account.
DUE PROOF OF DEATH................. Proof of death satisfactory to the Company. Such
proof may consist of the following if acceptable
to the Company:
(a) a certified copy of the death 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 Account invests.
GENERAL ACCOUNT.................... The assets of the Company other than those
allocated to the Account or any other separate
account of the Company.
HOME OFFICE........................ The principal offices of the Company at 5400
University Avenue, West Des Moines, Iowa 50266.
INVESTMENT OPTION.................. A separate investment portfolio of a Fund.
NET ACCUMULATED VALUE.............. The accumulated value less any applicable
surrender charge.
NON-QUALIFIED CONTRACT............. A Contract that is not a "Qualified Contract."
OWNER.............................. The person who owns the Contract and who is
entitled to exercise all rights and privileges
provided in the Contract.
QUALIFIED CONTRACT................. A Contract that is issued in connection with plans
that qualify for special federal income tax
treatment under Sections 401, 403(b) or 408 of the
Code.
RETIREMENT DATE.................... The date when the accumulated value will be
applied under a payment option, if the annuitant
is still living.
SEC................................ U.S. Securities and Exchange Commission.
SUBACCOUNT......................... A subdivision of the Account, the assets of which
are invested in a corresponding Investment Option.
VALUATION PERIOD................... The period that starts at the close of business
(3:00 p.m. central time) on one Business Day and
ends at the close of business on the next
succeeding Business Day.
WRITTEN NOTICE..................... A written request or notice in a form satisfactory
to the Company which is signed by the owner and
received at the Home Office.
</TABLE>
3
<PAGE>
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EXPENSE TABLES
- --------------------------------------------------------------------------------
The following expense information assumes that the entire accumulated value is
variable accumulated value.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Premiums................ None
Surrender Charge (contingent deferred sales
charge) as a percentage of the amount
surrendered:...................................
</TABLE>
<TABLE>
<CAPTION>
CONTRACT YEAR* SURRENDER CHARGE
- -------------------- -----------------
<S> <C>
1.................. 8.5%
2.................. 8
3.................. 7.5
4.................. 7
5.................. 6.5
6.................. 6
7.................. 5
8.................. 3
9.................. 1
10.................. 0
</TABLE>
* After the first Contract Year, the owner may make partial withdrawals of up to
10% of the accumulated value on the most recent Contract Anniversary without
incurring a surrender charge. If the Contract is subsequently surrendered
during the Contract Year, a surrender charge will be applied to the partial
withdrawals taken. The amount that may be withdrawn without incurring a
surrender charge is NOT cumulative from Contract Year to Contract Year.
<TABLE>
<S> <C>
Transfer Processing Fee........................... None*
</TABLE>
* The Company does not charge a fee for the first twelve transfers in a Contract
Year. The Company may charge $25 for each subsequent transfer in a Contract
Year.
<TABLE>
<S> <C>
ANNUAL ADMINISTRATIVE CHARGE...................... $45
ACCOUNT ANNUAL EXPENSES (as a percentage of
average net assets)
Mortality and Expense Risk Charge............... 1.40%
Other Account Expenses.......................... None
Total Account Expenses........................ 1.40%
</TABLE>
ANNUAL INVESTMENT OPTION EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
OTHER TOTAL
EXPENSES EXPENSES
ADVISORY (AFTER WAIVER (AFTER WAIVER
INVESTMENT OPTION FEE OR REIMBURSEMENT) OR REIMBURSEMENT)
- -------------------------------------------------- --------- ------------------- -------------------
<S> <C> <C> <C>
EquiTrust Variable Insurance Series Fund**
Value Growth.................................... 0.45% 0.10% 0.55%(1)
High Grade Bond................................. 0.30% 0.22% 0.52%
High Yield Bond................................. 0.45% 0.12% 0.57%(1)
Money Market.................................... 0.25% 0.23% 0.48%(1)
Blue Chip....................................... 0.20% 0.13% 0.33%
T. Rowe Price Equity Series, Inc.
Equity Income................................... 0.85% 0.00% 0.85%(2)
Mid-Cap Growth.................................. 0.85% 0.00% 0.85%(2)
New America Growth.............................. 0.85% 0.00% 0.85%(2)
Personal Strategy Balanced...................... 0.90% 0.00% 0.90%(2)
T. Rowe Price International Series, Inc.
International Stock............................. 1.05% 0.00% 1.05%(2)
Dreyfus Variable Investment Fund
Capital Appreciation............................ 0.75% 0.05% 0.80%(3)
Disciplined Stock............................... 0.75% 0.27% 1.02%(3)
Growth and Income............................... 0.75% 0.05% 0.80%(3)
International Equity............................ 0.75% 0.31% 1.06%(3)
Small Cap....................................... 0.75% 0.03% 0.78%(3)
</TABLE>
** The annual investment option expenses for each Investment Option of the Fund
are net of certain reimbursements by the Fund's investment adviser.
Operating expenses (including the investment advisory fee but excluding
4
<PAGE>
brokerage, interest, taxes and extraordinary expenses) of an Investment
Option that exceed 1.50% of the Investment Option's average daily net assets
for any fiscal year are reimbursed by the Fund's investment adviser up to
the amount of the advisory fee. In addition, the investment adviser has
voluntarily agreed to reimburse each Portfolio for expenses that exceed
0.65%. Absent the reimbursements, the total expenses for the Investment
Options for the 1997 fiscal year would have been: Value Growth 0.58%, High
Grade Bond 0.57%, High Yield Bond 0.65% and Money Market 0.55%.
(1) Total annual investment option expenses have been restated for the reduction
in management fees from 0.50% to 0.45% for the Value Growth and High Yield
Bond Investment Options and 0.30% to 0.25% for the Money Market Investment
Option, effective May 1, 1997.
(2) Total annual investment option expenses are an all-inclusive fee and pay for
investment management services and other operating costs.
(3) The investment adviser may waive receipt of its fees and/or voluntarily
assume certain expenses. Total expenses were not reduced for the 1997 fiscal
year.
The above tables are intended to assist the owner of a Contract in understanding
the costs and expenses that he or she will bear directly or indirectly. The
tables reflect the expenses for the Account based on the actual expenses for
each Investment Option for the 1997 fiscal year. For a more complete description
of the various costs and expenses see "Charges and Deductions" and the
prospectus for each Investment Option which accompany this Prospectus.
EXAMPLES: An owner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
1. If the Contract is surrendered or is annuitized at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth.................................. $ 152 $ 277 $ 403 $ 672
High Grade Bond............................... 152 276 402 669
High Yield Bond............................... 152 277 404 674
Money Market.................................. 151 275 400 665
Blue Chip..................................... 150 271 393 649
T. Rowe Price Equity Series, Inc.
Equity Income................................. 155 285 417 703
Mid-Cap Growth................................ 155 285 417 703
New America Growth............................ 155 285 417 703
Personal Strategy Balanced.................... 155 287 419 708
T. Rowe Price International Series, Inc.
International Stock........................... 157 291 426 722
Dreyfus Variable Investment Fund
Capital Appreciation.......................... 157 291 428 725
Disciplined Stock............................. 156 290 425 719
Growth and Income............................. 154 284 415 698
International Equity.......................... 157 291 427 723
Small Cap..................................... 154 283 414 696
</TABLE>
5
<PAGE>
2. If the Contract is not surrendered or annuitized at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth.................................. $ 65 $ 196 $ 329 $ 672
High Grade Bond............................... 64 195 328 669
High Yield Bond............................... 65 196 330 674
Money Market.................................. 64 194 325 665
Blue Chip..................................... 63 189 318 649
T. Rowe Price Equity Series, Inc.
Equity Income................................. 68 205 344 703
Mid-Cap Growth................................ 68 205 344 703
New America Growth............................ 68 205 344 703
Personal Strategy Balanced.................... 68 206 347 708
T. Rowe Price International Series, Inc.
International Stock........................... 70 211 354 722
Dreyfus Variable Investment Fund
Capital Appreciation.......................... 70 212 356 725
Disciplined Stock............................. 69 210 353 719
Growth and Income............................. 67 203 342 698
International Equity.......................... 70 211 355 723
Small Cap..................................... 67 203 341 696
</TABLE>
The examples provided above assume that no transfer charges or premium taxes
have been assessed. The examples also assume that the annual administrative
charge is $45 and that the accumulated value per contract is $10,000, which
translates the administrative charge into an assumed .45% charge for the
purposes of the examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE ASSUMED 5% ANNUAL RATE OF RETURN IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN THIS ASSUMED RATE.
6
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
THE CONTRACT ISSUANCE OF A CONTRACT. Contracts may be sold in
connection with retirement plans which may or may not
qualify for special federal tax treatment under the Code.
There is no maximum age for owners on the Contract date.
(See "Issuance of a Contract.")
FREE-LOOK PERIOD. The owner has the right to return the
Contract within 20 days after he or she receives it. The
returned Contract will become void. The Company will
return to the owner an amount equal to the greater of the
premiums paid or the accumulated value on the date the
returned Contract is received at the Home Office plus
administrative charges and charges deducted from the
Account. (See "Free-Look Period.")
PREMIUMS. The minimum amount which the Company will
accept as an initial premium is $1,000 for Qualified
Contracts and $5,000 for non-Qualified Contracts.
Subsequent premiums of not less than $50 may be paid
under the Contract. (See "Premiums.")
ALLOCATION OF PREMIUMS. Premiums under a Contract will be
allocated, as designated by the owner, to one or more
Subaccounts, the Declared Interest Option, or both. The
initial premium will be allocated to the Money Market
Subaccount for a 10-day period following the Contract
date. At the end of that period, the amount in the Money
Market Subaccount will be allocated among the Subaccounts
and the Declared Interest Option in accordance with the
owner's percentage allocation in the application. The
assets of each Subaccount will be invested solely in a
corresponding Investment Option. The accumulated value,
except for amounts in the Declared Interest Option, will
vary according to the investment performance of the
Investment Option in which the selected Subaccounts are
invested. Interest will be credited to amounts in the
Declared Interest Option at a guaranteed minimum rate of
3% per year, or a higher current interest rate declared
by the Company. (See "Allocation of Premiums.")
TRANSFERS. On or before the retirement date, the owner
may transfer all or part of the amount in a Subaccount or
the Declared Interest Option to another Subaccount or the
Declared Interest Option subject to certain restrictions.
The total amount transferred each time must be at least
$100 or the entire amount in the Subaccount, if less.
Transfers out of the Declared Interest Option must be for
no more than 25% of the accumulated value in that option.
No fee is currently charged for the first twelve
transfers during a Contract year, but the Company may
assess a transfer processing fee of $25 for each
subsequent transfer during a Contract year. (See
"Transfer Privilege.")
PARTIAL WITHDRAWAL. Upon written notice at any time
before the retirement date, the owner may withdraw part
of the accumulated value subject to certain limitations.
(See "Partial Withdrawals.")
SURRENDER. Upon written notice received on or before the
retirement date, the owner may surrender the Contract and
receive its net accumulated value. (See "Surrender.")
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS The following charges and deductions are assessed under
the Contract:
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). No
charge for sales expense is deducted from premiums at the
time premiums are paid. However, if a Contract has not
been in force for nine full Contract years, upon
surrender, partial withdrawal or the application of the
accumulated value to certain payment options under
certain circumstances, a surrender charge is deducted
from the amount surrendered, withdrawn or from the
remaining accumulated value.
For the first Contract year, the charge is 8.5% of the
amount surrendered. Thereafter, the surrender charge
decreases each subsequent Contract Year. In no event will
the total surrender charge on any Contract exceed 8.5% of
the total premiums paid under the Contract. (See "Charge
for Partial Withdrawal or Surrender.")
7
<PAGE>
Subject to certain restrictions, for partial withdrawals
in each Contract year after the first Contract year, up
to 10% of the accumulated value on the most recent
Contract Anniversary may be withdrawn without a current
surrender charge. If the Contract is subsequently
surrendered during the Contract Year, a surrender charge
will be applied to partial withdrawals taken. (See
"Amounts Not Subject to Surrender Charge.") The surrender
charge may be waived as provided in the Contracts. (See
"Waiver of Surrender Charge.")
ANNUAL ADMINISTRATIVE CHARGE. On the Contract date and on
each Contract anniversary prior to the retirement date,
the Company deducts an annual administrative charge of
$45 from the accumulated value. (See "Annual
Administrative Charge.")
MORTALITY AND EXPENSE RISK CHARGE. The Company deducts a
daily mortality and expense risk charge to compensate it
for assuming certain mortality and expense risks. The
charge is deducted from the assets of the Account at an
annual rate of 1.40% (approximately 1.01% for mortality
risk and 0.39% for expense risks). (See "Mortality and
Expense Risk Charge.")
INVESTMENT OPTION EXPENSES. Because the Account purchases
shares of the various Investment Options, the net assets
of the Account will reflect the investment advisory fee
and other operating expenses incurred by the Investment
Options. A table of each Investment Option's advisory fee
and other expenses can be found in the Expense Tables at
the front of this prospectus. For a description of each
Investment Option's advisory fee and other expenses, see
the prospectuses for the Investment Options of the Funds.
- --------------------------------------------------------------------------------
ANNUITY PROVISIONS On the retirement date, the accumulated value (less any
applicable surrender charge) will be applied under a
payment option, unless the owner chooses to receive the
net accumulated value in a lump sum. Payments under these
options do not depend upon the Account's performance.
(See "Payment Options.")
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FEDERAL TAX MATTERS Generally, a distribution (including a surrender, partial
withdrawal or death benefit payment) may result in
taxable income. In certain circumstances, a 10% penalty
tax may apply. For further discussion of the federal
income status of variable annuity contracts, see "Federal
Tax Matters."
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THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
EQUITRUST LIFE INSURANCE COMPANY
The Company is a stock life insurance company
incorporated in the State of Iowa on June 3, 1996. The
Company is principally engaged in the offering of life
insurance policies and annuity contracts and is admitted
to do business in 38 states--Alabama, Alaska, Arizona,
Arkansas, California, Colorado, Delaware, Florida,
Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas,
Louisiana, Michigan, Minnesota, Mississippi, Missouri,
Montana, Nebraska, Nevada, New Mexico, North Carolina,
North Dakota, Ohio, Oklahoma, Oregon, South Carolina,
South Dakota, Tennessee, Texas, Utah, Virginia,
Washington, Wisconsin and Wyoming. The principal offices
of the Company are at 5400 University Avenue, West Des
Moines, Iowa 50266
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EQUITRUST LIFE ANNUITY ACCOUNT
The Account was established by the Company as a separate
account on January 6, 1998. The Account will receive and
invest premiums paid under the Contracts. In addition,
the Account may receive and invest premiums for any other
variable annuity contracts issued in the future by the
Company.
Although the assets in the Account are the property of
the Company, the assets in the Account attributable to
the Contracts are not chargeable with liabilities arising
out of any other business which the Company may conduct.
The assets of the Account are available to cover the
general liabilities of the Company only to the extent
that the Account's assets exceed its liabilities arising
under the Contracts and any other contracts supported by
the Account. The Company has the right to transfer to the
general account any assets of the Account which are in
excess of such reserves and other contract liabilities.
All obligations arising under the Contracts are general
corporate obligations of the Company.
8
<PAGE>
The 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 Account has been registered as a unit investment
trust under the Investment Company Act of 1940 (the "1940
Act") and meets the definition of a separate account
under the federal securities laws. Registration with the
Securities and Exchange Commission does not involve
supervision of the management or investment practices or
policies of the Account or the Company by the SEC. The
Account is also subject to the laws of the State of Iowa
which regulate the operations of insurance companies
domiciled in Iowa.
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INVESTMENT OPTIONS The Account invests in shares of the Investment Options.
The Investment Options currently include the Value Growth
Portfolio, High Grade Bond Portfolio, High Yield Bond
Portfolio, Money Market Portfolio and Blue Chip Portfolio
of EquiTrust Variable Insurance Series Fund; the Equity
Income Portfolio, Mid-Cap Growth Portfolio, New America
Portfolio and Personal Strategy Balanced Portfolio of T.
Rowe Price Equity Series, Inc. and International Stock
Portfolio of T. Rowe Price International Series, Inc.;
and the Capital Appreciation Portfolio, Disciplined Stock
Portfolio, Growth and Income Portfolio, International
Equity Portfolio and Small Cap Portfolio of Dreyfus
Variable Investment Fund. The Account may, in the future,
provide for additional investment options. Each
Investment Option has its own investment objectives and
the income and losses for each Investment Option will be
determined separately.
The investment objectives and policies of each Investment
Option are summarized below. There is no assurance that
any Investment Option will achieve its stated objectives.
More detailed information, including a description of
risks and expenses, may be found in the prospectus for
each Investment Option, which must accompany or precede
this Prospectus and which should be read carefully and
retained for future reference.
EQUITRUST VARIABLE INSURANCE SERIES FUND
EquiTrust Investment Management Services, Inc. is the
investment adviser to the Fund. The Fund is comprised of
six portfolios, the following five of which are available
under the Contract:
VALUE GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation. The Portfolio pursues
this objective by investing primarily in equity
securities of companies that the investment adviser
believes have a potential to earn a high return on
capital 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
an investment in 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 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 Standards & Poor's, or in unrated
securities
9
<PAGE>
of comparable quality. AN INVESTMENT IN THIS
PORTFOLIO MAY ENTAIL GREATER THAN ORDINARY FINANCIAL
RISK. (See the Fund Prospectus "Principal Risk
Factors--Special Considerations--High Yield Bonds.")
MONEY MARKET PORTFOLIO. This Portfolio seeks maximum
current income consistent with liquidity and
stability of principal. The Portfolio will pursue
this objective by investing in high quality
short-term money market instruments. AN INVESTMENT IN
THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U .S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
BLUE CHIP PORTFOLIO. This Portfolio seeks growth of
capital and income. The Portfolio pursues this
objective by investing primarily in common stocks of
well-capitalized, established companies. Because this
Portfolio may be invested heavily in particular
stocks or industries, an investment in this Portfolio
may entail relatively greater risk of loss.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Associates, Inc. is the investment adviser
to the Fund.
EQUITY INCOME PORTFOLIO. This Portfolio seeks to
provide substantial dividend income and long-term
capital appreciation by investing primarily in
established companies considered by the adviser to
have favorable prospects for both increasing
dividends and capital appreciation.
MID-CAP GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation by investing primarily
in common stocks of medium-sized (mid-cap) growth
companies which offer the potential for above-average
earnings growth.
NEW AMERICA GROWTH PORTFOLIO. This Portfolio seeks
long-term capital growth by investing primarily in
common stocks of U.S. growth companies operating in
service industries.
PERSONAL STRATEGY BALANCED PORTFOLIO. This Portfolio
seeks the highest total return over time consistent
with an emphasis on both capital appreciation and
income.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
Rowe Price-Fleming International, Inc. is the investment
adviser to the Fund.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO. This
Portfolio seeks to provide capital appreciation
through investments primarily in established
companies based outside the United States.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Corporation serves as the investment adviser
to the Fund. Fayez Sarofim and Co. serves as the
sub-investment adviser to the Capital Appreciation
Portfolio. The Fund consists of thirteen portfolios, the
following of which are available under the Contract.
CAPITAL APPRECIATION PORTFOLIO. This Portfolio seeks
long-term capital growth, consistent with the
preservation of capital; current income is a
secondary investment objective. This Portfolio
invests primarily in the common stocks of domestic
and foreign companies.
DISCIPLINED STOCK PORTFOLIO. This Portfolio seeks to
provide investment results that are greater than the
total return performance of publicly-traded common
stocks in the aggregate, as represented by the
Standard & Poor's 500 Composite Stock Price Index.
GROWTH AND INCOME PORTFOLIO. This Portfolio seeks to
provide long-term capital growth, current income and
growth of income, consistent with reasonable
investment risk by investing in stocks, bonds and
money market instruments of domestic and foreign
issuers.
10
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO. This Portfolio seeks
to maximize capital growth through investments in
equity securities of foreign issuers.
SMALL CAP PORTFOLIO. This Portfolio seeks maximum
capital appreciation by investing in companies, both
domestic and foreign, considered by the adviser to be
emerging smaller-sized companies which are believed
to be characterized by new or innovative products,
services or processes which should enhance prospects
for growth in future earnings.
The Funds currently sell shares: (a) to the 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 owners
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 will monitor
events in order to identify any material irreconcilable
conflicts that might possibly arise. In the event of such
a conflict, it would determine what action, if any,
should be taken in response to the conflict. In addition,
if the Company believes that a Fund's response to any
such conflicts insufficiently protects owners, it will
take appropriate action on its own, including withdrawing
the Account's investment in that Fund. (See the Fund
prospectuses for more detail.)
The Company may receive compensation from an affiliate(s)
of one or more of the Funds based upon an annual
percentage of the average assets held in the Investment
Options by the Company. These amounts are intended to
compensate the Company for administrative and other
services provided by the Company to the Funds and/or
affiliate(s).
Each Fund is registered with the SEC 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 SEC.
- --------------------------------------------------------------------------------
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable
law, to make additions to, deletions from or
substitutions for the shares that are held in the Account
or that the Account may purchase. If the shares of an
Investment Option are no longer available for investment
or if, in the Company's judgment, further investment in
any Investment Option should become inappropriate in view
of the purposes of the Account, the Company may redeem
the shares, if any, of that Investment Option and
substitute shares of another Investment Option. The
Company will not substitute any shares attributable to a
Contract's interest in a Subaccount without notice and
prior approval of the SEC and state insurance
authorities, to the extent required by the 1940 Act or
other applicable law.
The Company also reserves the right to establish
additional subaccounts of the Account, each of which
would invest in shares corresponding to an Investment
Option or in shares of another investment company having
a specified investment objective. The Company may, in its
sole discretion, establish new subaccounts or eliminate
or combine one or more Subaccounts if marketing needs,
tax considerations or investment conditions warrant. Any
new subaccounts may be made available to existing
Contract owners 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
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, change the
Contract to reflect the substitution or change. If the
Company deems it to be in the best interest of Contract
owners and annuitants, and subject to any approvals that
may be required under applicable law, the Account may be
operated as a management investment company under the
1940 Act, it may be deregistered under that Act if
registration is no longer required, it may be combined
with other Company separate accounts or its assets may be
transferred to another separate account of the Company.
In addition, the Company may, when permitted by law,
restrict or eliminate any voting rights of owners or the
persons who have such rights under the Contracts.
11
<PAGE>
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DESCRIPTION OF ANNUITY CONTRACT
- --------------------------------------------------------------------------------
ISSUANCE OF A CONTRACT In order to purchase a Contract, application must be made
to the Company through a licensed representative of the
Company, who is also a registered representative of
EquiTrust Marketing Services, Inc. ("EquiTrust
Marketing") (formerly FBL Marketing Services, Inc.), a
broker-dealer having a selling agreement with EquiTrust
Marketing or a broker-dealer having a selling agreement
with such broker/dealer. The Contract Date will be the
date the properly completed application is received by
the Company at its Home Office. If this date is the 29th,
30th or 31st of any month, the Contract Date will be the
28th of such month. Contracts may be sold to or in
connection with retirement plans that do not qualify for
special tax treatment as well as retirement plans that
qualify for special tax treatment under the Code. There
is no maximum age for owners on the Contract date.
- --------------------------------------------------------------------------------
PREMIUMS The minimum initial premium which the Company will accept
is $1,000 for Qualified Contracts and $5,000 for
non-Qualified Contracts. Subsequent premium payments may
be paid at any time during the annuitant's lifetime and
before the retirement date and must be for at least $50.
At the time of application, a premium reminder notice
schedule may be selected based on an annual,
semi-annually, or quarterly payment. The owner will
receive a premium reminder notice at the specified
interval. The owner may change the amount and schedule of
the premium reminder notice. Also, under the Automatic
Payment Plan, the owner can select a monthly payment
schedule pursuant to which premium payments will be
automatically deducted from a bank account or other
source rather than being "billed." The Contract will not
necessarily lapse even if premiums are not paid.
- --------------------------------------------------------------------------------
FREE-LOOK PERIOD The Contract provides for an initial "free-look" period.
The owner has the right to return the Contract within 20
days of receiving it. When the Company receives the
returned Contract at its Home Office, it will cancel the
Contract and refund to the owner an amount equal to the
greater of the premiums paid under the Contract or the
sum of the accumulated value as of the date the returned
Contract is received by the Company at its Home Office
plus the amount of the annual administration charge and
any charges deducted from the Account.
- --------------------------------------------------------------------------------
ALLOCATION OF PREMIUMS If the application for a Contract is properly completed
and is accompanied by all the information necessary to
process it, including payment of the initial premium, the
initial premium will be allocated to the Money Market
Subaccount within two business days of receipt of such
premium by the Company at its Home Office. If the
application is not properly completed, the Company
reserves the right to retain the premium for up to five
business days while it attempts to complete the
application. If the application is not complete at the
end of the 5-day period, the Company will inform the
applicant of the reason for the delay and the initial
premium will be returned immediately, unless the
applicant specifically consents to the Company retaining
the premium until the application is complete.
At the time of application, the owner selects how the
initial premium is to be allocated among the Subaccounts
and the Declared Interest Option. Any allocation must be
for at least 10% of a premium payment and be in whole
percentages.
The initial premium will be allocated to the Money Market
Subaccount for a 10-day period following the Contract
date. After the expiration of the 10-day period, the
amount in the Money Market Subaccount will be allocated
among the Subaccounts and the Declared Interest Option in
accordance with the owner's percentage allocation in the
application. Any subsequent premiums will be allocated at
the end of the valuation period in which the subsequent
premium is received by the Company in the same manner,
unless the allocation percentages are changed. Subsequent
premiums will be allocated in accordance with the
allocation schedule in effect at the
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<PAGE>
time the premium payment is received. However, owners may
direct individual payments to a specific Subaccount or
the Declared Interest Option (or any combination thereof)
without changing the existing allocation schedule.
The allocation schedule may be changed by the owner at
any time by written notice. Changing the allocation
schedule will not change the allocation of existing
accumulated values among the Subaccounts or the Declared
Interest Option.
The accumulated values allocated to a Subaccount will
vary with that Subaccount's investment experience, and
the owner bears the entire investment risk. Owners should
periodically review their premium allocation schedule in
light of market conditions and their overall financial
objectives.
- --------------------------------------------------------------------------------
VARIABLE ACCUMULATED VALUE
The variable accumulated value will reflect the
investment experience of the selected Subaccounts, any
premiums paid, any surrenders or partial withdrawals, any
transfers and any charges assessed in connection with the
Contract. There is no guaranteed minimum variable
accumulated value, and, because a Contract's variable
accumulated value on any future date depends upon a
number of variables, it cannot be predetermined.
CALCULATION OF VARIABLE ACCUMULATED VALUE. The variable
accumulated value is determined at the end of each
valuation period. The value will be the aggregate of the
values attributable to the Contract in each of the
Subaccounts, determined for each Subaccount by
multiplying that Subaccount's unit value for the relevant
valuation period by the number of Subaccount units
allocated to the Contract.
DETERMINATION OF NUMBER OF UNITS. Any amounts allocated
to the Subaccounts will be converted into Subaccount
units. The number of units to be credited to a Contract
is determined by dividing the dollar amount being
allocated to a Subaccount by the unit value for that
Subaccount at the end of the valuation period during
which the amount was allocated. The number of units in
any Subaccount will be increased at the end of the
valuation period by any premiums allocated to the
Subaccount during the current valuation period and by any
amounts transferred to the Subaccount from another
Subaccount or the Declared Interest Option during the
current valuation period. The number of units in any
Subaccount will be decreased at the end of the valuation
period by any amounts transferred from that Subaccount to
another Subaccount or the Declared Interest Option, any
amounts withdrawn during the current valuation period,
any surrender charge assessed upon a partial withdrawal
or surrender and the annual administrative charge, if
assessed during the current valuation period.
DETERMINATION OF UNIT VALUE. The unit value for each
Subaccount's first valuation period is set at $10. The
unit value for a Subaccount is calculated for each
subsequent valuation period by dividing (a) by (b) where:
(a) is the net result of:
1. the value of the net assets in the
Subaccount at the end of the preceding valuation
period; plus
2. the investment income, dividends and
capital gains, realized or unrealized, credited to
the Subaccount during the current valuation
period; minus
3. the capital losses, realized or
unrealized, charged against the Subaccount during
the current valuation period; minus
4. any amount charged for taxes or any amount
set aside during the valuation period as a
provision for taxes attributable to the
Subaccount; minus
5. the daily amount charged for mortality and
expense risks for each day of the current
valuation period; and
(b) the number of units outstanding at the end of
the preceding valuation period.
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<PAGE>
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TRANSFER PRIVILEGE Before the retirement date, an owner may transfer all or
part of an amount in a Subaccount to another Subaccount
or the Declared Interest Option at any time, or transfer
up to 25% of an amount in the Declared Interest Option to
one or more Subaccounts. However, if a transfer request
would reduce the amount in the Declared Interest Option
below $1,000, the owner may transfer the entire amount
from the Declared Interest Option. The minimum transfer
amount must be the lesser of $100 or the entire amount in
that Subaccount or the Declared Interest Option.
The transfer will be made as of the business day on or
next following the day written notice requesting such
transfer is received at the Home Office. There is no
limit on the number of transfers that can be made among
or between Subaccounts or the Declared Interest Option.
(See "Transfers from Declared Interest Option.")
There is no charge for the first twelve transfers during
a Contract Year. The Company may charge $25 for each
subsequent transfer during a Contract Year. Unless paid
in cash, the transfer processing fee will be deducted on
a pro-rata basis from the Subaccounts or Declared
Interest Option to which the transfer is made.
Transfers may be made based upon instructions given by
telephone, provided the appropriate election has been
made at the time of application or proper authorization
is provided to the Company. The Company reserves the
right to suspend telephone transfer privileges at any
time, for any class of Contracts, for any reason.
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PARTIAL WITHDRAWALS AND SURRENDERS
PARTIAL WITHDRAWALS. At any time before the retirement
date, an owner may make a partial withdrawal of the
accumulated value. The minimum amount which may be
withdrawn is $500; the maximum amount is that which would
leave the remaining accumulated value equal to or less
than $2,000. A partial withdrawal request that would
reduce the accumulated value to $2,000 or less will be
treated as a full surrender of the Contract. The Company
will withdraw the amount requested from the accumulated
value as of the Business Day on or next following the day
written notice requesting the partial withdrawal is
received at the Home Office. Any applicable surrender
charge will, at the election of the owner, be deducted
from the remaining accumulated value or be deducted from
the amount withdrawn. (See "Surrender Charge.")
The owner may specify the amount of the partial
withdrawal to be made from certain Subaccounts or the
Declared Interest Option. If the owner does not so
specify, or if the amount in the designated Subaccount(s)
or Declared Interest Option is inadequate to comply with
the request, the partial withdrawal will be made from
each Subaccount and the Declared Interest Option based on
the proportion that the value in such Subaccount bears to
the total accumulated value on the date the request is
received at the Home Office.
A partial withdrawal may have adverse federal income tax
consequences, including a penalty tax. (See "Taxation of
Annuities.")
SURRENDER. At any time before the retirement date, the
owner may request a surrender of the contract for its net
accumulated value. The net accumulated value will be
determined as of the Business Day on or next following
the date written notice requesting surrender and the
Contract are received at the Home Office. The net
accumulated value will be paid in a lump sum unless the
owner requests payment under a payment option. A
surrender may have adverse federal income tax
consequences. (See "Taxation of Annuities.")
SURRENDER AND PARTIAL WITHDRAWAL RESTRICTIONS. The
owner's right to make surrenders and partial withdrawals
is subject to any restrictions imposed by applicable law
or employee benefit plan.
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF
CONTRACTS. There are certain restrictions on surrenders
and partial withdrawals of Contracts used as funding
vehicles for Code Section 403(b) retirement plans.
Section 403(b)(11) of the Code restricts the distribution
under Section 403(b) annuity contracts of: (i) elective
14
<PAGE>
contributions made in years beginning after December 31,
1988; (ii) earnings on those contributions; and (iii)
earnings in such years on amounts held as of the last
year beginning before January 1, 1989. Distributions of
those amounts may only occur upon the death of the
employee, attainment of age 59 1/2, separation from
service, disability or financial hardship. In addition,
income attributable to elective contributions may not be
distributed in the case of hardship.
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SPECIAL TRANSFER AND WITHDRAWAL OPTIONS
DOLLAR COST AVERAGING. Dollar Cost Averaging is a special
type of automatic transfer. Under this option, an owner
may periodically transfer a specified amount in a
Subaccount or the Declared Interest Option into up to ten
Subaccounts or the Declared Interest Option. The use of
Dollar Cost Averaging is subject to all the same
provisions and limitations as regular transfers described
above and are considered in the twelve free transfers
during a Contract Year.
SYSTEMATIC WITHDRAWALS. The Systematic Withdrawal option
allows for automatic partial withdrawals. Under this
option, specified amounts may be periodically withdrawn
from the Contract's accumulated value. The owner may
specify the allocation of the withdrawals among the
Subaccounts and Declared Interest Option. The use of the
Systematic Withdrawal Option is subject to all the same
provisions and limitations as regular partial withdrawals
described above.
The Company prohibits the use of these two options at the
same time.
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DEATH BENEFIT BEFORE THE RETIREMENT DATE
DEATH OF OWNER. If an owner dies prior to the retirement
date, any surviving owner becomes the sole owner. If
there is no surviving owner, the annuitant becomes the
new owner unless the deceased owner was also the
annuitant. If the sole deceased owner was also the
annuitant, then the provisions relating to the death of
an annuitant (described below) will govern unless the
deceased owner was one of two joint annuitants. (In the
latter event, the surviving annuitant becomes the owner.)
The following options are available to the sole surviving
owners or new owners:
1. If the owner is the spouse of the deceased
owner, he or she may continue the Contract as the new
owner.
2. If the owner is not the spouse of the
deceased owner:
(a) he or she may elect to receive the net
accumulated value in a single sum within 5 years
of the deceased owner's death; or
(b) he or she may elect to receive the net
accumulated value paid out under one of the
annuity payment options, with payments beginning
within one year after the date of the owner's
death and with payments being made over the
lifetime of the owner, or over a period that does
not exceed the life expectancy of the owner.
Under either of these options, sole surviving owners or
new owners may exercise all ownership rights and
privileges from the date of the deceased owner's death
until the date that the net accumulated value is paid.
DEATH OF AN ANNUITANT. If the annuitant dies before the
retirement date, the Company will pay the death benefit
under the Contract to the beneficiary. If there is no
surviving beneficiary, the Company will pay the death
benefit to the owner or the owner's estate. If the
annuitant's age on the Contract Date was less than 76,
the death benefit is equal to the greater of the sum of
the premiums paid less the sum of all partial withdrawal
reductions (including applicable surrender charges), the
accumulated value on the date the Company receives due
proof of the annuitant's death, or the accumulated value
on the most recent Contract Anniversary (plus subsequent
premiums paid and less subsequent partial withdrawals).
If the annuitant's age on the Contract Date was 76 or
older, the death benefit is equal to the greater of the
sum of the premiums paid less the sum of all partial
withdrawal reductions (including applicable surrender
charges), as of the date the Company receives due proof
of death, or the accumulated value as of the date the
Company receives due proof of death.
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<PAGE>
A partial withdrawal reduction is defined as (a) the
death benefit immediately prior to withdrawal times (b)
the amount of the partial withdrawal (including
applicable surrender charges) divided by (c) the
accumulated value immediately prior to withdrawal.
There is no death benefit payable if the annuitant dies
after the retirement date. The death benefit will be paid
to the beneficiary in a lump sum unless the owner or
beneficiary elects a payment option.
If the annuitant who is also the the owner dies, the
provisions described immediately above apply except that
the beneficiary may only apply the death benefit payment
to an annuity payment option if:
1. payments under the option begin within 1 year
of the annuitant's death; and
2. payments under the option are payable over
the beneficiary's life or over a period not greater
than the beneficiary's life expectancy.
If the owner's spouse is the designated beneficiary, the
Contract may be continued with such surviving spouse as
the new owner.
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DEATH BENEFIT AFTER THE RETIREMENT DATE
If an owner dies on or after the retirement date, any
surviving owner becomes the sole owner. If there is no
surviving owner, the payee receiving annuity payments
becomes the new owner. Such owners will have the rights
of owners during the annuity period, including the right
to name successor payees if the deceased owner had not
previously done so.
If the annuitant dies before 120 payments have been
received, any remaining payments will be paid to the
beneficiary. There is no death benefit payable if the
annuitant dies after the retirement date.
Other rules may apply to a Qualified Contract.
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PROCEEDS ON THE RETIREMENT DATE
The retirement date is selected by the owner. For
Non-Qualified Contracts, the retirement date may not be
after the later of the annuitant's age 70 or 10 years
after the Contract date. For Qualified Contracts, the
retirement date must be no later than the annuitant's age
70 1/2 or such other date as meets the requirements of
the Code.
On the retirement date, the proceeds will be applied
under the life income annuity payment option with ten
years guaranteed, unless the owner chooses to have the
proceeds paid under another payment option or in a lump
sum. (See "Payment Options.") If a payment option is
elected, the amount that will be applied is the
accumulated value less any applicable surrender charge.
If a lump sum payment is chosen, the amount paid will be
the net accumulated value on the retirement date.
The retirement date may be changed subject to these
limitations: the owner's written notice must be received
at the Home Office at least 30 days before the current
retirement date; the requested retirement date must be a
date that is at least 30 days after receipt of the
written notice; and the requested retirement date must be
no later than the annuitant's 70th birthday or any
earlier date required by law.
- --------------------------------------------------------------------------------
PAYMENTS Any surrender, partial withdrawal or death benefit will
usually be paid within seven days of receipt of a written
request, any information or documentation reasonably
necessary to process the request and, in the case of a
death benefit, receipt and filing of due proof of death.
However, payments may be postponed if:
1. the New York Stock Exchange is closed, other
than customary weekend and holiday closings, or
trading on the exchange is restricted as determined
by the SEC; or
2. the SEC permits by an order the postponement
for the protection of owners; or
16
<PAGE>
3. the SEC determines that an emergency exists
that would make the disposal of securities held in
the Account or the determination of the value of the
Account's net assets not reasonably practicable.
If a recent check or draft has been submitted, the
Company has the right to delay payment until it has
assured itself that the check or draft has been honored.
The Company has the right to defer payment of any
surrender, partial withdrawal or transfer from the
Declared Interest Option for up to six months from the
date of receipt of written notice for such a surrender,
withdrawal or transfer. If payment is not made within 30
days after receipt of documentation necessary to complete
the transaction, or such shorter period as required by a
particular jurisdiction, interest will be added to the
amount paid from the date of receipt of documentation at
3% or such higher rate required for a particular state.
- --------------------------------------------------------------------------------
MODIFICATION Upon notice to the owner, the Company may modify the
Contract if:
1. necessary to make the Contract or the Account
comply with any law or regulation issued by a
governmental agency to which the Company is subject;
or
2. necessary to assure continued qualification
of the Contract under the Code or other federal or
state laws relating to retirement annuities or
variable annuity contracts; or
3. necessary to reflect a change in the
operation of the Account; or
4. the modification provides additional Account
and/or fixed accumulation options.
In the event of most such modifications, the Company will
make appropriate endorsement to the Contract.
- --------------------------------------------------------------------------------
REPORTS TO OWNERS At least annually, the Company will mail to each owner,
at such owner's last known address of record, a report
containing the accumulated value (including the
accumulated value in each Subaccount and the Declared
Interest Option) of the Contract, premiums paid and
charges deducted since the last report, partial
withdrawals made since the last report and any further
information required by any applicable law or regulation.
- --------------------------------------------------------------------------------
INQUIRIES Inquiries regarding a Contract may be made by writing to
the Company at its Home Office.
- --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
An owner may allocate some or all of the premiums and
transfer some or all of the accumulated value to the
Declared Interest Option, which is part of the General
Account and pays interest at declared rates guaranteed
for each Contract year (subject to a minimum guaranteed
interest rate of 3%). The principal, after deductions, is
also guaranteed. The Company's General Account supports
its insurance and annuity obligations.
The Declared Interest Option has not been, and is not
required to be, registered with the SEC under the
Securities Act of 1933 ("the 1933 Act"), and neither the
Declared Interest Option nor the Company's General
Account has been registered as an investment company
under the 1940 Act. Therefore, neither the Company's
General Account, the Declared Interest Option, nor any
interests therein are generally subject to regulation
under the 1933 Act or the 1940 Act. The disclosures
relating to these accounts which are included in this
Prospectus are for the owner's information and have not
been reviewed by the SEC. However, such disclosures may
be subject to certain generally applicable provisions of
Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
17
<PAGE>
The portion of the accumulated value allocated to the
Declared Interest Option (the "Declared Interest Option
accumulated value") will be credited with rates of
interest, as described below. Since the Declared Interest
Option is part of the General Account, the Company
assumes the risk of investment gain or loss on this
amount. All assets in the General Account are subject to
the Company's general liabilities from business
operations.
- --------------------------------------------------------------------------------
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Declared Interest Option cash value is guaranteed to
accumulate at a minimum effective annual interest rate of
3%. The Company intends to credit the Declared Interest
Option accumulated value with current rates in excess of
the minimum guarantee but is not obligated to do so.
These current interest rates are influenced by, but do
not necessarily correspond to, prevailing general market
interest rates. Any interest credited on the amounts in
the Declared Interest Option in excess of the minimum
guaranteed rate of 3% per year will be determined in the
sole discretion of the Company. The owner, therefore,
assumes the risk that interest credited may not exceed
the guaranteed rate.
From time to time, the Company establishes new current
interest rates for the Declared Interest Option under the
Contracts. The rate applicable for a particular Contract
is the rate in effect on the most recent Contract
anniversary. This rate remains unchanged for that
Contract until the next Contract anniversary (i.e., for
the entire Contract year). During each Contract year, the
entire Declared Interest Option accumulated value
(including amounts allocated or transferred to the
Declared Interest Option during that year) is credited
with the interest rate in effect for that Contract year.
Once credited, interest becomes part of the Declared
Interest Option accumulated value.
The Company reserves the right to change the method of
crediting interest from time to time, provided that such
changes do not have the effect of reducing the guaranteed
rate of interest below 3% per annum or shorten the period
for which the current interest rate applies to less than
a Contract year (except for the year in which such amount
is received or transferred).
CALCULATION OF DECLARED INTEREST OPTION ACCUMULATED
VALUE. The Declared Interest Option accumulated value at
any time is equal to amounts allocated and transferred to
it, plus interest credited less amounts deducted,
transferred or withdrawn.
- --------------------------------------------------------------------------------
TRANSFERS FROM DECLARED INTEREST OPTION
An unlimited number of transfers are allowed from the
Declared Interest Option to any or all of the Subaccounts
in each Contract year. The amount transferred from the
Declared Interest Option may not exceed 25% of the
Declared Interest Option accumulated value on the date of
transfer, unless the balance after the transfer would be
less than $1,000, in which case the entire amount may be
transferred.
- --------------------------------------------------------------------------------
PAYMENT DEFERRAL The Company has the right to defer payment of any
surrender, partial withdrawal or transfer from the
Declared Interest Option up to six months from the date
of receipt of the written notice for surrender or
transfer.
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
GENERAL. No charge for sales expenses is deducted from
premiums at the time premiums are paid. However, within
certain time limits described below, a surrender charge
(contingent deferred sales charge) is deducted from the
accumulated value if a partial withdrawal or surrender is
made before the retirement date. Also, as described
below, a surrender charge may be deducted from amounts
applied to certain payment options.
In the event surrender charges are not sufficient to
cover sales expenses, the loss will be borne by the
Company; conversely, if the amount of such charges proves
more than enough, the excess will be retained by the
Company.
18
<PAGE>
CHARGE FOR PARTIAL WITHDRAWAL OR SURRENDER. During the
first nine Contract years, if a partial withdrawal or
surrender is made, the applicable surrender charge will
be as follows:
<TABLE>
<CAPTION>
CONTRACT YEAR IN CHARGE AS PERCENTAGE
WHICH SURRENDER OCCURS OF AMOUNT SURRENDERED
------------------------- ---------------------
<S> <C>
1........................ 8.5%
2........................ 8
3........................ 7.5
4........................ 7
5........................ 6.5
6........................ 6
7........................ 5
8........................ 3
9........................ 1
10 and after............. 0
</TABLE>
No surrender charge is deducted if the partial withdrawal
or surrender occurs after nine full Contract years.
In no event will the total surrender charges assessed
under a Contract exceed 8.5% of the total premiums paid
under that Contract.
If the Contract is being surrendered, the surrender
charge is deducted from the accumulated value in
determining the net accumulated value. For a partial
withdrawal, the surrender charge may, at the election of
the owner, be deducted from the accumulated value
remaining after the amount requested is withdrawn or be
deducted from the amount of the withdrawal requested.
AMOUNTS NOT SUBJECT TO SURRENDER CHARGE. For partial
withdrawals in each Contract year after the first
Contract year, up to 10% of the accumulated value on the
most recent Contract Anniversary may be withdrawn without
a current surrender charge. If the Contract is
subsequently surrendered during the Contract Year, a
surrender charge will be applied to partial withdrawals
taken during that Contract Year, as well as to the amount
surrendered.
Any amounts surrendered in excess of 10% of the
accumulated value will be assessed a surrender charge.
This right is not cumulative from Contract year to
Contract year.
SURRENDER CHARGE AT THE RETIREMENT DATE. If any payment
option is selected at the retirement date other than
options 2-5 described below (see "Payment Options"), the
surrender charge is assessed against the accumulated
value applied to that option. If payment options 3 or 5
are selected, no surrender charge is assessed and if
payment options 2 or 4 are selected, the surrender charge
is applied by adding the fixed number of years for which
payments will be made under the option to the number of
Contract years since the Contract date and using this sum
in the surrender charge table.
WAIVER OF SURRENDER CHARGE. Upon written notice from the
owner before the retirement date, the surrender charge
may be waived on any partial withdrawal or surrender if
the annuitant is terminally ill, as defined in the
Contract, stays in a qualified nursing center for 90
days, or is required to satisfy Internal Revenue Code
minimum distribution requirements.
- --------------------------------------------------------------------------------
ANNUAL ADMINISTRATIVE CHARGE
On the Contract date and on each Contract anniversary
prior to the retirement date, the Company deducts from
the accumulated value an annual administrative charge of
$45 to reimburse it for administrative expenses relating
to the Contract. (If the Contract date falls on
Thanksgiving, the Friday following Thanksgiving or the
weekend following Thanksgiving; or on the 27th or 28th
day of February, 1999, the annual administrative charge
will be deducted on the preceding Business Day.) The
charge will be deducted from each Subaccount and the
Declared Interest Option
19
<PAGE>
based on the proportion that the value in each such
Subaccount bears to the total accumulated value. No
annual administrative charge is payable during the
annuity payment period.
- --------------------------------------------------------------------------------
TRANSFER PROCESSING FEEThere is no charge for the first twelve transfers during
a Contract Year. The Company may charge $25 for each
subsequent transfer during a Contract year. Unless paid
in cash, the transfer processing fee will be deducted on
a pro-rata basis from the Subaccounts or Declared
Interest Option to which the transfer is made.
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE
To compensate the Company for assuming mortality and
expense risks, the Company deducts a daily mortality and
expense risk charge from the assets of the Account. The
charge is at an annual rate of 1.40% (daily rate of
0.0038091%) (approximately 1.01% for mortality risk and
0.39% for expense risk).
The mortality risk the Company assumes is that annuitants
may live for a longer period of time than estimated when
the guarantees in the Contract were established. Because
of these guarantees, each payee is assured that longevity
will not have an adverse effect on the annuity payments
received. The mortality risk that the Company assumes
also includes a guarantee to pay a death benefit if the
owner/annuitant dies before the retirement date. The
expense risk that the Company assumes is the risk that
the administrative fees and transfer fees may be
insufficient to cover actual future expenses.
- --------------------------------------------------------------------------------
INVESTMENT OPTION EXPENSES
Because the Account purchases shares of the Investment
Options, the net assets of the Account will reflect the
investment advisory fees and other operating expenses
incurred by each Investment Option. (See the Expense
Tables in this prospectus and the accompanying Investment
Option prospectuses.)
- --------------------------------------------------------------------------------
PREMIUM TAXES Currently, no charge or deduction is made under the
Contracts for premium taxes. The Company reserves the
right, however, to deduct such taxes from accumulated
value. Various states and other governmental entities
levy a premium tax, currently ranging up to 3.5%, on
annuity contracts issued by insurance companies. Premium
tax rates are subject to change, from time to time, by
legislative and other governmental action.
- --------------------------------------------------------------------------------
OTHER TAXES Currently, no charge is made against the Account for any
federal, state or local taxes that the Company incurs or
that may be attributable to the Account or the Contracts.
The Company may, however, make such a charge in the
future for any such tax or economic burden on the Company
resulting from the application of the tax laws that it
determines to be properly attributable to the Account or
Contracts.
- --------------------------------------------------------------------------------
PAYMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract ends on the retirement date, at which time
the accumulated value (or, under certain options, the net
accumulated value) will be applied under a payment
option, unless the owner elects to receive the net
accumulated value in a single sum. If an election of a
payment option has not been filed at the Home Office on
the retirement date, the proceeds will be paid as a life
income annuity with payments for ten years guaranteed.
Prior to the retirement date, the owner can have the
entire net accumulated value applied under a payment
option, or a beneficiary can have the death benefit
applied under a payment option. The Contract must be
surrendered so that the applicable amount can be paid in
a lump sum or a supplemental contract for the applicable
payment option can be issued.
The payment options available are described below. The
term "payee" means a person who is entitled to receive
payment under that option. The payment options are fixed,
which means that each option has a fixed and guaranteed
amount to be paid during the annuity payment period that
is not in any way dependent upon the investment
experience of the Account.
20
<PAGE>
- --------------------------------------------------------------------------------
ELECTION OF OPTIONS An option may be elected, revoked or changed at any time
before the retirement date while the annuitant is living.
If an election is not in effect at the annuitant's death
or if payment is to be made in one sum under an existing
election, the beneficiary may elect one of the options
after the death of the owner/annuitant.
An election of payment options and any revocation or
change must be made by written notice and signed by the
owner or beneficiary, as appropriate.
The Company reserves the right to refuse the election of
a payment option other than paying the proceeds in a lump
sum if: 1) the total payments together would be less than
$2,000; 2) each payment would be less than $20; or 3) the
payee is an assignee, estate, trustee, partnership,
corporation or association.
- --------------------------------------------------------------------------------
DESCRIPTION OF OPTIONS
OPTION 1--INTEREST INCOME. To have the proceeds left with
the Company to earn interest at a rate to be determined
by the Company. Interest will be paid every month or
every 3, 6 or 12 months as the payee selects. Under this
option, the payee may withdraw part or all of the
proceeds at any time.
OPTION 2--INCOME FOR A FIXED TERM. To have the proceeds
paid out in equal installments for a fixed number of
years.
OPTION 3--LIFE INCOME OPTION WITH TERM CERTAIN. To have
the proceeds paid in equal amounts (at intervals elected
by the payee) during the payee's lifetime with the
guarantee that payments will be made for a period of not
less than the specified number of years. Under this
option, at the death of a payee having no beneficiary (or
where the beneficiary died prior to the payee), the
present value of the current dollar amount on the date of
death of any remaining guaranteed payments will be paid
in one sum to the executors or administrators of the
payee's estate. Also under this option, if any
beneficiary dies while receiving payment, the present
value of the current dollar amount on the date of death
of any remaining guaranteed payments will be paid in one
sum to the executors or administrators of the
beneficiary's estate. Calculation of such present value
shall be no less than 3%.
OPTION 4--INCOME FOR FIXED AMOUNT. To have the proceeds
paid out in equal installments (at intervals elected by
the payee) of a specific amount. The payments will
continue until all the proceeds plus interest have been
paid out.
OPTION 5--JOINT AND TWO-THIRDS TO SURVIVOR MONTHLY LIFE
INCOME. To have proceeds paid out in equal 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 until he or she dies.
The amount of each payment will be determined from the
tables in the Contract which apply to the particular
option using the payee's age and sex. Age will be
determined from the last birthday at the due date of the
first payment.
ALTERNATE PAYMENT OPTION. In lieu of one of the above
options, the cash value, cash 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.
- --------------------------------------------------------------------------------
YIELDS AND TOTAL RETURNS
- --------------------------------------------------------------------------------
From time to time, the Company may advertise or include in
sales literature yields, effective yields and total
returns for the Subaccounts. THESE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND DO NOT INDICATE OR PROJECT FUTURE
PERFORMANCE. Each Subaccount may, from time to time,
advertise or include in sales literature performance
relative to certain performance rankings and indices
compiled by independent organizations. More detailed
information as to the calculation of performance, as well
as comparisons with unmanaged market indices, appears in
the Statement of Additional Information.
21
<PAGE>
Effective yields and total returns for the Subaccounts
are based on the investment performance of the
corresponding Investment Option. Each Investment Option's
performance in part reflects the Investment Option's
expenses. (See the accompanying Investment Option
Prospectuses.)
The yield of the Money Market Subaccount refers to the
annualized income generated by an investment in the
Subaccount over a specified seven-day period. The yield
is calculated by assuming that the income generated for
that seven-day period is generated each seven-day period
over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly
but, when annualized, the income earned by an investment
in the Subaccount is assumed to be reinvested. The
effective yield will be slightly higher than the yield
because of the compounding effect of this assumed
reinvestment.
The yield of a Subaccount (except the Money Market
Subaccount) refers to the annualized income generated by
an investment in the Subaccount over a specified 30-day
or one-month period. The yield is calculated by assuming
that the income generated by the investment during that
30-day or one-month period is generated each period over
a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount refers to return
quotations assuming an investment under a Contract has
been held in the Subaccount for various periods of time.
When a Subaccount has been in operation for one, five and
ten years, respectively, the total return for these
periods will be provided. For periods prior to the date
the Account commenced operations, performance information
will be calculated based on the performance of the
Investment Options and the assumption that the
Subaccounts were in existence for the same periods as
those indicated for the Investment Options, with the
level of Contract charges that were in effect at the
inception of the Subaccounts for the Contracts.
The average annual total return quotations represent the
average annual compounded rates of return that would
equate an initial investment of $1,000 under a Contract
to the redemption value of that investment as of the last
day of each of the periods for which total return
quotations are provided. Average annual total return
information shows the average percentage change in the
value of an investment in the Subaccount from the
beginning date of the measuring period to the end of that
period. This standardized version of average annual total
return reflects all historical investment results less
all charges and deductions applied against the Subaccount
(including any surrender charge that would apply if an
owner terminated the Contract at the end of each period
indicated, but excluding any deductions for premium
taxes).
In addition to the standard version described above,
total return performance information computed on two
different non-standard bases may be used in
advertisements or sales literature. Average annual total
return information may be presented, computed on the same
basis as described above, except deductions will not
include the surrender charge. In addition, the Company
may, from time to time, disclose cumulative total return
for Contracts funded by Subaccounts.
From time to time, yields, standard average annual total
returns and non-standard total returns for the Fund's
Investment Options may be disclosed, including such
disclosures for periods prior to the date the Account
commenced operations.
Non-standard performance data will only be disclosed if
the standard performance data for the required periods is
also disclosed. For additional information regarding the
calculation of other performance data, please refer to
the Statement of Additional Information.
In advertising and sales literature, the performance of
each Subaccount may be compared to the performance of
other variable annuity issuers in general, or to the
performance of particular types of variable annuities
investing in mutual funds or investment portfolios of
mutual funds with investment objectives similar to each
of
22
<PAGE>
the Subaccounts. Lipper Analytical Services, Inc.
("Lipper") and the Variable Annuity Research Data Service
("VARDS") are independent services which monitor and rank
the performance of variable annuity issuers in each of
the major categories of investment objectives on an
industry-wide basis.
Lipper's rankings include variable life insurance issuers
as well as variable annuity issuers. VARDS rankings
compare only variable annuity issuers. The performance
analyses prepared by Lipper and VARDS each rank such
issuers on the basis of total return, assuming
reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at
the separate account level into consideration. In
addition, VARDS prepares risk rankings, which consider
the effects of market risk on total return performance.
This type of ranking provides data as to which funds
provide the highest total return within various
categories of funds defined by the degree of risk
inherent in their investment objectives.
Advertising and sales literature may also compare the
performance of each Subaccount to the Standard & Poor's
Index of 500 Common Stocks, a widely used measure of
stock performance. This unmanaged index assumes the
reinvestment of dividends but does not reflect any
"deduction" for the expense of operating or managing an
investment portfolio. Other independent ranking services
and indices may also be used as a source of performance
comparison.
The Company may also report other information including
the effect of tax-deferred compounding on a Subaccount's
investment returns, or returns in general, which may be
illustrated by tables, graphs or charts. All income and
capital gains derived from Subaccount investments are
reinvested and can lead to substantial long-term
accumulation of assets, provided that the underlying
Portfolio's investment experience is positive.
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS
TAX ADVICE
- --------------------------------------------------------------------------------
INTRODUCTION This discussion is not intended to address the tax
consequences resulting from all of the situations in
which a person may be entitled to or may receive a
distribution under the annuity contract issued by the
Company. Any person concerned about these tax
implications should consult a competent tax adviser
before initiating any transaction. This discussion is
based upon the Company's understanding of the present
Federal income tax laws, as they are currently
interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of the
continuation of the present federal income tax laws or of
the current interpretation by the Internal Revenue
Service. Moreover, no attempt has been made to consider
any applicable state or other tax laws.
The Contract may be purchased on a non-qualified basis
("Non-Qualified Contract") or purchased and used in
connection with plans qualifying for favorable tax
treatment ("Qualified Contract"). The Qualified Contract
is designed for use by individuals whose premium payments
are comprised solely of proceeds from and/or
contributions under retirement plans which are intended
to qualify as plans entitled to special income tax
treatment under Sections 401(a), 403(b), or 408 of the
Internal Revenue Code of 1986, as amended (the "Code").
The ultimate effect of federal income taxes on the
amounts held under a Contract, or annuity payments, and
on the economic benefit to the owner, the annuitant or
the beneficiary depends on the type of retirement plan,
on the tax and employment status of the individual
concerned, and on the Company's tax status. In addition,
certain requirements must be satisfied in purchasing a
Qualified Contract with proceeds from a tax-qualified
plan and receiving distributions from a Qualified
Contract in order to continue receiving favorable tax
treatment. Therefore, purchasers of Qualified Contracts
should seek competent legal and tax advice regarding the
suitability of a Contract for their situation, the
applicable requirements and the tax treatment of the
rights and benefits
23
<PAGE>
of a Contract. The following discussion assumes that
Qualified Contracts are purchased with proceeds from
and/or contributions under retirement plans that qualify
for the intended special federal income tax treatment.
- --------------------------------------------------------------------------------
TAX STATUS OF THE CONTRACT
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code
provides that separate account investments underlying a
contract must be "adequately diversified" in accordance
with Treasury regulations in order for the contract to
qualify as an annuity contract under Section 72 of the
Code. The Account, through each Portfolio of the Fund,
intends to comply with the diversification requirements
prescribed in regulations under Section 817(h) of the
Code, which affect how the assets in the various
Subaccounts may be invested. Although the Company does
not have control over the Fund in which the Account
invests, we believe that each Portfolio in which the
Account owns shares will meet the diversification
requirements, and therefore, the Contract will be treated
as an annuity contract under the Code.
In certain circumstances, owners of variable annuity
contracts may be considered the owners, for federal
income tax purposes, of the assets of the separate
account used to support their contracts. In those
circumstances, income and gains from the separate account
assets would be includible in the variable annuity
contract owner's gross income. Several years ago, the IRS
stated in published rulings that a variable contract
owner will be considered the owner of separate account
assets if the contract owner possesses incident of
ownership in those assets, such as the ability to
exercise investment control over the assets. More
recently, the Treasury Department announced, in
connection with the issuance of regulations concerning
investment diversification, that those regulations "do
not provide guidance concerning the circumstances in
which investor control of the investments of a segregated
asset account may cause the investor (I.E., the contract
owner), rather than the insurance company, to be treated
as the owner of the assets in the account." This
announcement also states that guidance would be issued by
way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular
subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Contracts are similar to,
but different in certain respects from, those described
by the Service in rulings in which it was determined that
contract owners were not owners of separate account
assets. For example, the owner of a Contract has the
choice of one or more Subaccounts in which to allocate
premiums and Contract values, and may be able to transfer
among Subaccounts more frequently than in such rulings.
These differences could result in the contract owner
being treated as the owner of the assets of the Account.
In addition, the Company does not know what standards
will be set forth, if any, in the regulations or rulings
which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify
the Contract as necessary to attempt to prevent the
contract owner from being considered the owner of the
assets of the Account.
REQUIRED DISTRIBUTIONS. In order to be treated as an
annuity contract for federal income tax purposes, Section
72(s) of the Code requires any Non-Qualified Contract to
provide that: (a) if any owner dies on or after the
retirement date but prior to the time the entire interest
in the contract has been distributed, the remaining
portion of such interest will be distributed at least as
rapidly as under the method of distribution being used as
of the date of that owner's death; and (b) if any owner
dies prior to the annuity commencement date, the entire
interest in the Contract will be distributed within five
years after the date of the owner's death. These
requirements will be considered satisfied as to any
portion of the owner's interest which is payable to or
for the benefit of a "designated beneficiary" and which
is distributed over the life of such beneficiary or over
a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin
within one year of that owner's death. The owner's
"designated beneficiary" is the person designated by such
owner as a beneficiary and to whom ownership of the
contract passes by reason of death and
24
<PAGE>
must be a natural person. However, if the owner's
"designated beneficiary" is the surviving spouse of the
owner, the Contract may be continued with the surviving
spouse as the new owner.
The Non-Qualified Contracts contain provisions which are
intended to comply with the requirements of Section 72(s)
of the Code, although no regulations interpreting these
requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to
assure that they comply with the requirements of Code
Section 72(s) when clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will
qualify as annuity contracts for federal income tax
purposes.
- --------------------------------------------------------------------------------
TAXATION OF ANNUITIES IN GENERAL. Section 72 of the Code governs taxation of
annuities in general. The Company believes that an owner
who is a natural person is not taxed on increases in the
value of a Contract until distribution occurs by
withdrawing all or part of the cash value (e.g., partial
surrenders and surrenders) or as annuity payments under
the payment option elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any
portion of the cash value (and in the case of a Qualified
Contract, any portion of an interest in the qualified
plan) generally will be treated as a distribution. The
taxable portion of a distribution (in the form of a
single sum payment or payment option) is taxable as
ordinary income.
The owner of any annuity contract who is not a natural
person generally must include in income any increase in
the excess of the cash value over the "investment in the
contract" during the taxable year. There are some
exceptions to this rule, and a prospective owner that is
not a natural person may wish to discuss these with a
competent tax adviser.
The following discussion generally applies to Contracts
owned by natural persons.
PARTIAL WITHDRAWALS. In the case of a partial withdrawal
from a Qualified Contract, under Section 72(e) of the
Code, a ratable portion of the amount received is
taxable, generally based on the ratio of the "investment
in the contract" to the participant's total accrued
benefit or balance under the retirement plan. The
"investment in the contract" generally equals the
portion, if any, of any premium payments paid by or on
behalf of the individual under a Contract which was not
excluded from the individual's gross income. For
Contracts issued in connection with qualified plans, the
"investment in the contract" can be zero. Special tax
rules may be available for certain distributions from
Qualified Contracts.
In the case of a partial withdrawal from a Non-Qualified
Contract, under Section 72(e) amounts received are
generally first treated as taxable income to the extent
that the cash value immediately before the partial
withdrawal exceeds the "investment in the contract" at
that time. Any additional amount withdrawn is not
taxable.
In the case of a surrender under a Qualified or
Non-Qualified Contract, the amount received generally
will be taxable only to the extent it exceeds the
"investment in the contract."
Section 1035 of the Code provides that no gain or loss
shall be recognized on the exchange of one annuity
contract for another. If the surrendered contract was
issued prior to August 14, 1982, the tax rules formerly
provided that the surrender was taxable only to the
extent the amount received exceeds the owner's investment
in the contract will continue to apply to amounts
allocable to investments in that contract prior to August
14, 1982. In contrast, contracts issued after January 19,
1985 in a Code Section 1035 exchange are treated as new
contracts for purposes of the penalty and
distribution-at-death rules. Special rules and procedures
apply to Section 1035 transactions. Prospective owners
wishing to take advantage of Section 1035 should consult
their tax adviser.
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<PAGE>
ANNUITY PAYMENTS. Although tax consequences may vary
depending on the payment option elected under an annuity
contract, under Code Section 72(b), generally (prior to
recovery of the investment in the contract) gross income
does not include that part of any amount received as an
annuity under an annuity contract that bears the same
ratio to such amount as the investment in the contract
bears to the expected return at the annuity starting
date. Stated differently, prior to recovery of the
investment in the contract, generally, there is no tax on
the amount of each payment which represents the same
ratio that the "investment in the contract" bears to the
total expected value of the annuity payments for the term
of the payment; however, the remainder of each income
payment is taxable. After the "investment in the
contract" is recovered, the full amount of any additional
annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be
distributed from a Contract because of the death of the
owner. Generally, such amounts are includible in the
income of the recipient as follows: (i) if distributed in
a lump sum, they are taxed in the same manner as a
surrender of the contract or (ii) if distributed under a
payment option, they are taxed in the same way as annuity
payments. For these purposes, the investment in the
Contract is not affected by the owner's death. That is,
the investment in the Contract remains the amount of any
purchase payments which were not excluded from gross
income.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a
distribution pursuant to a Non-Qualified Contract, there
may be imposed a federal penalty tax equal to 10% of the
amount treated as taxable income. In general, however,
there is no penalty on distributions:
1. made on or after the taxpayer reaches age
59 1/2;
2. made on or after the death of the holder (or
if the holder is not an individual, the death of the
primary annuitant);
3. attributable to the taxpayer becoming
disabled;
4. as part of a series of substantially equal
periodic payments (not less frequently than annually)
for the life (or life expectancy) of the taxpayer or
the joint lives (or joint life expectancies) of the
taxpayer and his or her designated beneficiary;
5. made under certain annuities issued in
connection with structured settlement agreements;
6. made under an annuity contract that is
purchased with a single premium when the retirement
date is no later than a year from purchase of the
annuity and substantially equal periodic payments are
made, not less frequently than annually, during the
annuity payment period; and
7. any payment allocable to an investment
(including earnings thereon) made before August 14,
1982 in a contract issued before that date.
Other tax penalties may apply to certain distributions
under a Qualified Contract.
POSSIBLE CHANGES IN TAXATION. In past years, legislation
has been proposed that would have adversely modified the
federal taxation of certain annuities. For example, one
such proposal would have changed the tax treatment of
non-qualified annuities that did not have "substantial
life contingencies" by taxing income as it is credited to
the annuity. Although as of the date of this prospectus
Congress is not considering any legislation regarding
taxation of annuities, there is always the possibility
that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations,
revenue rulings, judicial decisions, etc.). Moreover, it
is also possible that any change could be retroactive
(that is, effective prior to the date of the change).
- --------------------------------------------------------------------------------
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer of ownership of a Contract, the designation of
an annuitant, payee or other beneficiary who is not also
the owner, the selection of certain retirement dates or
the exchange of a Contract may result in certain tax
consequences to the owner that are
26
<PAGE>
not discussed herein. An owner contemplating any such
transfer, assignment, selection or exchange of a Contract
should contact a competent tax adviser with respect to
the potential tax effects of such a transaction.
- --------------------------------------------------------------------------------
WITHHOLDING Pension and annuity distributions generally are subject
to withholding for the recipient's federal income tax
liability at rates that vary according to the type of
distribution and the recipient's tax status. Recipients,
however, generally are provided the opportunity to elect
not to have tax withheld from distributions. Effective
January 1, 1993, distributions from certain qualified
plans are generally subject to mandatory withholding.
Certain states also require withholding of state income
tax whenever federal income tax is withheld.
- --------------------------------------------------------------------------------
MULTIPLE CONTRACTS All non-qualified deferred annuity contracts entered into
after October 21, 1988 that are issued by the Company (or
its affiliates) to the same owner during any calendar
year are treated as one annuity Contract for purposes of
determining the amount includible in gross income under
Section 72(e). This rule could affect the time when
income is taxable and the amount that might be subject to
the 10% penalty tax described above. In addition, the
Treasury Department has specific authority to issue
regulations that prevent the avoidance of Section 72(e)
through the serial purchase of annuity contracts or
otherwise. There may also be other situations in which
the Treasury may conclude that it would be appropriate to
aggregate two or more annuity contracts purchased by the
same owner. Accordingly, a Contract owner should consult
a competent tax adviser before purchasing more than one
annuity contract.
- --------------------------------------------------------------------------------
TAXATION OF QUALIFIED PLANS
The Contracts are designed for use with several types of
qualified plans. The tax rules applicable to participants
in these qualified plans vary according to the type of
plan and the terms and conditions of the plan itself.
Special favorable tax treatment may be available for
certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do
not conform to specified commencement and minimum
distribution rules; aggregate distributions in excess of
a specified annual amount; and in other specified
circumstances. Therefore, no attempt is made to provide
more than general information about the use of the
Contracts with the various types of qualified retirement
plans. Contract owners, the annuitants, and beneficiaries
are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be
subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the
Contract, but the Company shall not be bound by the terms
and conditions of such plans to the extent such terms
contradict the Contract, unless the Company consents.
Some retirement plans are subject to distribution and
other requirements that are not incorporated into our
Contract administration procedures. Owners, participants
and beneficiaries are responsible for determining that
contributions, distributions and other transactions with
respect to the Contracts comply with applicable law.
Brief descriptions follow of the various types of
qualified retirement plans available in connection with a
Contract. The Company will amend the Contract as
necessary to conform it to the requirements of the Code.
CORPORATE PENSION AND PROFIT SHARING PLANS AND H.R. 10
PLANS. Section 401(a) of the Code permits corporate
employers to establish various types of retirement plans
for employees, and permits self-employed individuals to
establish these plans for themselves and their employees.
These retirement plans may permit the purchase of the
Contracts to accumulate retirement savings under the
plans. Adverse tax or other legal consequences to the
plan, to the participant or both may result if this
Contract is assigned or transferred to any individual as
a means to provide benefit payments, unless the plan
complies with all legal requirements applicable to such
benefits prior to transfer of the Contract. Employers
intending to use the Contract with such plans should seek
competent advice.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code
permits eligible individuals to contribute to an
individual retirement program known as an "Individual
Retirement Annuity" or "IRA". These IRAs are subject to
limits on the amount that
27
<PAGE>
may be contributed, the persons who may be eligible and
on the time when distributions may commence. Also,
distributions from certain other types of qualified
retirement plans may be "rolled over" on a tax-deferred
basis into an IRA. Sales of the Contract for use with
IRAs may be subject to special requirements of the
Internal Revenue Service. Employers may establish
Simplified Employee Pension (SEP) Plans to provide IRA
contributions on behalf of their employees.
SIMPLE RETIREMENT ACCOUNTS. Beginning January 1, 1997,
certain small employers may establish Simple Retirement
Accounts as provided by Section 408(p) of the Code, under
which employees may elect to defer up to $6,000 (as
increased for cost of living adjustments) as a percentage
of compensation. The sponsoring employer is required to
make a matching contribution on behalf of contributing
employees. Distributions from a Simple Retirement Account
are subject to the same restrictions that apply to IRA
distributions and are taxed as ordinary income. Subject
to certain exceptions, premature distributions prior to
age 59 1/2 are subject to a 10% penalty tax, which is
increased to 25% if the distribution occurs within the
first two years after the commencement of the employee's
participation in the plan. The failure of the Simple
Retirement Account to meet Code requirements may result
in adverse tax consequences.
ROTH IRAS. Effective January 1, 1998, section 408A of the
Code permits certain eligible individuals to contribute
to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and
must be made in cash or as a rollover or transfer from
another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax
and other special rules may apply. You should consult a
tax adviser before combining any converted amounts with
any other Roth IRA contributions, including any other
conversion amounts from other tax years. Distributions
from a Roth IRA generally are not taxed, except that,
once aggregate distributions exceed contributions to the
Roth IRA, income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to
certain exceptions) or (2) during the five taxable years
starting with the year in which the first contribution is
made to the Roth IRA.
TAX SHELTERED ANNUITIES. Section 403(b) of the Code
allows employees of certain Section 501(c)(3)
organizations and public schools to exclude from their
gross income the premiums paid, within certain limits, on
a Contract that will provide an annuity for the
employee's retirement. These premiums may be subject to
FICA (social security) tax. Code section 403(b)(11)
restricts the distribution under Code section 403(b)
annuity contracts of: (1) elective contributions made in
years beginning after December 31, 1988; (2) earnings on
those contributions; and (3) earnings in such years on
amounts held as of the last year beginning before January
1, 1989. Distribution of those amounts may only occur
upon death of the employee, attainment of age 59 1/2,
separation from service, disability, or financial
hardship. In addition, income attributable to elective
contributions may not be distributed in the case of
hardship.
RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other
restrictions with respect to the election, commencement
or distribution of benefits may apply under Qualified
Contracts or under the terms of the plans in respect of
which Qualified Contracts are issued.
- --------------------------------------------------------------------------------
POSSIBLE CHARGE FOR THE COMPANY'S TAXES
At the present time, the Company makes no charge to the
Subaccounts for any Federal, state or local taxes that
the Company incurs which may be attributable to such
Subaccounts or the Contracts. The Company, however,
reserves the right in the future to make a charge for any
such tax or other economic burden resulting from the
application of the tax laws that it determines to be
properly attributable to the Subaccounts or to the
Contracts.
- --------------------------------------------------------------------------------
OTHER TAX CONSEQUENCES As noted above, the foregoing comments about the Federal
tax consequences under these Contracts are not
exhaustive, and special rules are provided with respect
to other tax situations not discussed in the Prospectus.
Further, the Federal income tax consequences discussed
herein reflect the Company's understanding of current law
28
<PAGE>
and the law may change. Federal estate and state and
local estate, inheritance and other tax consequences of
ownership or receipt of distributions under a Contract
depend on the individual circumstances of each owner or
recipient of the distribution. A competent tax adviser
should be consulted for further information.
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DISTRIBUTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
The Contracts will be offered to the public on a
continuous basis. The Company does not anticipate
discontinuing the offering of the Contracts, but reserves
the right to discontinue the offering. Applications for
Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell the
Company's variable annuity contracts and who are also
registered representatives of EquiTrust Marketing,
broker/dealers having selling agreements with EquiTrust
Marketing or broker/dealers having selling agreements
with such broker/dealers. EquiTrust Marketing (formerly
FBL Marketing Services, Inc.) is registered with the SEC
under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association
of Securities Dealers, Inc.
EquiTrust Marketing acts as the Principal Underwriter, as
defined in the 1940 Act, of the Contracts for the Account
pursuant to an Underwriting Agreement between the Company
and EquiTrust Marketing. EquiTrust Marketing is not
obligated to sell any specific number of Contracts.
EquiTrust Marketing's principal business address is the
same as that of the Company.
The Company may pay broker/dealers with selling
agreements up to an amount equal to 8.5% of the premiums
paid under a Contract during the first Contract year, 3%
of the premiums paid in the second through ninth Contract
years and 1% of the premiums paid in the tenth and
subsequent Contract years. The Company also may pay other
distribution expenses such as production incentive
bonuses, agent's insurance and pension benefits, and
agency expense allowances. These distribution expenses do
not result in any additional charges against the
Contracts that are not described under "Charges and
Deductions."
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LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company, like other life insurance companies, is
involved in lawsuits. Currently, there are no class
action lawsuits naming the Company as a defendant or
involving the Account. In some lawsuits involving other
insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the
outcome of any litigation cannot be predicted with
certainty, the Company believes that at the present time,
there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on
the Account or the Company.
- --------------------------------------------------------------------------------
VOTING RIGHTS
- --------------------------------------------------------------------------------
In accordance with its view of current applicable law,
the Company will vote the Fund shares held in the 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 1940 Act or any regulation thereunder
should be amended, or if the present interpretation
thereof should change, or the Company otherwise
determines that it is allowed to vote the shares in its
own right, it may elect to do so.
The number of votes that an owner has the right to
instruct will be calculated separately for each
Subaccount, and may include fractional votes. An owner
holds a voting interest in each Subaccount to which the
accumulated value is allocated. The owner only has voting
interest prior to the retirement date. For each owner,
the number of votes attributable to a Subaccount will be
determined by dividing the accumulated value attributable
to that owner's Contract in that Subaccount by the net
asset value per share of the Investment Option in which
that Subaccount invests.
29
<PAGE>
The number of votes of an Investment Option which are
available to the owner will be determined as of the date
coincident with the date established by that Investment
Option for determining shareholders eligible to vote at
the relevant meeting for that Fund. Voting instructions
will be solicited by written communication prior to such
meeting in accordance with procedures established by each
Fund. Each owner having a voting interest in a Subaccount
will receive proxy materials and reports relating to any
meeting of shareholders of the Investment Option in which
that Subaccount invests.
Fund shares as to which no timely instructions are
received and shares held by the Company in a Subaccount
as to which no owner has a beneficial interest will be
voted in proportion to the voting instructions which are
received with respect to all Contracts participating in
that Subaccount. Voting instructions to abstain on any
item to be voted upon will be applied to reduce the total
number of votes eligible to be cast on a matter.
- --------------------------------------------------------------------------------
YEAR 2000
- --------------------------------------------------------------------------------
Like other investment funds, financial and business
organizations and individuals around the world, the
Account could be adversely affected if the computer
systems used by the Company and other service providers
do not properly process and calculate date-related
information and data from and after January 1, 2000. In
1997, the Company completed a comprehensive assessment of
the Year 2000 issue and developed a plan to address the
issue in a timely manner. The Company has and will
utilize both internal and external resources to
reprogram, or replace, and test the software for Year
2000 modifications. The Company anticipates completing
the Year 2000 project no later than December 31, 1998,
and prior to any anticipated impact on its operating
systems.
The date on which the Company believes it will complete
the Year 2000 modifications is based on management's best
estimates, which were derived utilizing numerous
assumptions of future events. The Company also recognizes
there are outside influences and dependencies relative to
its Year 2000 effort, over which is has little or no
control. However, the Company is putting effort into
ensuring these considerations will have minimal impact.
These would include the continued availability of certain
resources, third party modification plans and many other
factors. However, there can be no guarantee that these
estimates will be achieved and actual results could
differ from those anticipated.
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FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The statutory-basis balance sheets of the Company at
December 31, 1997 and 1996, and the related
statutory-basis statements of operations, changes in
capital and surplus and cash flows for the years then
ended, as well as the related Report of Independent
Auditors are contained in the Statement of Additional
Information. The unaudited statutory-basis balance sheet
of the Company at March 31, 1998, the related unaudited
statutory-basis statement of changes in capital and
surplus for the three months then ended, and the related
unaudited statements of operations and cash flows for the
three months ended March 31, 1998 and 1997 are also
included in the Statement of Additional Information.
It is anticipated that the Variable Account will commence
operations in 1998; accordingly, no financial statements
currently exist.
30
<PAGE>
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
GENERAL INFORMATION ABOUT THE COMPANY..................................... 1
- --------------------------------------------------------------------------------
ADDITIONAL CONTRACT PROVISIONS............................................ 1
The Contract.................................................... 1
Incontestability................................................ 1
Misstatement of Age or Sex...................................... 1
Non-Participation............................................... 1
- --------------------------------------------------------------------------------
CALCULATION OF YIELDS AND TOTAL RETURNS................................... 1
Money Market Subaccount Yields.................................. 1
Other Subaccount Yields......................................... 3
Average Annual Total Returns.................................... 4
Other Total Returns............................................. 6
Effect of the Administrative Charge on Performance Data......... 6
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LEGAL MATTERS............................................................. 6
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EXPERTS................................................................... 7
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OTHER INFORMATION......................................................... 7
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS...................................................... 7
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- -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
TEAR AT PERFORATION
If you would like a copy of the Statement of Additional Information, please
complete the information below and detach and mail this card to the Company at
the address shown on the cover of this prospectus.
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
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<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
EQUITRUST LIFE INSURANCE COMPANY
5400 University Avenue
West Des Moines, Iowa 50266
1-888-349-4656
EQUITRUST LIFE ANNUITY ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information contains information in addition to the
information described in the Prospectus for the flexible premium deferred
variable annuity contract (the "Contract") offered by EquiTrust Life Insurance
Company (the "Company"). This Statement of Additional Information is not a
Prospectus, and it should be read only in conjunction with the Prospectuses for
the Contract, and the selected Investment Options of EquiTrust Variable
Insurance Series Fund, T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc. and Dreyfus Variable Investment Fund. The Prospectus
for the Contract is dated the same as this Statement of Additional information.
You may obtain a copy of the Prospectuses by writing or calling us at our
address or phone number shown above.
July 1, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION ABOUT THE COMPANY............................................................... 1
ADDITIONAL CONTRACT PROVISIONS...................................................................... 1
The Contract...................................................................................... 1
Incontestability.................................................................................. 1
Misstatement of Age or Sex........................................................................ 1
Non-Participation................................................................................. 1
CALCULATION OF YIELDS AND TOTAL RETURNS............................................................. 1
Money Market Subaccount Yields.................................................................... 1
Other Subaccount Yields........................................................................... 3
Average Annual Total Returns...................................................................... 4
Other Total Returns............................................................................... 6
Effect of the Administrative Fee On Performance Data.............................................. 6
LEGAL MATTERS....................................................................................... 6
EXPERTS............................................................................................. 7
OTHER INFORMATION................................................................................... 7
FINANCIAL STATEMENTS................................................................................ 7
</TABLE>
<PAGE>
GENERAL INFORMATION ABOUT THE COMPANY
One hundred percent of the outstanding voting shares of the Company are owned by
Farm Bureau Life Insurance Company which is 100% owned by FBL Financial Group,
Inc. At December 31, 1997, Iowa Farm Bureau Federation owned 66.36% of the
outstanding voting stock of FBL Financial Group, Inc.
Iowa Farm Bureau Federation is an Iowa not-for-profit corporation, the members
of which are county Farm Bureau organizations and their individual members. Iowa
Farm Bureau Federation is primarily engaged, through various divisions and
subsidiaries, in the formulation, analysis and promotion of programs (at local,
state, national and international levels) that are designed to foster the
educational, social and economic advancement of its members. The principal
offices of Iowa Farm Bureau Federation are at 5400 University Avenue, West Des
Moines, Iowa 50266.
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The application and all other attached papers are part of the Contract. The
statements made in the application are deemed representations and not
warranties. The Company will not use any statement in defense of a claim or to
void the Contract unless it is contained in the application.
INCONTESTABILITY
The Company will not contest the Contract from its Contract date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the annuitant has been misstated, the amount which will be
paid is that which the proceeds would have purchased at the correct age and sex.
NON-PARTICIPATION
The Contracts are not eligible for dividends and will not participate in the
Company's divisible surplus.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, the Company may disclose yields, total returns and other
performance data pertaining to the contracts for a Subaccount. Such performance
data will be computed, or accompanied by performance data computed, in
accordance with the standards defined by the SEC.
MONEY MARKET SUBACCOUNT YIELDS
From time to time, advertisements and sales literature may quote the current
annualized yield of the Money Market Subaccount for a seven-day period in a
manner which does not take into consideration any realized or unrealized gains
or losses or income other than investment income on shares of the Money Market
Investment Option or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive or realized gains and losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment income) at the
end of the seven-day period in the value of a hypothetical account under a
Contract having a balance of 1 unit of the Money Market Subaccount at the
beginning of the period, dividing such net change in account value by the value
of the hypothetical account at the beginning of the period to determine the base
period return, and annualizing this quotient on a 365-day basis.
1
<PAGE>
The net change in account value reflects: 1) net income from the Investment
Option attributable to the hypothetical account; and 2) charges and deductions
imposed under the Contract which are attributable to the hypothetical account.
The charges and deductions include the per unit charges for the hypothetical
account for: 1) the annual administrative fee and 2) the mortality and expense
risk charge. For purposes of calculating current yields for a Contract, an
average per unit administrative fee is used based on the $45 administrative fee
deducted at the beginning of each Contract Year. Current Yield will be
calculated according to the following formula:
<TABLE>
<S> <C> <C>
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Investment Option (exclusive or realized gains
or losses on the sale of securities and unrealized appreciation and depreciation
and income other than investment income) for the seven-day period attributable to a
hypothetical account having a balance of 1 subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the seven-day
period.
UV = the unit value for the first day of the seven-day period.
Effective Yield = (1 + ((NCS-ES)/UV))365/7 - 1
Where:
NCS = the net change in the value of the Investment Option (exclusive of realized gains
or losses on the sale of securities and unrealized appreciation and depreciation
and income other than investment income) for the seven-day period attributable to a
hypothetical account having a balance of 1 subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the seven-day
period.
UV = the unit value for the first day of the seven-day period.
</TABLE>
Because of the charges and deductions imposed under the Contract, the yield for
the Money Market Subaccount will be lower than the yield for the Money Market
Investment Option.
2
<PAGE>
The current and effective yields on amounts held in the Money Market Subaccount
normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED YIELD FOR ANY
GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR
RATES OF RETURN. The Money Market Subaccount's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Money Market Investment Option, the types of quality of portfolio
securities held by the Money Market Investment Option and the Money Market
Investment Option operating expenses. Yields on amounts held in the Money Market
Subaccount may also be presented for periods other than a seven-day period.
OTHER SUBACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the subaccounts (except the Money Market
Subaccount) for a Contract for 30-day or one month periods. The annualized yield
or a subaccount refers to income generated by the subaccount during a 30-day or
one-month period is assumed to be generated each period over a 12-month period.
The yield is computed by: 1) dividing net investment income of the Investment
Option attributable to the subaccount units less subaccount expenses for the
period; by 2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period; by 3)
compounding that yield for a six-month period; and by 4) multiplying that result
by 2. Expenses attributable to the subaccount include the annual administrative
fee and the mortality and expense risk charge. The yield calculation assumes an
administrative fee of $45 per year per Contract deducted at the beginning of
each Contract year. For purposes of calculating the 30-day or one-month yield,
an average administrative fee per dollar of Contract value in the Account issued
to determine the amount of the charge attributable to the subaccount for the
30-day or one-month period. The 30-day or one-month yield is calculated
according to the following formula:
<TABLE>
<S> <C> <C>
Yield = 2 X ((NI - ES)/(U X UV)) + 1)6 - 1
Where:
NI = net income of the Investment Option for the 30-day or one-month period attributable
to the subaccount's units.
ES = expenses of the subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the 30-day one-month period.
</TABLE>
3
<PAGE>
Because of the charges and deductions imposed under the Contracts, the yield for
the subaccount will be lower that the yield for the corresponding Investment
Option.
The yield on the amounts held in the subaccounts normally will fluctuate over
time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. A subaccount's
actual yield is affected by the types and quality of Investment Option
securities held by the corresponding Investment Option and its operating
expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract equal to 1% to 8.5% of the amount withdrawn or surrendered during the
first nine Contract years. For partial withdrawals in each Contract year after
the first Contract year, up to 10% of the accumulated value on the most recent
Contract Anniversary may be withdrawn without a current surrender charge.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns for one or more of the subaccounts for various periods of
time.
When a subaccount has been in operation for 1, 5 and 10 years, respectively, the
average annual total return for these periods will be provided. Average annual
total returns for other periods of time may, from time to time, also be
disclosed.
Standard average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 under a
Contract to the redemption value of that investment as of the last day of each
of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent month-end practicable,
considering the type and media of the communication that will be stated in the
communication.
Standard average annual total returns will be calculated using subaccount unit
values which the Company calculates on each valuation day based on the
performance of the subaccount's underlying portfolio, the deductions for the
mortality and expense risk charge, and the annual administrative fee. The
calculation assumes that the administrative fee is $45 per year per Contract
deducted at the beginning of each Contract year. For purposes of calculating
average annual total return, an average per dollar administrative fee
attributable to the hypothetical account for the period is used.
4
<PAGE>
The calculation also assumes surrender of the Contract at the end of the period
for the return quotation. Total returns will therefore reflect a deduction of
the surrender charge for any period less than ten years. The total return will
then be calculated according to the following formula:
<TABLE>
<S> <C> <C>
TR = ((ERV/P)/N)-1
Where:
TR = the average annual total return net of subaccount recurring charges.
EHV = the ending redeemable value (net of any applicable surrender charge) of the
hypothetical account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
</TABLE>
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Account commenced
operations. Such performance information for the subaccounts will be calculated
based on the performance of the Investment Option and the assumption that the
subaccounts were in existence for the same periods as those indicated for the
Investment Option, with the level of Contract charges that were in effect at the
inception of the subaccounts.
Such average annual total return information for the Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE PERIOD FROM
1-YEAR PERIOD 5-YEAR PERIOD 10-YEAR PERIOD DATE OF INCEPTION OF
ENDED ENDED ENDED INVESTMENT OPTION
SUBACCOUNT 12/31/97 12/31/97 12/31/97 TO 12/31/97
- ---------------------------------------------------------- --------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth............................................ (1.25)% 11.91% 10.78% 7.66%
High Grade Bond......................................... 2.69 5.73 7.60 8.07
High Yield Bond......................................... 4.52 8.84 9.83 10.04
Money Market (1)........................................ (2.48) 2.41 -- 3.19
Blue Chip (2)........................................... 19.86 17.30 -- 18.02
T. Rowe Price Equity Series, Inc.
Equity Income (3)....................................... 28.85 -- -- 23.73
Mid-Cap Growth (4)...................................... 18.80 -- -- 18.80
New America Growth (3).................................. 21.12 -- -- 23.66
Personal Strategy Balanced (5).......................... 18.04 -- -- 20.13
T. Rowe Price International Series, Inc.
International Stock (3)................................. 3.09 -- -- 8.07
Dreyfus Variable Investment Fund
Capital Appreciation (6)................................ 28.05 -- -- 19.87
Disciplined Stock (7)................................... 31.51 -- -- 30.67
Growth and Income (8)................................... 16.21 -- -- 24.64
International Equity (8)................................ 9.61 -- -- 7.13
Small Cap (9)........................................... 16.75 26.14 -- 43.96
</TABLE>
- ------------------------
(1) The Money Market Portfolio commenced operations on February 20, 1990.
(2) The Blue Chip Portfolio commenced operations on October 15, 1990.
(3) The Equity Income, New America Growth and International Stock Portfolios
commenced operations on March 31, 1994.
(4) The Mid-Cap Growth Portfolio commenced operations on December 31, 1996.
(5) The Personal Strategy Balanced Portfolio commenced operations on December
30, 1994.
(6) The Capital Appreciation Portfolio commenced operations on April 5, 1993.
(7) The Disciplined Stock Investment Portfolio commenced operations on May 1,
1996.
(8) The Growth and Income and International Equity Portfolios commenced
operations on May 2, 1994.
(9) The Small Cap Portfolio commenced operations on August 31, 1990.
5
<PAGE>
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the surrender charge. These are
calculated in exactly the same way as average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered or withdrawn.
The Company may disclose cumulative total returns in conjunction with the
standard formats described above. The cumulative total returns will be
calculated using the following formula:
<TABLE>
<S> <C> <C>
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of subaccount recurring charges for the period.
ERV = The ending redeemable value of the hypothetical investment at the end of the
period.
P = A hypothetical single payment of $1,000.
</TABLE>
EFFECT OF THE ADMINISTRATIVE FEE ON PERFORMANCE DATA
The Contract provides for a $45 annual administrative fee to be deducted
annually at the beginning of each Contract Year, from the subaccounts and the
Declared Interest Option based, on the proportion that the value of each such
account bears to the total cash value. For purposes of reflecting the
administrative fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on the average contract value
in the Account of all Contracts on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
LEGAL MATTERS
All matters relating to Iowa law pertaining to the Contracts, including the
validity of the Contracts and the Company's authority to issue the Contracts,
have been passed upon by Stephen M. Morain, Esquire, Senior Vice President and
General Counsel of the Company. Sutherland, Asbill & Brennan LLP, Washington
D.C. has provided advice on certain matters relating to the federal securities
laws.
6
<PAGE>
EXPERTS
The statutory-basis financial statements of the Company at December 31, 1997 and
1996 and for the years then ended, appearing herein, have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933 as amended, with respect to the Contracts discussed in this Statement of
Additional Information. Not all the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the Contracts and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The Company's financial statements included in this Statement of Additional
Information should be considered only as bearing on the Company's ability to
meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Account.
7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
EquiTrust Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of EquiTrust
Life Insurance Company (the Company), formerly known as Continental Western Life
Insurance Company, as of December 31, 1997 and 1996, and the related
statutory-basis statements of operations, changes in capital and surplus, and
cash flow for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, State of Iowa,
which practices differ from generally accepted accounting principles. The
variances between such practices and generally accepted accounting principles
and the effects on the accompanying financial statements are described in Note
1.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company at December 31, 1997 or 1996, or the results of its operations or
its cash flow for the years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1997 and 1996, and the results of its operations and its cash flow
for the years then ended, in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, State of Iowa.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
January 16, 1998
2
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1998 1997 1996
------------ ------ --------
(UNAUDITED)
<S> <C> <C> <C>
ADMITTED ASSETS
United States Government and agencies
bonds $6,748 $5,515 $301,430
Common stocks -- -- 82
Mortgage loans -- -- 31,697
Policy loans -- -- 30,643
Real estate -- -- 1,730
Cash and short-term investments 1,414 2,593 17,926
------------ ------ --------
Cash and invested assets 8,162 8,108 383,508
Property and equipment -- -- 235
Investment income due and accrued 97 54 3,702
Premiums deferred and uncollected, less
loading (1996--$307,000) -- -- 3,018
Other admitted assets 1 -- 1,719
------------ ------ --------
Total admitted assets $8,260 $8,162 $392,182
------------ ------ --------
------------ ------ --------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy and contract liabilities $ -- $ -- $349,067
Accrued expenses and other liabilities 56 -- 6,078
Deferred compensation (NOTE 7) -- -- 1,464
Federal income taxes 17 1 --
Asset valuation reserve -- -- 2,216
Interest maintenance reserve 56 57 --
------------ ------ --------
Total liabilities 129 58 358,825
Capital and surplus:
Common stock, $1,500 par
value--authorized 2,500 shares;
issued and outstanding 2,000 shares 3,000 3,000 3,000
Additional paid-in capital 5,125 5,125 7,510
Unassigned surplus 6 (21) 22,847
------------ ------ --------
Total capital and surplus 8,131 8,104 33,357
------------ ------ --------
Total liabilities and capital and
surplus $8,260 $8,162 $392,182
------------ ------ --------
------------ ------ --------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31 DECEMBER 31
---------------- ----------------
1998 1997 1997 1996
------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Premiums and other revenues:
Life and annuity premiums $ -- $ -- $ -- $28,381
Accident and health premiums -- -- -- 983
Net investment income 97 129 473 26,144
Amortization of the interest
maintenance reserve 1 -- 3 (1,231)
Other revenues -- -- -- 938
------ ------ ------ -------
Total premiums and other revenues 98 129 476 55,215
Benefits paid or provided:
Death and annuity benefits -- -- -- 37,002
Accident and health benefits -- -- -- 875
------ ------ ------ -------
Total benefits paid or provided -- -- -- 37,877
Insurance expenses and other deductions:
Commissions -- -- -- 3,207
General expenses 32 -- -- 5,059
Insurance taxes, licenses and fees 23 12 -- 1,382
------ ------ ------ -------
Total insurance expenses and other
deductions 55 12 -- 9,648
------ ------ ------ -------
Gain from operations before federal
income taxes
and net realized capital gains 43 117 476 7,690
Federal income taxes 16 40 148 1,625
------ ------ ------ -------
Net gain from operations before net
realized capital gains 27 77 328 6,065
Net realized capital gains -- -- -- 591
------ ------ ------ -------
Net income $ 27 $ 77 $ 328 $ 6,656
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN UNASSIGNED TOTAL CAPITAL
STOCK CAPITAL SURPLUS AND SURPLUS
------ ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $3,000 $ 7,510 $ 15,475 $ 25,985
Net income for 1996 -- -- 6,656 6,656
Change in difference between cost and
admitted asset investment amounts -- -- (16) (16)
Decrease in nonadmitted assets -- -- 1,318 1,318
Increase in asset valuation reserve -- -- (591) (591)
Other -- -- 5 5
------ ---------- ---------- -------------
Balance at December 31, 1996 3,000 7,510 22,847 33,357
Transfer of assets to TMG Life
Insurance Company under assumption
reinsurance agreement -- (2,823) (22,847) (25,670)
Net income for 1997 -- -- 328 328
Increase in nonadmitted assets -- -- (349) (349)
Other -- 438 -- 438
------ ---------- ---------- -------------
Balance at December 31, 1997 3,000 5,125 (21) 8,104
Net income for three month period
ended March 31, 1998 (Unaudited) -- -- 27 27
------ ---------- ---------- -------------
Balance at March 31, 1998 (Unaudited) $3,000 $ 5,125 $ 6 $ 8,131
------ ---------- ---------- -------------
------ ---------- ---------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW--STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER
MARCH 31 31
--------------------- ---------------------
1998 1997 1997 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and considerations, net of
reinsurance $ -- $ -- $ -- $ 30,013
Net investment income 58 1 440 23,104
Benefits paid -- -- -- (44,572)
Commissions, general insurance expenses
and taxes (56) (11) -- (8,459)
Federal income taxes -- -- (180) (2,023)
Other income received less other
expenses -- -- -- 733
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities 2 (10) 260 (1,199)
INVESTING ACTIVITIES
Proceeds from investments sold, matured,
or repaid:
Bonds -- -- 5,793 131,843
Mortgage loans -- -- -- 855
Real estate -- -- -- 5,114
--------- --------- --------- ---------
Total investment proceeds -- -- 5,793 137,812
Cost of investments acquired:
Bonds (1,235) -- (5,518) (138,785)
Mortgage loans -- -- -- (5,533)
--------- --------- --------- ---------
Total investments acquired (1,235) -- (5,518) (144,318)
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities (1,235) (10) 275 (6,506)
FINANCING ACTIVITIES
Other cash applied 54 (16,143) (15,868) --
--------- --------- --------- ---------
Net change in cash and short-term
investments (1,179) (16,153) (15,333) (7,705)
Cash and short-term investments at
beginning of year 2,593 17,926 17,926 25,631
--------- --------- --------- ---------
Cash and short-term investments at end
of year $ 1,414 $ 1,773 $ 2,593 $ 17,926
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
EquiTrust Life Insurance Company (the Company), formerly Continental Western
Life Insurance Company, is a life insurance company domiciled in the state of
Iowa and licensed in 38 states. All in force policies, annuities and
certificates of the Company were ceded to TMG Life Insurance Company (TMG Life),
formerly an affiliated company, through an assumption reinsurance agreement as
of January 1, 1997. At December 31, 1997, the Company had no insurance in force.
The Company was purchased by Farm Bureau Life Insurance Company (Farm Bureau) on
December 30, 1997, and became a wholly owned subsidiary of Farm Bureau which, in
turn, is wholly owned by FBL Financial Group, Inc. The Company was previously
wholly owned by TMG Life which is owned by The Mutual Group (U.S.), Inc. [TMG
(U.S.)], which itself is a wholly owned subsidiary of The Mutual Life Assurance
Company of Canada.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with accounting
practices prescribed or permitted by the Insurance Division, Department of
Commerce, State of Iowa (Insurance Division). Such practices differ from
generally accepted accounting principles (GAAP). The more significant variances
from GAAP are as follows: (a) costs of acquiring new business are expensed as
incurred rather than deferred and amortized over the life of the policies; (b)
carrying values of bonds designated under GAAP as available-for-sale securities
are based on values specified by the National Association of Insurance
Commissioners (NAIC) rather than fair values; (c) policy reserves on traditional
life products are based on statutory mortality and interest rates rather than
expected mortality and interest rates; (d) reinsurance amounts are netted
against the corresponding amounts rather than reported gross; (e) policy
reserves on universal life and investment products are stated using statutory
discounting methodologies rather than at full account values; (f) deferred
income taxes are not provided for the differences between the financial
statement and income tax bases of assets and liabilities; (g) after-tax net
realized capital gains or losses attributed to changes in interest rates are
deferred and amortized over the remaining life of the investment rather than
recognized as pre-tax gains or losses in the statement of operations when the
sale is completed; (h) declines in the estimated realizable value of investments
are recognized through a formula-determined reserve carried as a liability whose
changes are charged directly to surplus rather than reducing the carrying value
of the related investment and recognizing realized losses in the statements of
operations; (i) certain assets designated as "nonadmitted," principally agents'
debit balances and furniture and equipment, are excluded from the accompanying
balance sheets and are charged directly to unassigned surplus; (j) revenues for
universal life and investment products consist of premiums received rather than
policy charges; (k) pension expense is recognized in accordance with rules and
regulations permitted by the Employee Retirement Income Security Act of 1974
rather than Statement of Financial Accounting Standards (SFAS) No. 87,
"Employers' Accounting for Pensions"; (l) accrued postretirement benefits other
than pensions do not include a provision for benefits that are not fully vested;
and (m) assets and liabilities continue to be shown at historical values rather
than restated fair values when a change in ownership occurs.
The National Association of Insurance Commissioners (NAIC) is in the process of
codifying statutory accounting practices (Codification). Codification will
likely change, to some extent, prescribed statutory accounting practices and may
result in changes to the accounting practices that the Company used to prepare
its statutory-basis financial statements. Codification, which was approved by
the NAIC in 1998, will require adoption by the various states before it becomes
the prescribed statutory basis of accounting for insurance companies
domesticated within those states. Accordingly, before Codification becomes
effective for the Company, the State of Iowa must adopt Codification as the
prescribed basis of accounting on which domestic insurers must report their
statutory-basis results to the Insurance Division. At this time, it is unclear
whether the State of Iowa will adopt Codification.
PERMITTED PRACTICE
The statutory-basis financial statements are prepared in accordance with
accounting practices prescribed or permitted by the Insurance Division.
"Prescribed" statutory accounting practices include regulations and general
administrative rules, as well as a variety of publications of the NAIC.
"Permitted" statutory accounting practices encompass all practices that are not
prescribed, may differ from insurance company to insurance company, and may
change in the future.
7
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has received approval from the Insurance Division to account for the
disposition of many of the balance sheet items related to the assumption
reinsurance agreement as a change in surplus rather than reporting their effect
in the income statement. The majority of the assets and liabilities of the
Company were transferred to TMG Life effective January 1, 1997, leaving only
that amount of invested assets, capital and surplus required to maintain minimum
capital. An analysis of these transferred amounts follows (in thousands):
<TABLE>
<S> <C>
Assets:
Bonds $ 295,713
Common stocks 82
Mortgage loans 31,697
Real estate 1,730
Policy loans 30,643
Cash and short-term investments 16,333
Other admitted assets 8,297
---------
Total 384,495
Less liabilities 358,825
---------
Net transferred $ 25,670
---------
---------
Capital and surplus:
Contributed capital $ 2,823
Unassigned surplus 22,847
---------
Total $ 25,670
---------
---------
</TABLE>
The financial statements as of March 31, 1998 and for the three month periods
ended March 31, 1998 and 1997 and related disclosures in these notes have not
been audited. The interim financial statements have been prepared in accordance
with statutory accounting principles. Accordingly, they do not include all of
the information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals unless noted otherwise herein)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
INVESTMENTS
Investment values have been determined in accordance with methods adopted by the
NAIC. Bonds are valued at amortized cost or NAIC designated value. The amortized
cost for loan-backed bonds is valued using the interest method including
anticipated prepayments.
Prepayment assumptions are obtained from internal estimates and are based on the
current interest rate and economic environment. The retrospective adjustment
method is used to value all such securities except for interest-only securities,
which are valued using the prospective method. Common stocks are reported at
market value. Real estate is carried at cost less encumbrances and accumulated
depreciation is calculated on a straight-line basis over the estimated useful
lives of the properties. Short-term investments are valued at cost which
approximates market. Mortgage loans and policy loans are valued at the unpaid
principal balance.
As required by the NAIC, the Company maintains an Asset Valuation Reserve (AVR),
a separately stated liability on the statutory balance sheet which is computed
under a prescribed formula to provide for possible credit losses and declines in
the value of bonds, stocks, mortgage loans, real estate, short-term investments
and other invested assets. Changes to the AVR are reported directly on the
statement of changes in capital and surplus.
Interest income from bonds and mortgage loans is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of
mortgage-backed securities, over the estimated life of the security. Accrual of
interest is nonadmitted on investments that have become 90 days past due or if
management doubts the collectibility of principal or interest on an investment
that is currently performing. Investments are restored to accrual status when
brought current, or when management no longer doubts the ultimate collectibility
of principal and interest. Mortgage loan origination fees are deferred and
recognized as income over the life of the loan.
8
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net unrealized gains or losses in the carrying value of investments are
reflected in unassigned surplus. Realized gains and losses are determined by
specific identification of cost of investments sold and are recorded in the
statement of operations net of tax and net of amounts transferred to the
Interest Maintenance Reserve (IMR). The IMR is maintained as prescribed by the
NAIC and represents the accumulation of deferred after-tax net realized capital
gains and losses from sales of investments that are attributable to changes in
interest rates. These deferred gains and losses are amortized into income over
the remaining period to maturity. Amortization of the IMR is reported in the
statement of operations.
CASH AND SHORT-TERM INVESTMENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of twelve months or less to be
short-term investments.
POLICY RESERVES
Future policy benefit reserves on life policies are provided principally under
the Commissioners' Reserve Valuation Method using primarily 1958 and 1980
Commissioners' Standard Ordinary mortality tables assuming interest rates from
2 1/2 to 6 percent. All reserves are calculated using the mean reserve method.
Liabilities for future policy benefits on annuity policies are generally based
on policy values including interest additions at current rates.
The Company had no insurance in force as of December 31, 1997. The Company had
insurance in force of $174,086,000 for which gross premiums were less than the
net valuation premiums required by the Insurance Division as of December 31,
1996. Policy reserves of $401,000 were held by the Company to cover these
deficiencies at December 31, 1996. Tabular interest, tabular less actual reserve
released, tabular cost, and tabular interest on funds not involving life
contingencies are determined by formula as prescribed by the NAIC.
POLICY AND CONTRACT CLAIMS
The liabilities for insurance claims are determined using estimates of the
ultimate net cost of all reported and unreported claims which are unpaid at year
end. Although it is not possible to measure the degree of variability inherent
in such estimates, management believes that the liabilities for insurance claims
are adequate. The estimates are reviewed periodically and adjusted as necessary
with such adjustments being reflected in current operations.
PREMIUMS
Premiums for traditional life policies are recognized as revenue when due.
Premiums for accident and health policies are recognized ratably over the period
of insurance coverage. Universal life insurance and annuity premiums are
recognized as revenue when received.
REINSURANCE
The Company cedes reinsurance and participates in various pools and
associations. These reinsurance arrangements allow management to control
exposure to potential losses arising from large risks. Reinsurance premiums,
commissions, expense reimbursements, and reserves related to reinsured business
are accounted for on bases consistent with those used in accounting for the
original policies issued and with the terms of the reinsurance contracts.
Premiums, benefits and expenses, premiums receivable, and policy reserves are
reported in the financial statements net of reinsured amounts.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the estimated useful
lives of the related property.
FEDERAL INCOME TAXES
Federal income taxes have been provided on income currently taxable in
accordance with the provisions of the Internal Revenue Code that relate to life
insurance companies.
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
9
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
fair value of each class of financial instruments.
INVESTMENTS
Fair values for bonds and stocks are generally based on quoted market prices.
Fair values for mortgage loans are calculated as the net present value of future
loan payments, which are assumed to be received in accordance with the terms of
the contracts, using discount rates based on the Treasury yield curve and the
Company's current mortgage pricing. Fair values for policy loans are estimated
through discounted cash flow analyses using interest rates reflective of current
asset yields and assumed annual repayment rates. The recorded values of cash,
short-term investments and accrued investment income approximate their fair
value.
INVESTMENT-TYPE CONTRACTS
The Company underwrites certain investment-type contracts comprising mainly
individual annuities and supplementary contracts without life contingencies. The
fair value of liabilities related to these contracts, included in annuity
reserves, was determined using a price behavior model that projects monthly cash
flows and calculates their present value under various interest rate assumptions
using the Treasury yield curve and specific assumptions for mortality, lapse
rates, policy loads, crediting rates, expenses and surrender charges that are
particular to each type of annuity product. Probabilities assigned to the
interest rate assumptions are used to calculate the expected present value of
the cash flows.
The fair values of contract liabilities are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The carrying amounts and fair values of the Company's financial instruments were
as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Investments:
Bonds $ 5,515 $ 5,555 $ 301,430 $ 305,507
Common stocks -- -- 82 82
Mortgage loans -- -- 31,697 33,731
Policy loans -- -- 30,643 30,171
Cash and short-term investments 2,593 2,593 17,926 17,926
Accrued investment income 54 54 3,702 3,702
LIABILITIES
Investment-type contracts -- -- 78,412 90,183
</TABLE>
10
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
3. INVESTMENTS
The amortized cost and the fair or comparable value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
At December 31, 1997--U.S. Treasury $ 5,515 $ 40 $ -- $ 5,555
--------------------------------------------------
Total bonds $ 5,515 $ 40 $ -- $ 5,555
--------------------------------------------------
--------------------------------------------------
At December 31, 1996:
U.S. Treasury $ 111,757 $ 827 $ 78 $ 112,506
U.S. government agencies, states and political
subdivisions 89,530 1,987 243 91,274
Industrial and other 100,143 2,311 727 101,727
--------------------------------------------------
Total bonds $ 301,430 $ 5,125 $ 1,048 $ 305,507
--------------------------------------------------
--------------------------------------------------
</TABLE>
At December 31, 1997, the Company's bond investment was rated as a Class 1 by
the NAIC (i.e.; investment grade bonds) and is due to mature in 1999.
Proceeds from investments in bonds sold, redeemed or otherwise disposed of
during 1997 and 1996 were $5,793,000 and $498,858,000, respectively. Gross gains
of $94,000 and $902,000 were realized in 1997 and 1996, respectively. Gross
losses of $1,029,000 were realized on those dispositions in 1996. Substantially
all 1997 and 1996 gains and losses from bonds were transferred to the IMR. On
January 1, 1997, bonds with an admitted asset value of $295,713,000 were
transferred to TMG Life as part of the assumption reinsurance agreement. No gain
or loss was realized on the transfer.
At December 31, 1997, bonds and cash with an admitted asset value of $8,108,000
were on deposit with state insurance departments to meet regulatory
requirements.
The Company sold its home office building during 1996 for a gain of $909,000.
This gain is included with net realized gains on investments in the
statutory-basis statement of operations.
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1997 1996
--------------------
<S> <C> <C>
(IN THOUSANDS)
Bonds $ 407 $ 21,156
Mortgage loans -- 2,680
Short-term investments 70 1,989
Amortization of interest maintenance reserve -- 1,285
--------------------
477 27,110
Less investment expenses (4) (966)
--------------------
Net investment income $ 473 $ 26,144
--------------------
--------------------
</TABLE>
Realized capital gains are reported net of federal income taxes and amounts
transferred to the IMR as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1997 1996
--------------------
<S> <C> <C>
(IN THOUSANDS)
Realized capital gains $ 94 $ 782
Less amount transferred (to) from IMR (61) 83
--------------------
33 865
Less federal income taxes on realized capital
gains before effect
of transfer to IMR (33) (274)
--------------------
Net realized capital gains $ -- $ 591
--------------------
--------------------
</TABLE>
At December 31, 1996, the Company had a nonadmitted IMR asset of $663,000.
11
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. STATUTORY CAPITAL AND SURPLUS RESTRICTIONS
Prior approval of insurance regulatory authorities is required for payment of
dividends to the Company's stockholder which exceed an annual limitation. During
1998, the Company may pay dividends to its stockholder of approximately $510,000
without prior approval of the Insurance Division.
5. FEDERAL INCOME TAXES
The Company files a separate tax return. The Company's taxable income differs
from gain from operations before income taxes as reported in the financial
statements due to differences in reporting investment income, policy reserves,
depreciation, agents' deferred compensation, premium income, expenses, realized
gains and losses and the impact of differences in asset valuations.
6. REINSURANCE
Prior to January 1, 1997, the maximum amount the Company retained on any one
life was $500,000 of basic life coverage. The Company retained all its risk on
accidental death insurance risks with an issue limit of $200,000. Amounts in
excess of retention limits were reinsured with other life insurance companies
under reinsurance treaties principally on yearly renewable term and coinsurance
bases.
The effect of ceded reinsurance on the Company's statutory-basis financial
statements in 1996 was as follows (in thousands):
<TABLE>
<S> <C>
Premiums receivable $ 550
Policy reserves and liabilities:
Life 30,552
Annuity 24,070
Policy and contract claims 305
Premiums:
Life 5,147
Annuity 217
Policy benefits paid or provided:
Life 2,098
Annuity (2,462)
</TABLE>
On January 1, 1997, the Company entered into an assumption reinsurance agreement
with TMG Life. Under the agreement, TMG Life assumed all of the Company's rights
and obligations for policies, annuities and certificates issued by the Company
prior to January 1, 1997.
7. RETIREMENT AND COMPENSATION PLANS
Prior to January 1, 1997, the Company participated in several benefit programs
sponsored by TMG (U.S.). In conjunction with execution of the assumption
reinsurance agreement, all of the Company's employees became employees of TMG
(U.S.). As the Company had no employees during 1997, no contributions were made
to any benefit plans for the year ended December 31, 1997 and all liabilities
associated with the benefit plans were assumed by TMG (U.S.).
Prior to January 1, 1997, the Company participated in a noncontributory
defined-benefit plan sponsored by TMG (U.S.) covering substantially all of its
employees. Benefits provided were based on years of service and the employee's
compensation. Funding and accounting policies were to contribute annually the
maximum amount that can be currently deducted for income tax purposes. Total
contributions to the plan were $466,000 for the year ended December 31, 1996.
The funded status of the TMG (U.S.) plan was determined using an effective date
of January 1, 1996, an interest rate of 7.0% compounded annually and a salary
scale of 5.5%. At December 31, 1996, the Company's separately determined
accumulated benefit obligation under the Plan was $1,812,000. The net assets
available for benefits at December 31, 1996 were $1,381,000. The Company is not
obligated under the TMG (U.S.) plan subsequent to the sale of the Company to
Farm Bureau Life Insurance Company.
Prior to January 1, 1997, the Company participated in a 401(k) savings plan
sponsored by TMG (U.S.). Participating employees were allowed to contribute up
to 12% of their base compensation to the 401(k) plan. The Company would match
50% of the amount contributed by each employee up to the first 6% of
compensation and also made discretionary contributions. Participants are
immediately vested in Company contributions. Company contributions to the 401(k)
plan were $40,000 for the year ended December 31, 1996.
12
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
7. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
Prior to January 1, 1997, the Company provided defined postretirement health and
life insurance benefits on a noncontributory basis. Eligible employees were
those with ten or more years of service who retired under the TMG (U.S.) pension
plan. Health insurance benefits for retirees under age 65 were the same as for
active employees provided the retiree maintained continuity of coverage. For
retirees attaining age 65, health insurance was available as a Medicare
supplement. Life insurance benefits are 100% of final earnings in the first year
of retirement, reducing 10% per year to a minimum benefit of $10,000. The
estimated net postretirement benefit cost for the year ended December 31, 1996
was $15,000.
At December 31, 1996, the unfunded postretirement benefit obligation for
retirees and other fully eligible or vested plan participants was $353,000. The
estimated postretirement benefit obligation for active nonvested employees was
$441,000 at December 31, 1996. The discount rate used in determining the
accumulated postretirement benefit was 7.0% in 1996 and the health care cost
trend rate was 6.0% graded to 5.5% over 8 years. Effective January 1, 1997, TMG
(U.S.) assumed all liabilities related to the postretirement benefits.
Prior to January 1, 1997, the Company sponsored a deferred compensation plan for
its agents. Benefit expenses related to the plan were $172,000 for the year
ended December 31, 1996. The liability accrued at December 31, 1996 under this
plan was $1,218,000. At December 31, 1996, the Company had liabilities of
$246,000 related to a discontinued employee deferred compensation plan, the
activity under which consists of interest accumulations and withdrawals.
8. RELATED-PARTY TRANSACTIONS
During 1997 and 1996, the Company paid to TMG (U.S.) investment advisory and
management fees of $4,000 and $422,000, respectively.
TMG Life provided group health insurance to the Company prior to January 1,
1997. Premiums paid by the Company to TMG Life were $80,000 for the year ended
December 31, 1996. TMG (U.S.) provided the Company with administrative services
and computer facilities for which it was charged a fee of $502,000 for the year
ended December 31, 1996. The Company provided TMG Life with underwriting, policy
issuing and administrative services, for which it charged a fee of $876,000 for
the year ended December 31, 1996. No fees were paid or received by the Company
during 1997 for such services.
9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various lawsuits and other contingencies that have
arisen from the normal conduct of business. Contingent liabilities arising from
litigation and other matters are not considered material to the financial
position of the Company. TMG Life, as part of the sale agreement, has assumed
all accrued, absolute and contingent liabilities that may arise out of or
related to the business of the Company prior to December 30, 1997. At March 31,
1998, management is not aware of any claims which would result in a material
loss to the Company.
13
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B.
(b) Exhibits
<TABLE>
<C> <C><S> <C>
(1) Certified resolution of the board of directors of EquiTrust Life
Insurance Company (the "Company") establishing EquiTrust Life
Annuity Account (the "Account"). (1)
(2) Not Applicable.
(3) * (a) Form of Underwriting agreement among the Company, the
Account and EquiTrust Marketing Services, Inc. ("EquiTrust
Marketing").
* (b) Form of Sales agreement.
* (c) Form of Wholesaling agreement.
(4) Contract Form (1)
(5) * Contract Application.
(6) (a) Articles of Incorporation of the Company. (1)
(b) By-Laws of the Company. (1)
(7) Not Applicable.
(8) * (a) Participation agreement relating to EquiTrust Variable
Insurance Series Fund.
* (b) Participation agreement relating to Dreyfus Variable
Investment Fund.
* (c) Participation agreement relating to T. Rowe Price Equity
Series, Inc. and T. Rowe Price International Series, Inc.
(9) * Opinion and Consent of Stephen M. Morain, Esquire.
(10) * (a) Consent of Sutherland, Asbill & Brennan LLP.
* (b) Consent of Ernst & Young LLP.
* (c) Opinion and Consent of Christopher G. Daniels, FSA, MSAA,
Life Product Development and Pricing Vice President.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Powers of Attorney. (1)
</TABLE>
- ------------------------
* Attached as an exhibit.
(1) Incorporated herein by reference to the initial filing of this Registration
Statement (File No. 333-46597) on February 19, 1998.
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
Incorporated herein by reference to the prospectus in the Form S-6 registration
statement (File No. 333-45813) for certain variable life insurance contracts
issued by the Company filed with the Commission on February 6, 1998.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by FBL Financial Group, Inc. This Company and its
affiliates are described more fully in the prospectus included in this
registration statement. Various companies and other entities controlled by FBL
Financial Group, Inc., may therefore be considered to be under common control
with the registrant or the Company. Such other companies and entities, together
with the identity of the owners of their common stock (where applicable), are
set forth on the following diagram.
SEE ORGANIZATION CHART ON FOLLOWING PAGE
1
<PAGE>
FBL FINANCIAL GROUP, INC.
OWNERSHIP CHART
01/01/98
[CHART]
2
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of the date of the prospectus included in this registration statement, no
Contracts have been sold.
ITEM 28. INDEMNIFICATION
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 favor 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 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
reasonably 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.
ITEM 29. PRINCIPAL UNDERWRITER
(a) EquiTrust Marketing Services, Inc. is the registrant's principal
underwriter and also serves as the principal underwriter of certain variable
annuity contracts and variable life insurance policies issued by other separate
accounts of the Company or its life insurance company affiliates supporting
other variable products or to other variable annuity and variable life insurance
separate accounts of insurance companies not affiliated with the Company.
(b) Officers and Directors of EquiTrust Marketing Services, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
- ------------------------------ ---------------------------------------------------------------------------------------------------
<S> <C>
Stephen M. Morain General Counsel and Assistant Secretary, Iowa Farm Bureau Federation; General Counsel, Secretary
Senior Vice President, General and Director, Farm Bureau Management Corporation; Senior Vice President, General Counsel and
Counsel and Director Director, FBL Financial Group, Inc.; Senior Vice President and General Counsel, Farm Bureau Life
Insurance Company and other affiliates of the foregoing. Holds various positions with affiliates
of the foregoing. Director, Computer Aided Design Software, Inc., and Iowa Business Development
Finance Corporation Chairman, Edge Technologies, Inc.
William J. Oddy Chief Operating Officer, FBL Financial Group, Inc., Farm Bureau Life Insurance Company, Western
Chief Operating Officer and Farm Bureau Life Insurance Company and other affiliates of the foregoing. Holds various positions
Director with affiliates of the foregoing.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
- ------------------------------ ---------------------------------------------------------------------------------------------------
<S> <C>
Dennis M. Marker Investment Vice President, Administration, FBL Financial Group, Inc. Holds various positions with
Investment Vice President, affiliates of the foregoing.
Administration, Secretary and
Director
Thomas R. Gibson Chief Executive Officer and Director, FBL Financial Group, Inc.; Chief Executive Officer, Farm
Chief Executive Officer and Bureau Life Insurance Company, Western Farm Bureau Life Insurance Company and other affiliates of
Director the foregoing. Holds various positions with affiliates of the foregoing.
Timothy J. Hoffman Chief Property/Casualty Officer, FBL Financial Group, Inc.; Vice President, Farm Bureau Life
Vice President and Director Insurance Company, Western Farm Bureau Life Insurance Company and other affiliates of the
foregoing. Holds various positions with affiliates of the foregoing.
James W. Noyce Chief Financial Officer, Farm Bureau Life Insurance Company, FBL Financial Group, Inc., Western
Chief Financial Officer, Farm Bureau Life Insurance Company and other affiliates of the foregoing. Holds various positions
Treasurer and Director with affiliates of the foregoing.
Thomas E. Burlingame Vice President - Associate General Counsel, FBL Financial Group, Inc. Holds various positions with
Director affiliates of the foregoing.
F. Walter Tomenga Vice President - Corporate Affairs and Marketing Services, FBL Financial Group, Inc. Holds various
Director positions with affiliates of the foregoing.
Lynn E. Wilson Vice President - Life Sales, FBL Financial Group, Inc. Holds various positions with affiliates of
President and Director the foregoing.
Lou Ann Sandburg Vice President - Investments and Assistant Treasurer, Farm Bureau Life Insurance Company, FBL
Vice President, Investments Financial Group, Inc., Western Farm Bureau Life Insurance Company and other affiliates of the
and Director foregoing. Holds various positions with affiliates of the foregoing.
James P. Brannen Tax and Investment Accounting Vice President, FBL Financial Group, Inc. Holds various positions
Tax and Investment Accounting with affiliates of the foregoing.
Vice President
Sue A. Cornick Market Conduct and Mutual Funds Vice President and Assistant Secretary, EquiTrust Investment
Market Conduct and Mutual Management Services, Inc., EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and
Funds Vice President and EquiTrust Variable Insurance Series Fund.
Assistant Secretary
Kristi Rojohn Assistant Mutual Funds Manager and Assistant Secretary, EquiTrust Investment Management Services,
Assistant Mutual Funds Manager Inc.; Assistant Secretary, EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and
and Assistant Secretary EquiTrust Variable Insurance Series Fund.
Elaine A. Followwill Compliance Assistant and Assistant Secretary, EquiTrust Investment Management Services, Inc.;
Compliance Assistant and Assistant Secretary, EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and EquiTrust
Assistant Secretary Variable Insurance Series Fund
Roger F. Grefe Investment Management Vice President, FBL Financial Group, Inc. and EquiTrust Investment Management
Investment Management Vice Services, Inc.
President
Robert Rummelhart Fixed Income Vice President, FBL Financial Group, Inc. and EquiTrust Investment Management
Fixed Income Vice President Services, Inc.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
- ------------------------------ ---------------------------------------------------------------------------------------------------
<S> <C>
Charles T. Happel Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
Laura Kellen Beebe Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
</TABLE>
- ------------------------
* The principal business address of all of the persons listed above is 5400
University Avenue, West Des Moines, Iowa 50266.
ITEM 30. LOCATION BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be kept by
Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are
maintained by the Company at 5400 University Avenue, West Des Moines, Iowa
50266.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this registration
statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective amendment
to this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for as long as purchase payments under the contracts offered
herein are being accepted.
(b) The registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a statement of additional information, or (2) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove and send to the Company for a statement
of additional information.
(c) The registrant undertakes to deliver any statement of additional
information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request to the Company at the
address or phone number listed in the prospectus.
(d) The Company represents that in connection with its offering of the
contracts as funding vehicles for retirement plans meeting the requirements of
Section 403(b) of the Internal Revenue Code of 1986, it is relying on a no-
action letter dated November 28, 1988, to the American Council of Life Insurance
(Ref. No. IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of the
Investment Company Act of 1940, and that paragraphs numbered (1) through (4) of
that letter will be complied with.
(e) The Company represents that the aggregate charges under the Contracts
are reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by the Company.
5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, EquiTrust Life Annuity Account has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized in the City of West Des Moines, State of Iowa, on the 20th day
of May, 1998.
EquiTrust Life Insurance Company
EquiTrust Life Annuity Account
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------
Edward M. Wiederstein
PRESIDENT
EquiTrust Life Insurance Company
Attest: /s/ RICHARD D. HARRIS
---------------------------------
Richard D. Harris
SENIOR VICE PRESIDENT AND
SECRETARY-TREASURER
EquiTrust Life Insurance Company
As required by 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/ EDWARD M. WIEDERSTEIN President and Director
- ----------------------------------- [Principal Executive May 20, 1998
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ----------------------------------- [Principal Financial May 20, 1998
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ----------------------------------- [Principal Accounting May 20, 1998
James W. Noyce Officer]
- -----------------------------------
Thomas R. Gibson* Director May 20, 1998
- -----------------------------------
Timothy J. Hoffman* Director May 20, 1998
- -----------------------------------
Stephen M. Morain* Director May 20, 1998
- -----------------------------------
William J. Oddy* Director May 20, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, EquiTrust Life
Annuity Account, has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the City of West Des
Moines, State of Iowa, on the 20th day of May, 1998.
EquiTrust Life Annuity Account
(Registrant)
By: EquiTrust Life Insurance Company
(Depositor)
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------
Edward M. Wiederstein
PRESIDENT
EquiTrust Life Insurance Company
* /s/ STEPHEN M. MORAIN Attorney-In-Fact,
------------------------ Pursuant to Power of
Stephen M. Morain Attorney.
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
3(a) Form of Underwriting agreement among the Company, the
Account and EquiTrust Marketing Services, Inc.
(b) Form of Sales agreement.
(c) Form of Wholesaling agreement.
5 Contract Application.
8(a) Participation agreement relating to EquiTrust Variable
Insurance Series Fund.
(b) Participation agreement relating to Dreyfus Variable
Investment Fund.
(c) Participation agreement relating to T. Rowe Price
Equity Series, Inc. and T. Rowe Price International
Series, Inc.
9 Opinion and consent of Stephen M. Morain, Esquire.
10(a) Consent of Sutherland, Asbill & Brennan LLP.
10(b) Consent of Ernst & Young LLP.
10(c) Opinion and Consent of Christopher G. Daniels, FSA,
MSAA, Life Product Development and Pricing Vice
President.
</TABLE>
<PAGE>
UNDERWRITING AGREEMENT
AGREEMENT dated as of this _____________ day of June, 1998 by and between
EquiTrust Life Insurance Company, an Iowa corporation ("Insurer"), on its behalf
and on behalf of EquiTrust Life Variable Account and EquiTrust Life Annuity
Account (the "Separate Accounts"), and EquiTrust Marketing Services, Inc.
("Distributor"), a Delaware corporation.
WITNESSETH
WHEREAS, Distributor is a broker-dealer that engages in the distribution of
variable insurance products and other investment products; and
WHEREAS, Insurer desires to issue certain variable insurance products
described more fully below to the public through Distributor acting as principal
underwriter;
NOW THEREFORE, in consideration of their mutual promises, Insurer and
Distributor hereby agree as follows:
1. Additional Definitions
a. Contracts - The class or classes of variable insurance products set
forth on Schedule 1 to this Agreement as in effect at the time this Agreement is
executed, and such other classes of variable products that may be added to
Schedule 1 from time to time in accordance with Section 11.b of this Agreement,
and including any riders to such contracts and any other contracts offered in
connection therewith. For the purpose of this Agreement generally, a "class of
Contracts" shall mean those Contracts issued by Insurer on the same policy form
or forms and covered by the same registration statement.
b. Registration Statement - With respect to each class of contracts, the
most recent post-effective registration statement filed with the SEC or the most
recent effective post-effective amendment thereto, including financial
statements included therein and all exhibits thereto. For purposes of Section 9
of this Agreement, the term "Registration Statement" means any document which is
or at any time was a Registration Statement within the meaning of this Section
1.b.
c. Prospectus - With respect to each class of Contracts, the prospectus
for such class of Contracts included within the Registration Statement for such
class of Contracts; provided, however, that if the most recently filed
prospectus filed pursuant to Rule 497 under the 1993 Act subsequent to the date
on which the Registration Statement became effective differs from the prospectus
on file at the time the Registration Statement became effective, the term
"Prospectus" shall refer to the most recently filed prospectus filed under Rule
497 from and after the date on which it shall have been filed. For
<PAGE>
purposes of Section 9 the term "any Prospectus" means any document which is or
at any time was a Prospectus within the meaning of this Section 1.c.
d. Fund - registered investment companies in which the Separate Accounts
invest.
e. Variable Accounts - separate accounts supporting a class or classes of
Contracts and specified in Schedule 1 as in effect at the time this Agreement is
executed, or as it may be amended from time to time in accordance with Section
11.b of this Agreement.
f. 1933 Act - The Securities Act of 1933, as amended.
g. 1934 Act - The Securities Exchange Act of 1934, as amended.
h. 1940 Act - The Investment Company Act of 1940, as amended.
i. SEC - The Securities and Exchange Commission.
j. NASD - The National Association of Securities Dealers, Inc. and any
affiliates.
k. Regulations - The rules and regulations promulgated by the SEC under
the 1933 Act, the 1934 Act and the 1940 Act as in effect at the time this
Agreement is executed or thereafter promulgated.
l. Selling Broker-Dealer - A person registered as a broker-dealer and
licensed as a life insurance agent or affiliated with a person so licensed, and
authorized to distribute the Contracts pursuant to a sales agreement as provided
for in Section 4 of this Agreement.
m. Agent Manual - Any manual and other written rules, regulations and
procedures provided by Insurer to insurance agents appointed to sell its
insurance contracts, as revised from time to time.
n. Representative - When used with reference to Distributor or a Selling
Broker-Dealer, an individual who is an associated person, as that term is
defined in the 1934 Act, thereof.
o. Application - An application for a Contract.
p. Premium - A payment made under a Contract by an applicant or purchaser
to purchase benefits under the Contract.
<PAGE>
q. Home Office -- the home office identified in the Prospectus as the
location at which Premiums and Applications are accepted.
2. Authorization and Appointment
a. Scope and Authority. Insurer hereby authorizes Distributor on an
exclusive basis, and Distributor accepts such authority, subject to the
registration requirements of the 1933 Act and the 1940 Act and the provisions of
the 1934 Act and conditions herein, to be the distributor and principal
underwriter for the sale of the contracts to the public in each state and other
jurisdiction in which the Contracts may lawfully be sold during the term of this
Agreement. Insurer hereby authorizes Distributor to grant authority to Selling
Broker-Dealers to solicit Applications and Premiums to the extent the
Distributor deems appropriate and consistent with the marketing program for the
Contracts or a class of Contracts, subject to the conditions set forth in
Section 4 of this Agreement. The Contracts shall be offered for sale and
distribution at premium rates set from time to time by Insurer. Distributor
shall use its best efforts to market the Contracts actively through Selling
Broker-Dealers in accordance with Section 4 of this Agreement, subject to
compliance with applicable law, including rules of the NASD.
b. Limits on Authority. Distributor shall act as an independent
contractor and nothing herein contained shall constitute Distributor or its
agents, officers, or employees as agents, officers or employees of Insurer
solely by virtue of their activities in connection with the sale of the
Contracts hereunder. Distributor and its Representatives shall not have
authority, on behalf of Insurer to make, alter, or discharge any Contract or
other insurance policy or annuity entered into pursuant to a Contract; to waive
any Contract forfeiture provision; to extend the time of paying any Premium; or
to receive monies or Premiums (except for the sole purpose of forwarding monies
or Premiums to Insurer). Distributor shall not expend, nor contract for the
expenditure of, funds of the Insurer. Distributor shall not possess or exercise
any authority on behalf of Insurer other than that expressly conferred on
Distributor by this Agreement.
3. Solicitation Activities
a. Distributor Representatives. The Distributor will not solicit
applications from the public for the Contracts through Distributor
Representatives.
b. Representations and Warranties of Distributor. Distributor represents
and warrants to Insurer that Distributor is and shall remain registered during
the term of this Agreement as a broker-dealer under the 1934 Act, is a member of
the NASD, and is duly registered under applicable state securities laws, and
that Distributor is and shall remain during the term of the Agreement in
compliance with Section 9(a) of the 1940 Act.
<PAGE>
4. Selling Broker-Dealers. Insurer and Distributor shall insure that sales of
the contracts by Selling Broker-Dealers comply with the following conditions,
and any additional conditions Insurer may specify from time to time.
a. Every Selling Broker-Dealer shall be both registered as a
broker-dealer with the SEC and a member of the NASD and licensed as an insurance
agent, if required, with authority to sell variable products or associated with
an insurance agent so licensed. Any individuals to be authorized to act on
behalf of Selling Broker-Dealer shall be duly registered with the NASD as
representatives of Selling Broker-Dealer with authority to sell variable
products, and shall be licensed as insurance agents with authority to sell
variable products. Insurer shall verify that Selling Broker-Dealer and its
Representatives are duly licensed under applicable state insurance law to sell
the Contracts or, if Broker-Dealer is not so licensed, that it is associated
with an entity so licensed.
b. Every Selling Broker-Dealer (or, if applicable, its associated
insurance agency) and each of its Representatives shall have been appointed by
Insurer, provided that Insurer reserves the right to refuse to appoint any
proposed person, or once appointed, to terminate such appointment.
c. Every Selling Broker-Dealer must enter into a written sales agreement
with Distributor which sales agreement, among other things, will require such
Selling Broker-Dealer to use its best efforts to solicit applications for the
Contracts and to comply with applicable laws and regulations, including the
Insurer's rules and regulations as reflected in the Agents Manual or otherwise
communicated to agents appointed by the Insurer, and will contain such other
provisions as the Distributor deems to be consistent herewith.
d. In view of the fact that Insurer and Distributor want to ensure that
Contracts will be sold to purchasers for whom the Contracts will be suitable,
the written Sales Agreement shall require that Selling Broker-Dealers and their
Representatives not make recommendations to an applicant to purchase a Contract
in the absence of reasonable grounds to believe that the purchase of the
Contract is suitable for the applicant. While not limited to the following, a
determination of suitability shall be based on information supplied by an
applicant after reasonable inquiry concerning the applicant's other security
holdings, insurance and investment objectives, financial situation and needs,
and the likelihood that the applicant will continue to make premium payments
contemplated by the Contract applied for and will keep the Contract in force for
a sufficient period of time so that Insurer's acquisition costs are amortized
over a reasonable period of time.
5. Marketing Materials
a. Preparation and Filing. Insurer shall be primarily responsible for
the design and preparation of all promotional, sales and advertising material
related to the
<PAGE>
Contracts. Distributor shall be responsible for filing such material as
required, with the NASD and any state securities regulatory authorities at
Insurers expense. Insurer shall be responsible for filing all promotional,
sales or advertising material, as required, with any state insurance regulatory
authorities. Insurer shall be responsible for preparing the Contract Forms and
filing them with applicable state insurance regulatory authorities, and for
preparing the Prospectuses and Registration Statements and filing them with the
SEC and state regulatory authorities, to the extent required. The parties shall
notify each other expeditiously of any comments provided by the SEC, NASD or any
securities or insurance regulatory authority on such material, and will
cooperate expeditiously in resolving and implementing any comments, as
applicable.
b. Use in Solicitation Activities. Insurer shall be responsible for
furnishing Distributor with such Applications, Prospectuses and other materials
for use by Distributor and any Selling Broker-Dealers in their solicitation
activities with respect to the Contracts. Insurer shall notify Distributor of
those states or jurisdictions which require delivery of a statement of
additional information with a prospectus to a prospective purchaser.
6. Compensation and Expenses.
a. Insurer shall pay compensation for sales of the Contracts in
accordance with Schedule 2 hereto. Upon Distributor's request, Insurer shall
pay compensation payable to Selling-Broker-Dealers, on Distributor's behalf,
subject to the provisions of Section 7 of this Agreement.
b. Insurer shall pay all expenses in connection with:
(1) the preparation and filing of each registration statement (including
each pre-effective and post-effective amendment thereto) and the
preparation and filing of each Prospectus (including any preliminary and
each definitive Prospectus);
(2) the preparation, underwriting, issuance and administration of the
Contracts;
(3) any registration, qualification or approval or other filing of the
Contracts or Contract forms required under the securities or insurance laws
of the states in which the Contracts will be offered;
(4) all registration fees for the Contracts payable to the SEC;
(5) the printing of promotional materials, definitive Prospectuses for the
Contracts and any supplements thereto for distribution;
(6) any applicable postage costs; and
<PAGE>
(7) any out-of-pocket expenses incurred by Distributor in carrying out its
obligations under this Agreement.
7. Compliance.
a. Maintaining Registration and Approvals. Insurer shall be responsible
for maintaining the registration of the Contracts with the SEC and any state
securities regulatory authority with which such registration is required, and
for gaining and maintaining the approval of the Contract forms where required
under the insurance laws and regulations of each state or other jurisdiction in
which the Contracts are to be offered.
b. Confirmations and the 1934 Act Compliance. Insurer, as agent for the
Distributor, shall confirm to each applicant for and purchaser of a Contract in
accordance with Rule 10b-10 under the 1934 Act acceptance of premiums and such
other transactions as are required by Rule 10b-10 or administrative
interpretations thereunder. Insurer shall maintain and preserve such books and
records with respect to such confirmations in conformity with the requirements
of Rules 17a-3 and 17a-4 under the 1934 Act to the extent such requirements
apply. Insurer shall maintain all such books and records and hold such books
and records on behalf of and as agent for Distributor whose property they are
and shall remain, and acknowledges that such books and records are at all times
subject to inspection by the SEC in accordance with Section 17(a) of the 1934
Act.
c. Issuance and Administration of Contracts. Insurer shall be
responsible for issuing the Contracts and administering the Contracts and the
Variable Account, provided, however, that Distributor shall have full
responsibility for the securities activities of all persons employed by the
Insurer, engaged directly or indirectly in the Contract operations, and for the
training, supervision and control of such persons to the extent of such
activities.
8. Investigations and Proceedings.
a. Cooperation. Distributor and Insurer shall cooperate fully in any
securities or insurance regulatory investigation or proceeding or judicial
proceeding arising in connection with the offering, sale or distribution of the
Contracts distributed under this Agreement. Without limiting the forgoing,
Insurer and Distributor shall notify each other promptly of any customer
complaint or notice of any regulatory investigation or proceeding or judicial
proceeding received by either party with respect to the Contracts.
b. Customer Complaints. In the case of any customer complaints,
Distributor and Insurer will cooperate in investigating such complaint and any
response by Distributor to such complaint or Insurer to such complaint will be
sent to the other party for review and approval not less than five business days
prior to its being sent to the
<PAGE>
customer or regulatory authority, except that if a more prompt response is
required, the response shall be communicated by telephone or electronic mail.
9. Indemnification.
a. By Insurer. Insurer shall indemnify and hold harmless Distributor and
each person who controls or is associated with Distributor within the meaning of
such terms under the federal securities laws, and any officer, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
Distributor and/or any such person may become subject, under any statute or
regulation, any NASD rule or interpretation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities:
(1) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances in which
they were made, contained in any (i) Registration Statement or in any
Prospectus or (ii) blue sky application or other document executed by
Insurer specifically for the purpose of qualifying any or all of the
Contracts for sale under the securities laws of any jurisdiction; provided
that Insurer shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of, or is based upon, an untrue
statement or alleged untrue statement or omission or alleged omission made
in reliance upon information furnished in writing to Insurer by Distributor
specifically for use in the preparation of any such Registration Statement
or any such blue sky application or any amendment thereof or supplement
thereto;
(2) result from any breach by Insurer of any provision of this Agreement.
This indemnification agreement shall be in addition to any liability that
Insurer may otherwise have; provided, however, that no person shall be
entitled to indemnification pursuant to this provision if such loss, claim,
damage or liability is due to the willful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the person seeking
indemnification.
b. By Distributor. Distributor shall indemnify and hold harmless Insurer
and each person who controls or is associated with the Insurer within the
meaning of such terms under the federal securities laws, and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which Insurer and/or any such person may become subject under any statute
<PAGE>
or regulation, any NASD rule or interpretation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(1) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances in which
they were made, contained in any (i) Registration Statement or in any
Prospectus or (ii) blue sky application or other document executed by
Insurer specifically for the purpose of qualifying any or all of the
Contracts for sale under the securities laws of any jurisdiction; in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon information furnished in writing by Distributor to Insurer
specifically for use in the preparation of any such Registration Statement
or any such blue sky application or any amendment thereof or supplement
thereto;
(2) result from any breach by Distributor of any provision of this
Agreement.
This indemnification shall be in addition to any liability that Distributor
may otherwise have; provided, however, that no person shall be entitled to
indemnification pursuant to this provision if such loss, claim, damage or
liability is due to the willful misfeasance, bad faith, gross negligence or
reckless disregard of duty by the person seeking indemnification.
c. General. Promptly after receipt by a party entitled to
indemnification ("Indemnified Person") under this Section 9 of notice of the
commencement of any action as to which a claim will be made against any person
obligated to provide indemnification under this Section 9 ("Indemnifying
Party"), such indemnified person shall notify the indemnifying party in writing
of the commencement thereof as soon as practicable thereafter, but failure to so
notify the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to the indemnified person otherwise than on account
of this Section 9. The indemnifying party will be entitled to participate in
the defense of the indemnified person but such participation will not relieve
such indemnifying party of the obligation to reimburse the indemnified person
for reasonable legal and other expense incurred by such indemnified person in
defending himself or herself.
The indemnification provisions contained in this Section 9 shall remain
operative in full force and effect, regardless of any termination of this
Agreement. A successor by law of Distributor or Insurer, as the case may be,
shall be entitled to the benefits of the indemnification provisions contained in
this Section 9.
10. Termination. This Agreement shall terminate automatically if it is
assigned by a party without the prior written consent of the other party. (The
term "assigned" shall not include any transaction exempted from Section 15(b)(2)
of the 1940 Act.) This
<PAGE>
Agreement may be terminated at any time for any reason by either party upon 60
days' written notice to the other party, without payment of any penalty. This
Agreement may be terminated at the option of either party to this Agreement upon
the other party's material breach of any provision of this Agreement or of any
representation or warranty made in this Agreement, unless such breach has been
cured within 10 days after receipt of notice of breach from the non-breaching
party. Upon termination of this Agreement all authorizations, rights and
obligations shall cease except the obligation to settle accounts hereunder,
including commissions on Premiums subsequently received for Contracts in effect
at the time of termination or issued pursuant to Applications received by
Insurer prior to termination.
11. Miscellaneous.
a. Binding Effect. This Agreement shall be binding on and shall inure to
the benefit of the respective successors and assigns of the parties hereto
provided that neither party shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party.
b. Schedules. The parties to this Agreement may amend Schedule 1 to this
Agreement from time to time to reflect the addition of any class of Contracts
and Variable Accounts. The provisions of this Agreement shall be equally
applicable to each such class of Contracts and each Variable Account that may be
added to the Schedule, unless the context otherwise requires. Insurer may amend
Schedule 2 unilaterally, from time to time. Any other change in the terms or
provisions of this Agreement shall be by written agreement between Insurer and
Distributor.
c. Rights, Remedies, etc. are Cumulative. The rights, remedies and
obligations contained in this Agreement are cumulative and are in addition to
any and all rights, remedies and obligations, at law or in equity, which the
parties hereto are entitled to under state and federal laws. Failure of either
party to insist upon strict compliance with any conditions of this Agreement
shall not be construed as a waiver of any of the conditions, but the same shall
remain in full force and effect. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.
d. Notices. All notices hereunder are to be made in writing and shall be
given:
If to Insurer, to:
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
<PAGE>
If to Distributor, to:
EquiTrust Marketing Services, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
or such address as such party may hereafter specify in writing. Each such
notice to a party shall be either hand delivered or transmitted by registered or
certified United States mail with return receipt requested, or by overnight mail
by a nationally recognized courier, and shall be effective upon delivery.
e. Interpretation; Jurisdiction. This Agreement constitutes the whole
Agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior written or oral understandings, agreements or
negotiations between the parties with respect to such subject matter. No prior
writings by or between the parties with respect to the subject matter hereof
shall be used by either party in connection with the interpretation of any
provision of this Agreement. This Agreement shall be construed and its
provisions interpreted under and in accordance with the laws of the state of
Iowa without giving effect to principles of conflict of laws.
f. Severability. In the event that any provision of this Agreement would
require a party to take action prohibited by applicable federal or state law or
prohibit a party from taking action required by applicable federal or state law,
then it is the intention of the parties hereto that such provision shall be
enforced to the extent permitted under the law, and, in any event, that all
other provisions of this Agreement shall remain valid and duly enforceable as if
the provision at issue had never been a part hereof.
g. Section and Other Headings. The headings in this Agreement are
included for convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
h. Counterparts. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
i. Regulation. This Agreement shall be subject to the provisions of the
1933 Act, 1934 Act and the 1940 Act and the rules and regulations of the NASD,
from time to time in effect, including such exemptions from the 1940 Act as the
SEC may grant, and the terms hereof shall be interpreted and construed in
accordance therewith.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by such authorized officers on the date specified below.
INSURER:
By: Date
------------------------------------- -----------
Name
------------------------------------
Title
-----------------------------------
DISTRIBUTOR:
By: Date
------------------------------------- -----------
Name
------------------------------------
Title
-----------------------------------
<PAGE>
SCHEDULE 1
Separate Accounts
Effective
--------------------
[put contract names in]
EquiTrust Life Variable Account
EquiTrust Life Annuity Account
SCHEDULE 2
Compensation
Effective
--------------------
<PAGE>
SALES AGREEMENT
Agreement dated as of __________________, by and among EquiTrust Life
Insurance Company ("Insurer"), an Iowa insurance company; EquiTrust Marketing
Services, Inc. ("Distributor"), a Delaware Corporation which is a registered
broker-dealer with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.; ______________________, an ___________ corporation
("Broker-Dealer") also a registered broker/dealer with the SEC under the
Exchange Act and a member of the NASD; and ________________ a licensed insurance
agency associated with Broker/Dealer ("Insurance Agency"); and each additional
insurance agency , if any , signatory hereto (all such insurance agencies
referred to collectively as "Agency").
RECITALS:
A. Pursuant to an agreement with Distributor (the "Underwriting
Agreement"), Insurer has appointed Distributor as the principal underwriter of
the class or classes of variable insurance contracts identified in Schedule 1 to
this Agreement at the time that this Agreement is executed, and such other class
or classes of variable insurance contracts that may be added to Schedule 1 from
time to time in accordance with Section 10 of this Agreement (each, a "class of
Contracts"; all such classes, the "Contracts"). Each class of Contracts will be
issued by Insurer through one or more separate accounts of Insurer ("Separate
Accounts"). Pursuant to the Underwriting Agreement, Insurer has authorized
Distributor to enter into separate written agreements with broker-dealers
pursuant to which such broker-dealers would be authorized to participate in the
sale of the Contracts and would agree to use their best efforts to solicit
applications for the Contracts.
B. Broker-Dealer and Insurance Agency are engaged in the business of
selling various investment products, including variable insurance contracts.
C. The parties to this Agreement desire that Broker-Dealer and Insurance
Agency be authorized to solicit applications for the sale of the Contracts,
subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants hereinafter set forth, the parties agree as follows:
1. ADDITIONAL DEFINITIONS
a. REGISTRATION STATEMENT - With respect to each class of Contracts, the
most recent effective registration statement(s) filed with the SEC or
the most recent effective post-effective amendment(s) thereto,
including financial statements included therein and all exhibits
thereto.
b. PROSPECTUS - With respect to each class of Contracts, the prospectus
for such class of Contracts included within the Registration Statement
for such class of
<PAGE>
Contracts; provided, however, that, if the most recently filed
prospectus filed pursuant to Rule 497 under the 1933 Act subsequent to
the date on which the Registration Statement became effective differs
from the prospectus on file at the time the Registration Statement
became effective, the term "Prospectus" shall refer to the most
recently filed prospectus filed under Rule 497 from and after the date
on which it shall have been filed.
c. 1933 ACT - The Securities Act of 1933, as amended.
d. 1934 ACT - The Securities Exchange Act of 1934, as amended.
e. 1940 ACT - The Investment Company Act of 1940, as amended.
f. FUND - Registered investment companies in which the Separate Account
invests.
g. AGENT - An individual associated with Insurance Agency and
Broker-Dealer who is appointed by Insurer as an agent for the purpose
of soliciting applications.
h. PREMIUM - A payment made under a Contract to purchase benefits under
such Contract.
i. ADMINISTRATIVE OFFICE - The administrative office of the Insurer
identified in the most recently filed prospectus filed pursuant to
Rule 497.
j. AGENT'S MANUAL - Any written rules, regulations and procedures
provided by Insurer to insurance agents appointed to sell the
Contracts, which may be collected in a manual, as revised from time to
time.
k. SEC - The Securities and Exchange Commission.
l. NASD - The National Association of Securities Dealers, Inc. and its
affiliates.
2. AUTHORIZATION OF BROKER-DEALER AND INSURANCE AGENT
a. Pursuant to the authority granted to it in the Underwriting Agreement,
Distributor hereby authorizes Broker-Dealer under the securities laws,
and Insurer hereby authorizes Insurance Agency under the insurance
laws, each in a non-exclusive capacity, to sell the Contracts.
Broker-Dealer and Insurance Agency accept such authorization and shall
use their best efforts to find purchasers for the Contracts in each
case acceptable to Insurer. Distributor and Insurer acknowledge that
Broker-Dealer and Insurance Agency are each an independent contractor
in the performance of their respective duties and obligations under
this Agreement. Accordingly, Broker-Dealer and Insurance Agency are
not obliged or expected to give full time and energies to the
performance of their obligations hereunder, nor are Broker-Dealer and
Insurance Agency obliged or expected to represent Distributor or
Insurer exclusively. Nothing herein contained shall constitute
<PAGE>
Broker-Dealer, Insurance Agency, the Agents or any agents or
representatives of Broker-Dealer or Insurance Agency as employees of
Distributor or Insurer in connection with the solicitation of
applications and Premiums for the Contracts.
b. Broker-Dealer and Insurance Agency acknowledge that no territory is
exclusively assigned hereunder, and that Insurer and Distributor may
in their sole discretion authorize and appoint one or more persons in
any jurisdiction in which Broker-Dealer and Insurance Agency transact
business, to solicit applications and Premiums for the Contracts.
c. Insurance Agency is vested under this Agreement with power and
authority to select and recommend individuals associated with
Insurance Agency for appointment as Agents of the Insurer, and only
individuals so recommended by Insurance Agency shall become Agents,
provided that the conditions of Section 3 are satisfied, and provided
further that Insurer reserves the right to refuse to appoint any
proposed agent or, once appointed, to terminate or refuse to renew the
appointment at any time with or without cause. [INITIAL AND RENEWAL
STATE APPOINTMENT FEES FOR INSURANCE AGENCY AND APPOINTEES OF
INSURANCE AGENCY AS AGENTS OF INSURER WILL BE PAID BY INSURER IN
ACCORDANCE WITH ITS THEN-APPLICABLE REQUIREMENTS.]
d. Neither Broker-Dealer nor Insurance Agency shall expend or contract
for the expenditure of the funds of Distributor or Insurer, except as
may otherwise be agreed in writing. Broker-Dealer and Insurance
Agency each shall pay all expenses incurred by each of them in the
performance of this Agreement, unless otherwise specifically provided
for in this Agreement or unless Distributor and Insurer shall have
agreed in advance in writing to share the cost of any such expenses.
Neither Broker-Dealer nor Insurance Agency shall possess or exercise
any authority on behalf of Insurer or Distributor other than that
expressly conferred on Broker-Dealer or Insurance Agency by this
Agreement. In particular, and without limiting the foregoing, neither
Broker-Dealer nor Insurance Agency shall have any authority, nor shall
either grant such authority to any Agent, on behalf of Insurer: to
make, alter or discharge any Contract or other insurance policy or
annuity entered into pursuant to a Contract; to waive any Contract
forfeiture provision; to extend the time of paying any Premiums; or to
receive any monies or Premiums from applicants for or purchasers of
the Contracts (except for the sole purpose of forwarding monies or
Premiums to Insurer).
e Broker-Dealer and Insurance Agency acknowledge that Insurer has the
right in its sole discretion to reject any applications or Premiums
received by it and to return or refund to an applicant such
applicant's Premiums.
<PAGE>
3. LICENSING AND REGISTRATION OF BROKER-DEALER, INSURANCE AGENCY AND AGENTS
a. Broker-Dealer represents and warrants that it is a broker-dealer
registered with the SEC under the 1934 Act, and is a member of the
NASD. Broker-Dealer shall, at all times when performing its functions
and fulfilling its obligations under this Agreement, be duly
registered as a broker-dealer under the 1934 Act and in each state or
other jurisdiction in which Broker-Dealer intends to perform its
functions and fulfill its obligations hereunder, as required, and be a
member in good standing of the NASD.
b. Insurance Agency represents and warrants that it is a licensed life
insurance agent where required to solicit applications. Insurance
Agency shall, at all times when performing its functions and
fulfilling its obligations under this Agreement, be duly licensed to
sell the Contracts in each state or other jurisdiction in which
Insurance Agency intends to perform its functions and fulfill its
obligations hereunder.
c. Broker-Dealer and Insurance Agency shall ensure that no individual
shall solicit applications or Premiums for the Contracts on their
behalf in any state or other jurisdiction in which the Contracts may
lawfully be sold unless (i) such individual is an associated person of
Broker-Dealer (as that term is defined in Section 3(a)(18) of the 1934
Act) and duly registered with the NASD and any applicable state
securities regulatory authority as a registered person of
Broker-Dealer qualified to solicit applications or Premiums for the
Contracts in such state or jurisdiction, (ii) duly licensed,
registered or otherwise qualified to solicit applications or Premiums
for the Contracts to be offered and sold by such individual under the
insurance laws of such state or jurisdiction, and (iii) duly appointed
by Insurer to solicit applications or Premiums for Contracts in such
state or jurisdiction. INSURER SHALL BE SOLELY RESPONSIBLE FOR
BACKGROUND INVESTIGATIONS OF THE AGENTS TO DETERMINE THEIR
QUALIFICATIONS, GOOD CHARACTER AND MORAL FITNESS TO SELL THE
CONTRACTS. ALL MATTERS CONCERNING THE LICENSING OF ANY INDIVIDUALS
RECOMMENDED FOR APPOINTMENT BY INSURANCE AGENCY UNDER ANY APPLICABLE
STATE INSURANCE LAW SHALL BE A MATTER DIRECTLY BETWEEN INSURANCE
AGENCY AND SUCH INDIVIDUAL, AND SHALL FURNISH INSURER WITH PROOF, OF
PROPER LICENSING OF SUCH INDIVIDUAL OR OTHER PROOF, REASONABLY
ACCEPTABLE TO INSURER, OF SATISFACTION BY SUCH INDIVIDUAL AS AN AGENT
OF INSURER. INSURANCE AGENCY AND BROKER-DEALER SHALL NOTIFY INSURER
AND DISTRIBUTOR IMMEDIATELY UPON TERMINATION (FOR WHATEVER REASON) OF
AN AGENT'S ASSOCIATION WITH BROKER-DEALER AND INSURANCE AGENCY.
d. Without limiting the foregoing, Broker-Dealer and Insurance Agency
represent that they are in compliance with the terms and conditions of
HOWARD & HOWARD (SUB. NOM. FIRST OF AMERICA BROKERAGE SERVICE, INC.)
(avail. Sept. 28, 1995) issued by the Staff of the SEC with respect to
the non-registration as a broker-dealer of an insurance agency
associated with a registered broker-dealer. Broker-Dealer and
Insurance Agency shall notify Distributor immediately in writing if
Broker-Dealer and/or Insurance Agency fail to comply with any such
terms and
<PAGE>
conditions and shall take such measures as may be necessary and as
promptly as practicable under the circumstances to cure any such
non-compliance.
4. BROKER-DEALER AND INSURANCE AGENCY COMPLIANCE
a. Broker-Dealer, and not Distributor, shall be responsible for
securities training, supervision and control of the Agents in
connection with their solicitation activities with respect to the
Contracts and shall supervise Agents' compliance with applicable
federal and state securities law and NASD requirements in connection
with such solicitation activities.
b. Broker-Dealer and Insurance Agency hereby represent and warrant that
they are duly in compliance with all applicable federal and state
securities laws and regulations, and all applicable insurance laws and
regulations. Broker-Dealer and Insurance Agency each shall carry out
their respective obligations under this Agreement in continued
compliance with such laws and regulations. Further, Broker-Dealer and
Insurance Agent shall comply, and shall ensure that Agents comply,
with the rules and procedures set for the in the Agents Manual, and
the rules set forth below, and Broker-Dealer and Insurance Agency
shall be solely responsible for such compliance.
(1) Broker-Dealer, Insurance Agency and Agents shall not offer or
attempt to offer the Contracts, nor solicit applications or
Premiums for the Contracts, nor deliver Contracts, in any state
or jurisdiction in which the Contracts have not been approved for
sale. For purposes of determining where the Contracts may be
offered and applications or Premiums solicited, Broker-Dealer and
Insurance Agency may rely on written notification, as revised
from time to time, that they receive from Insurer pursuant to
this Agreement.
(2) Broker-Dealer, Insurance Agency and Agents shall not solicit
applications or Premiums for the Contracts without delivering the
Prospectus for the Contracts, and, where required by state
insurance law, the then-currently effective statement of
additional information for the Contracts, and the then-currently
effective prospectus(es) for the Fund(s).
(3) Broker-Dealer, Insurance Agency and Agents shall not recommend
the purchase of a Contract to an applicant unless each has
reasonable grounds to believe that such purchase is suitable for
the applicant in accordance with, among other things, applicable
regulations of any state insurance regulatory authority, the SEC
and the NASD. While not limited to the following, a
determination of suitability shall be based on information
supplied by the applicant after a reasonable inquiry concerning
the applicant's insurance and investment objectives, financial
situation and needs and the likelihood that the applicant will
continue to make premium payments. Each application or related
documentation obtained by an
<PAGE>
agent of Broker-Dealer shall bear the initials of a principal of
Broker-Dealer indicating the application has been reviewed by
such principal for suitability, completeness and accuracy.
(4) Broker-Dealer, Insurance Agency and all Agents shall accept
initial Premiums in the form of a check or money order only if
made payable to the name of Insurer and signed by the applicant
for the Contract. Broker-Dealer, Insurance Agency and Agent
shall not accept third-party checks or cash for Premiums.
(5) Broker-Dealer, Insurance Agency and Agents shall not encourage a
prospective applicant to surrender or exchange an instrument
contract in order to purchase a Contract, nor to encourage a
Contract owner to lapse, terminate, surrender, exchange or cancel
his or her Contract or discontinue paying Premiums thereunder.
(6) Broker-Dealer and Insurance Agency shall ensure that all checks
and money orders and applications for the Contracts received by
either of them or an Agent shall be remitted promptly, and in any
event not later than noon of the next business day after receipt,
to the Administrative Office. In the event that any other
Premiums are sent to an Agent, Insurance Agency or Broker-Dealer,
rather than to the Administrative Office, Insurance Agency and
Broker-Dealer shall promptly (and in any event, not later than
noon of the next business day) remit such Premiums to the
Administrative Office. Insurance Agency and Broker-Dealer
acknowledge that if any Premium is held at any time by either of
them such Premium shall be held on behalf of Insurer, and
Insurance Agency or Broker-Dealer shall segregate such Premium
from their own funds and promptly (and in any event, by noon of
the next business day) remit such Premium to the Insurer. All
such Premium, whether by check, money order or wire, shall at all
times be the property of Insurer.
(7) Upon issuance of a Contract by Insurer and delivery of such
Contracts to Insurance Agency, Insurance Agent or Agent shall
promptly deliver such Contract to its purchaser. For purposes of
this provision, "promptly" shall be deemed to mean not later than
five calendar days. Broker-Dealer and Insurance Agency shall
return promptly to Insurer all receipts, if applicable, for
delivered Contracts, all undelivered Contracts and all receipts,
if applicable, for cancellation, in accordance with the
instructions set forth in the Agents Manual. Broker-Dealer,
Insurance Agency, and the Agents in connection with the offer or
sale of the Contracts, shall not give any information or make any
representations or statements, written or oral, concerning the
Contracts, a Fund or Fund shares, other than or inconsistent with
information or representations contained in the Prospectuses,
statements of additional information and Registration Statements
for the Contracts, or a Fund, or in reports or proxy statements
<PAGE>
therefor, or in promotional, sales or advertising material or
other information supplied and approved in writing by Distributor
and Insurer.
c. Broker-Dealer and Insurance Agency understand, acknowledge, and
represent that Contracts and Premiums thereunder shall not be
solicited, offered, or sold in connection with any so-called "market
timing" or "asset reallocation" program, plan, arrangement or service
that has not been approved in advance in writing by Insurer and
Distributor. Should Distributor or Insurer determine in their sole
discretion that Broker-Dealer or Insurance Agency is soliciting,
offering, or selling, or has solicited, offered, or sold, Contracts or
Premiums subject to any so-called "market timing" or "asset
reallocation" program, plan, arrangement or service, Distributor or
Insurer may take such action which is necessary, in their sole
discretion, to halt such solicitations, offers or sales. Furthermore,
in addition to any indemnification provided in Section 11 of this
Agreement and any other liability that Broker-Dealer and Insurance
Agency might have, Broker-Dealer and Insurance Agency shall each be
liable to Distributor and Insurer and each Fund affected by any
so-called "market timing" or "asset reallocation" program, plan,
arrangement or service, for any damages or losses, actual or
consequential, sustained by Distributor or Insurer or any Fund, as a
result of any so-called "market timing" or "asset reallocation"
program, plan, arrangement or service which causes such losses or
damages following solicitation, offer, or sale of a Contract or
Premiums subject to "market timing" or "asset reallocation" or similar
service by Broker-Dealer or Insurance Agency.
c. Broker-Dealer and Insurance Agency shall promptly furnish to Insurer
or its authorized agent any reports and information that Insurer may
reasonably request for the purpose of meeting Insurer's reporting and
recordkeeping requirements under the insurance laws of any state,
under any applicable federal and state securities laws, rules and
regulations.
d. Broker-Dealer shall secure and maintain a fidelity bond (including
coverage for larceny and embezzlement), issued by a reputable bonding
company, covering all of its directors, officers, agents and employees
who have access to funds of Insurer or Distributor. This bond shall
be maintained at Broker-Dealer's expense in at least the amount
prescribed under Rule 3020 of the NASD Conduct Rules. Broker-Dealer
shall provide Distributor with a copy of said bond before executing
this Agreement. Broker-Dealer shall also secure and maintain errors
and omissions insurance acceptable to Insurer and covering
Broker-Dealer and Agents (registered representatives). Broker-Dealer
hereby assigns any proceeds received from a fidelity bonding company,
errors and omissions or other liability coverage, to Insurer or
Distributor as their interest may appear, to the extent of their loss
due to activities covered by the bond, policy or other liability
coverage. If there is any deficiency, whether due to a deductible or
otherwise, Broker-Dealer shall promptly pay such amounts on demand.
Broker-Dealer hereby agrees to indemnify and hold harmless Insurer and
Distributor from any such deficiency and from the costs of collection
thereof, including reasonable attorneys' fees.
<PAGE>
5. SALES MATERIALS
a. During the term of this Agreement, Distributor and Insurer will
provide Broker-Dealer and Insurance Agency, without charge, with as
many copies of Prospectuses (and any supplements thereto), current
Fund prospectuses (and any supplements thereto), and applications for
the Contracts, as Broker-Dealer or Insurance Agency may reasonably
request. Upon termination of this Agreement, Broker-Dealer and
Insurance Agency will promptly return to Distributor any Prospectuses,
applications, Fund prospectuses, and other materials and supplies
furnished by Distributor or Insurer to Broker-Dealer or Insurance
Agency or to the Agents.
b. During the term of this Agreement, Distributor and Insurer will be
responsible for providing and approving all promotional, sales and
advertising material to be used by Broker-Dealer and Insurance Agency
in the course of their solicitation activities hereunder. Distributor
will file such materials or will cause such materials to be filed with
the SEC, the NASD, and/or with any state securities regulatory
authorities, as appropriate. Broker-Dealer and Insurance Agency shall
not use or implement, nor shall they allow any Agent to use or
implement, any promotional, sales or advertising material relating to
the Contracts or otherwise advertise the Contracts without the prior
written approval of Distributor and Insurer.
6. COMMISSIONS AND EXPENSES
a. COMPENSATION. During the term of this Agreement, Broker-Dealer and
Insurance Agency shall be compensated for services performed
hereunder, based on the Contracts for which Insurance Agency is the
Broker-of-Record and at the COMMISSION RATES AND FEES SET FORTH IN
SCHEDULE 2 TO THIS AGREEMENT, as such SCHEDULE 2 MAY BE AMENDED OR
MODIFIED UPON _____ DAYS NOTICE. ANY amendment to Schedule 2 will be
applicable to any Contract for which an application or Premium is
received by the Administrative Office on or after the effective date
of such amendment or which is in effect after the effective date of
such amendment. Compensation shall be paid on behalf of Insurer and
Distributor to Insurance Agency on its behalf and on behalf of
Broker-Dealer. Compensation with respect to any Contract shall be
paid to Insurance Agency only for so long as Insurance Agent is the
Broker-of-Record for such Contract.
b. CONDITIONS TO COMPENSATION. Broker-Dealer and Insurance Agency
recognize that all compensation payable to them hereunder will be
disbursed by or on behalf of Insurer after Premiums are received and
accepted by Insurer and that no compensation of any kind other than
that described in this Agreement is payable to Insurance Agency for
the performance of its obligations hereunder.
<PAGE>
c. REFUND OF COMPENSATION. No compensation shall be payable, and
Broker-Dealer agrees to reimburse Distributor for any compensation
paid to Broker-Dealer or its Representatives, or Insurance Agency
under each of the following conditions: (i) if Insurer, in its sole
discretion, determines not to issue the Contract applied for; (ii) if
Insurer refunds the Premiums upon the applicant's surrender or
withdrawal pursuant to any "free-look" privilege; (iii) if Insurer
refunds the Premiums paid by applicant as a result of a complaint by
applicant, recognizing that Insurer has sole discretion to refund
Premiums; and (iv) if Insurer determines that any person signing an
application who is required to be licensed or any other person or
entity receiving compensation for soliciting purchase of the Contracts
is not duly licensed to sell the Contracts in the jurisdiction of such
sale or attempted sale.
d. INDEBTEDNESS AND RIGHT OF SETOFF. Nothing contained herein shall be
construed as giving Broker-Dealer or Agent the right to incur any
indebtedness on behalf of Insurer or Distributor. Broker-Dealer
hereby authorizes Insurer and Distributor to set off liabilities of
Broker-Dealer to Insurer and Distributor against any and all amounts
otherwise payable to Broker-Dealer.
e. COMMISSION SHARING. Broker-Dealer and Insurance Agency represent that
no commissions or other compensation will be paid for services
rendered in soliciting the purchase of the contracts by any person or
entity not duly registered or licensed by the required authorities and
appointed by Insurer to sell the Contract in the state in which such
solicitation occurred; provided however, that this provision shall not
prohibit the payment of compensation of the surviving spouse or other
beneficiary of a person entitled to receive such compensation pursuant
to a bona fide contract calling for such payment.
7. INTERESTS IN AGREEMENT. Agents shall have no interest in this Agreement or
right to any commissions to be paid to Insurance Agency hereunder.
Insurance Agency shall be solely responsible for the payment of any
commission or consideration of any kind to Agents. Broker-Dealer and
Insurance Agency shall be solely responsible under applicable tax laws for
the reporting of compensation paid to Agents. Insurance Agency shall have
no right to withhold or deduct any commission from any Premiums in respect
of the Contracts which it may collect, subject to Schedule 2 to this
Agreement. Insurance Agency shall have no interest in any compensation
paid by Insurer to Distributor, now or hereafter, in connection with the
sale of any Contracts hereunder.
8. TERM AND EXCLUSIVITY OF AGREEMENT. This Agreement may not be assigned
except by written mutual consent and shall continue for an indefinite term,
subject to the termination by either party by ten-days' advance written
notice to the other party, except that in the event Distributor or
Broker-Dealer ceases to be a registered broker-dealer or a member of the
NASD, this Agreement shall immediately terminate. Upon its termination,
all authorizations, rights and obligations shall cease, except the
agreements in SECTIONS 5, 8, 11, 12, 14, 15, 18 and the payment of any
accrued but unpaid compensation to Broker-Dealer and Insurance Agent.
<PAGE>
9. COMPLAINTS AND INVESTIGATIONS
a. Distributor, Insurer, Broker-Dealer and Insurance Agency each shall
cooperate fully in any securities or insurance regulatory
investigation or proceeding or judicial proceeding arising in
connection with the Contracts marketed under this Agreement.
Broker-Dealer and Insurance Agency will be notified promptly of any
customer complaint or notice of any regulatory investigation or
proceeding or judicial proceeding received by Distributor or Insurer
with respect to Broker-Dealer, Insurance Agency or any Agent; and
Broker-Dealer and Insurance Agency will promptly notify Distributor
and the Insurer of any written customer complaint or notice of any
regulatory investigation or proceeding or judicial proceeding received
by Broker-Dealer or Insurance Agency with respect to themselves or any
Agent in connection with this Agreement or any Contract.
b. In the case of a customer complaint, Distributor, Insurer,
Broker-Dealer and Insurance Agency will cooperate in investigating
such complaint and any response by Broker-Dealer or Insurance Agency
to such complaint will be sent to Distributor for approval not less
than five business days prior to its being sent to the customer or
regulatory authority, except that if a more prompt response is
required, the proposed response shall be communicated by telephone or
facsimile.
10. MODIFICATION OF AGREEMENT. This Agreement supersedes all prior agreements,
either oral or written, between the parties relating to the Contracts and,
except for any amendment of Schedule 1 pursuant to the terms of Section 2
hereof or Schedule 2 pursuant to the terms of Section 6 hereof, may not be
modified in any way unless by written agreement signed by all of the
parties.
11. INDEMNIFICATION
a. Broker-Dealer and Insurance Agency, jointly and severally, shall
indemnify and hold harmless Distributor and Insurer and each person
who controls or is associated with Distributor or Insurer within the
meaning of such terms under the federal securities laws, and any
officer, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they
or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon:
(1) violation(s) by Broker-Dealer, Insurance Agency, or an Agent of
federal or state securities law or regulation(s), insurance law
or regulation(s), or any rule or requirement of the NASD:
<PAGE>
(2) any unauthorized use of promotional, sales or advertising
material, any oral or written misrepresentations or any unlawful
sales practices concerning the Contracts, by Broker-Dealer,
Insurance Agency or an Agent;
(3) claims by the Agents or other agents or representatives of
Insurance Agency or Broker-Dealer for commissions or other
compensation or remuneration of any type;
(4) any failure on the part of Broker-Dealer, Insurance Agency, or an
Agent to submit Premiums or applications to Insurer, or to submit
the correct amount of a Premium, on a timely basis and in
accordance with this Agreement and the Agents Manual, subject to
applicable law;
(5) any failure on the part of Broker-Dealer, Insurance Agency, or an
Agent to deliver Contracts to purchasers thereof on a timely
basis and in accordance with the Agents Manual; or
(6) a breach by Broker-Dealer or Insurance Agency of any provision of
this Agreement.
(7) any other acts or omission of Broker-Dealer, Insurance Agency or
Agent which results in a claim against Distributor, Insurer their
agents or employees.
This indemnification will be in addition to any liability which
Broker-Dealer and Insurance Agency may otherwise have.
b. Distributor and Insurer, jointly and severally, shall indemnify and
hold harmless Broker-Dealer and Insurance Agency and each person who
controls or is associated with Broker-Dealer or Insurance Agency
within the meaning of such terms under the federal securities laws,
and any officer, director, employee or agent of the foregoing, against
any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they
or any of them may become subject under any statute or regulation,
NASD rule or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or based upon any
breach by Distributor or Insurer of any provision of this Agreement.
This indemnification will be in addition to any liability which
Distributor and Insurer, jointly and severally, may otherwise have.
c. Promptly after receipt by a party entitled to indemnification
("indemnified person") under this Section 11 of notice of the
commencement of any action as to which a claim will be made against
any person obligated to provide indemnification under this Section 11
("indemnifying party"), such indemnified
<PAGE>
person shall notify the indemnifying party in writing of the
commencement thereof as soon as practicable thereafter, but failure to
so notify the indemnifying party shall not relieve the indemnifying
party from any liability which it may have to the indemnified person
otherwise than on account of this Section 11, except to the extent
that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a
result of the failure to give such notice. The indemnifying party
will be entitled to participate in the defense of the indemnified
person but such participation will not relieve such indemnifying party
of the obligation to reimburse the indemnified person for reasonable
legal and other expenses incurred by such indemnified person in
defending himself or itself. The indemnifying party, upon the request
of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i)
the indemnifying party and indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. The indemnifying party
shall not be liable for any settlement of any proceeding effected
without its written consent, but if such proceeding for the plaintiff,
the indemnifying party shall indemnify the indemnified party from and
against any loss or liability by reason of such settlement or
judgement.
The indemnification provisions contained in this Section 11 shall
remain operative in full force and effect, regardless of any
termination of this Agreement. A successor by law of Distributor or
Insurer, as the case may be, shall be entitled to the benefits of the
indemnification provisions contained in this Section 11. After
receipt by a party entitled to indemnification ("indemnified party")
under this Section 11 of notice of the commencement of any action, if
a claim in respect thereof is to be made against any person obligated
to provide indemnification under this Section 11 ("indemnifying
party"), such indemnified party will notify the indemnifying party in
writing of the commencement thereof as soon as practicable thereafter,
provided that the omission so to notify the indemnifying party will
not relieve it from any liability under this Section 11.
12. RIGHTS, REMEDIES, ETC., ARE CUMULATIVE. The rights, remedies and
obligations contained in this Agreement are cumulative and are in addition
to any and all rights, remedies and obligations, at law or in equity, which
the parties hereto are entitled to under state and federal laws. Failure
of a party to insist upon strict compliance with any of the conditions of
this Agreement shall not be construed as a waiver of any of the conditions,
but the same shall remain in full force and effect. No waiver of any of
the provisions of this
<PAGE>
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver.
13. NOTICES. All notices hereunder are to be made in writing and shall be
given:
If to Insurer, to:
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
If to Distributor, to:
EquiTrust Marketing Services, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
If to Broker-Dealer, to:
If to Insurance Agency, to:
such other address as such party may hereafter specify in writing. Each such
notice to a party shall be either hand delivered or transmitted by registered or
certified United States mail with return receipt requested, or by overnight mail
by a nationally recognized courier, and shall be effective upon delivery.
14. INTERPRETATION, JURISDICTION, ETC. This Agreement constitutes the whole
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior oral or written understandings, agreements or
negotiations between the parties with respect to the subject matter hereof. No
prior writings by or between the parties hereto with respect to the subject
matter hereof shall be used by a party in connection with the interpretation of
any provision of this Agreement. This Agreement shall be construed and its
provisions interpreted under and in accordance with the laws of the State of
Iowa without giving effect to principles of conflict of laws.
15. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in accordance
with the Commercial Arbitration
<PAGE>
Rules of the American Arbitration Association, and judgement upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof.
16. HEADINGS. The headings in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
17. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
18. SEVERABILITY. In the event that any provision of this Agreement would
require a party to take action prohibited by applicable federal or state law or
prohibit a party from taking action required by applicable federal or state law,
then it is the intention of the parties hereto that such provision shall be
enforced to the extent permitted under the law, and, in any event, that all
other provisions of this Agreement shall remain valid and duly enforceable as if
the provision at issue had never been a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EQUITRUST LIFE INSURANCE COMPANY
By:_____________________________________
Name:___________________________________
Title:____________________________________
EQUITRUST MARKETING SERVICES, INC.
By:_____________________________________
Name:___________________________________
Title:____________________________________
<PAGE>
RETAIL BROKER-DEALER
By:______________________________________
Name:___________________________________
Title:_____________________________________
INSURANCE AGENCY: ________________________
By:_______________________________________
Name:____________________________________
Title:______________________________________
<PAGE>
SCHEDULE 1
CONTRACTS SUBJECT TO THIS AGREEMENT
Effective _________________________, 1998
<PAGE>
Schedule 2
COMPENSATION SCHEDULE
Effective _____________________, 1998
<PAGE>
WHOLESALING AGREEMENT
This Agreement dated this _______ day of ___________________, ________ is
by and among EquiTrust Life Insurance Company, an Iowa corporation ("Insurer"),
EquiTrust Marketing Services, Inc. ("Distributor") a Delaware corporation which
is a registered broker-dealer with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of the National Association of Securities Dealers, Inc. ("NASD");
____________________________________ ("Wholesaler"), also a registered
broker-dealer with the SEC under the Exchange Act and a member of the NASD; and
__________________________________, a licensed insurance agency associated with
Wholesaler ("Agency"); and each additional insurance agency, if any, signatory
hereto (all such insurance agencies referred to collectively as "Agency").
WITNESSETH:
WHEREAS, Insurer has appointed Distributor as the principal underwriter
and distributor of the variable insurance contracts issued by Insurer, and
has agreed with Distributor that Distributor shall be responsible for the
recruitment of third parties who will promote the offer and sale of these
variable contracts; and
WHEREAS, Insurer and Distributor on the one hand, and Wholesaler, on the
other hand, desire to establish an arrangement whereby Wholesaler will
recommend to Distributor and Insurer certain third parties (the "Retailers")
who will promote the offer and sale of the variable life insurance and
variable annuities issued by Insurer (collectively the "Policies").
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. APPOINTMENT OF WHOLESALER
Subject to the terms and conditions of this Agreement, Insurer and
Distributor hereby authorize and appoint Wholesaler, on a non-exclusive
basis, to recommend to Insurer and Distributor Retailers who will promote the
offer and sale of Policies. Wholesaler hereby accepts such authorization and
appointment on a non-exclusive basis and agrees to use its best efforts to
find Retailers acceptable to Insurer who will promote the offer and sale of
Policies. Wholesaler acknowledges that no territory is exclusively assigned
to Wholesaler hereby, and that Distributor and Insurer may enter into
agreements with other third party wholesalers and broker-dealers providing
for the sale of the Policies. Further, Wholesaler acknowledges that Insurer
and Distributor may enter into agreements with other representatives of a
Retailer previously dealing with Wholesaler if such
<PAGE>
representatives are contracted by other third-party Wholesalers. Further,
any compensation as provided for in Section 7 hereof, shall only be based and
paid on those Policies written by Retailers during the period that such
Retailer is recognized by Insurer as appointed through Wholesaler and during
which there is outstanding a valid, binding and enforceable selling agreement
between such Retailer, Distributor and Insurer. Without limiting any
provision otherwise contained in this Agreement, Wholesaler shall conduct its
business in accordance with generally accepted customs and practices of the
life insurance industry.
2. THE POLICIES
The Policies issued by Insurer to which this Agreement applies are listed in
Exhibit A, which by this reference is incorporated herein. Exhibit A may be
amended from time to time by Insurer. Insurer in its sole discretion and
without notice to Wholesaler, may suspend sales of any Policies or may amend
any contracts or policies evidencing such Policies if, in Insurer's opinion,
such suspension or amendment is: (1) necessary for compliance with federal,
state, or local laws, regulations, or administrative order(s); or, (2)
necessary to prevent administrative or financial hardship to Insurer. In all
other situations, Insurer shall provide 30 days notice to Wholesaler prior to
suspending sales of any Policies or amending any contracts or policies
evidencing such Policies.
3. SECURITIES REGISTRATION AND LICENSING
Wholesaler shall, at all times when performing its functions under this
Agreement, be either registered as, or a registered representative in good
standing with, a securities broker-dealer in good standing with the SEC and
NASD and licensed or registered as a securities broker-dealer, or
representative, in the states and other local jurisdictions that require such
licensing or registration in connection with variable insurance contract
sales activities. Any personnel through which Wholesaler acts shall be
registered and licensed individually as required. Wholesaler hereby
represents and warrants to Distributor it is not currently under
investigation, formal or informal, by any securities or insurance regulatory
authority.
4. INSURANCE LICENSING
Wholesaler shall, at all times when performing its functions under this
Agreement, be validly licensed as an insurance agent or agency in the states
and other local jurisdictions that require such licensing or registration in
connection with the Wholesaler's variable life insurance and variable annuity
contract sales activities; or, in those states in which Wholesaler cannot or
does not obtain a corporate agent's license, shall maintain an ownership
interest in, or contractual relationship with, Agency, which shall be validly
licensed as an insurance agency in such jurisdiction or jurisdictions. Such
contractual relationship shall be set forth in an agreement substantially
equivalent to that set forth as Exhibit B. Any personnel through which
Wholesaler acts shall be licensed individually as required. Wholesaler shall
provide Insurer with a list of all licensed insurance agencies
<PAGE>
relied upon by Wholesaler to comply with this paragraph and covenants to
maintain the completeness and accuracy of such list, and to cause each such
agency to become a signatory hereto.
5. RECOMMENDATION AND ACCEPTANCE OF RETAILERS
Wholesaler will recruit and recommend potential Retailers to sell the
Policies. Insurer shall have sole discretion to accept or reject any such
recommendation. Acceptance shall occur only upon and by way of execution of a
selling agreement between Retailer, Distributor and Insurer.
6. WHOLESALING SERVICES
Wholesaler shall use its best efforts to provide certain services and support
to Retailers to facilitate the offering and selling of Policies. Such
activities shall include, but not be limited to, assistance in the
appointment of agents; distribution of sales material, newsletters and field
service bulletins (subject to Section 12, hereof); assistance with the sales
promotional activities with Retailers; and training of sales staff and
registered representatives of Retailers with respect to the features of the
Policies.
7. COMPENSATION
Compensation for the services performed in accordance with Section 6 above,
will be, pursuant to the terms and conditions in Exhibit C, a percentage of
purchase payments made to Insurer on account of Policies issued upon
applications procured through Retailers in accordance with this Agreement.
Compensation shall be paid to Wholesaler unless applicable state insurance
law requires that compensation be paid to Agency. Upon the termination of
this Agreement all compensation payable to Wholesaler hereunder shall cease,
except that compensation will be paid on premiums accompanying applications
obtained by Retailers recruited by Wholesaler and dated prior to such
termination. Exhibit C may be amended by Insurer by providing written notice
to Wholesaler. Such amendment shall apply only to applications dated after
the effective date of such amendment, provided, however, that Insurer
reserves the right to apply such amendment with respect to all subsequent
premiums and renewal premiums received after the effective date of such
amendment. In the event Wholesaler is disqualified from continued
registration with the NASD, Insurer shall not be obligated to pay
commissions, fees or additional compensation pursuant to this Agreement, the
payment of which would represent a violation of NASD rules.
8. SUPERVISION OF REGISTERED REPRESENTATIVES
Wholesaler, and not Distributor, shall have full responsibility for the
training and supervision of all of its own registered persons who are engaged
directly or indirectly in the offer or sale of the variable insurance
contract hereunder, and all such persons shall be subject to the control of
and supervision of Wholesaler with respect to such person's
<PAGE>
securities-regulated activities, and to the control of Agency with respect to
such person's insurance-regulated activities, in connection with the
solicitation and sale of and other communication with respect to variable
insurance and annuity contracts hereunder. Wholesaler and Agency shall not,
solely by virtue of this Agreement, be obligated to supervise the registered
representative of any Retailer.
9. COMPLIANCE WITH NASD CONDUCT RULES AND FEDERAL AND STATE SECURITIES LAWS
Wholesaler shall fully comply with the rules and requirements of the NASD and
of the Exchange Act and all other applicable federal or state laws and will
establish such rules and procedures as may be necessary to cause diligent
supervision of the securities activities of its registered persons. Upon
request by Distributor, Wholesaler shall furnish such appropriate records as
may be necessary to establish such diligent supervision.
10. REGULATIONS
All parties agree to observe and comply with the existing laws and rules or
regulations of applicable local, state, or federal regulatory authorities and
with those which may be enacted or adopted during the term of this Agreement
regulating the business contemplated hereby in any jurisdiction in which the
business described herein is to be transacted, and to provide information or
reports with respect to their duties hereunder pursuant to request by any
regulatory authority having jurisdiction with respect thereto.
11. INVESTIGATIONS; CUSTOMER COMPLAINTS
Wholesaler agrees to fully cooperate in any insurance, securities or other
regulatory or judicial investigation or proceeding arising in connection with
the Policies, Insurer, Distributor, Wholesaler, Agency and/or any of the
Retailers recruited by Wholesaler. Wholesaler and Agency shall permit
appropriate federal and state insurance and other regulatory authorities to
audit their records and shall furnish the foregoing authorities with any
information which such authorities may request in order to ascertain whether
Wholesaler or Agency is complying with all applicable laws and/or
regulations. Wholesaler and Agency agree to cooperate with Insurer in
resolving all customer complaints with respect to the Policies, Wholesaler,
Agency or any Retailer.
12. PROSPECTUSES, SALES PROMOTION MATERIAL AND ADVERTISING
Wholesaler shall be provided, without any expense to Wholesaler, with
prospectuses relating to the Policies ("Prospectuses") and such other
material as Distributor determines to be necessary or desirable for use in
connection with sales of the Policies or the recruitment of Retailers. No
materials or any advertising relating to the recruitment of Retailers, or the
Policies shall be used by Wholesaler unless the specific item has been
approved in writing by Distributor prior to such use. In addition, Wholesaler
shall not print, publish or distribute any advertisement, circular or any
document relating to
<PAGE>
Insurer, Distributor or the Policies unless such advertisement, circular, or
document shall have been approved in writing by Insurer and Distributor prior
to such use. No representations in connection with the recruitment of
Retailers, or the sale of the Policies, other than those contained in the
currently effective registration statements and Prospectuses for the Policies
filed with the SEC, or in the aforesaid approved materials, shall be made by
Wholesaler. Wholesaler shall only recruit Retailers who are licensed in
states where Policies have been approved by state authorities. Upon
termination of this Agreement, all Prospectuses, sales promotion material,
advertising, circulars, and documents relating to the recruitment of
Retailers, or the sales of the Policies shall be promptly turned over to
Insurer free from any claim or retention of rights by the Wholesaler.
13. BOOKS AND RECORDS
Wholesaler shall maintain the books, accounts, and records as required by
applicable laws and regulations. The books, accounts and records of
Wholesaler shall clearly and accurately disclose the nature and details of
Wholesaler's activities related hereto. Wholesaler shall keep confidential
all information obtained pursuant to this Agreement (including, without
limitation, names of purchasers of Policies) and shall disclose such
information only if Insurer has authorized such disclosure in writing, or if
such disclosure is expressly required by applicable federal or state
authorities. Distributor shall have access to all books, accounts and
records of Wholesaler pertaining to the Policies.
14. RIGHT OF OFFSET, LIABILITY OF WHOLESALER, AND LEGAL PROCEEDINGS
Wholesaler hereby authorizes Insurer to set off from all amounts otherwise
payable to Wholesaler all liabilities of Wholesaler or Retailers to Insurer.
Wholesaler shall be jointly and severally liable with Retailers for the
payment of all monies due to Insurer which may arise out of this Agreement or
any other agreement between Wholesaler, Retailer and Insurer including, but
not limited to, any liability for any chargebacks or for any amounts advanced
by or otherwise due Insurer hereunder. The determination of the amount of any
liabilities shall be at the sole discretion of Insurer. The parties agree
Insurer retains the absolute and unilateral right to settle and resolve all
claims or causes of action, in its sole discretion, raised or asserted by any
person concerning the actions of Wholesaler or Retailers. Wholesaler's joint
and several liability shall not be contingent on input by Wholesaler in any
such settlements or resolutions. A first lien is hereby reserved to Insurer
upon any sums due to Wholesaler from Insurer for the satisfaction of any
liability arising pursuant to this Agreement. Insurer and Distributor do not
waive any of its other rights to pursue collection of any indebtedness owed
by Wholesaler or Retailers to Insurer. In the event Insurer initiates legal
action to collect any indebtedness of Wholesaler or Retailers, or their
agents, Wholesaler shall reimburse Insurer for reasonable attorney fees and
expenses in connection therewith. As used in this Section 14, "Insurer"
shall be deemed to refer to, and shall include, all affiliates of Insurer.
<PAGE>
15. INDEMNIFICATION
Insurer and Distributor hereby agrees to indemnify and hold harmless Agency,
Wholesaler and each of its affiliates, officers or directors against any
losses, expenses (including reasonable attorneys' fees), claims, damages or
liabilities to which Agency, Wholesaler or such affiliates, officers or
directors becomes subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
Insurer's performance, non-performance or breach of this Agreement, or are
based upon any untrue statement contained in any registration statement (or
any post-effective amendment thereof) or in the Prospectus or any amendment
or supplement to the Prospectus.
Wholesaler and Agency hereby agree, jointly and severally, to indemnify and
hold harmless Insurer and Distributor and each of their current and former
affiliates, directors and officers and each person, if any, who controls or
has controlled Insurer or Distributor within the meaning of the federal
securities laws, against any losses, expenses (including reasonable
attorneys' fees), claims (including, but not limited to, claims for
commissions or other compensation), damages or liabilities to which Insurer
and Distributor and any such affiliates, director or officer or controlling
person may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
Wholesaler's or Retailer's recruited by Wholesaler, performance,
non-performance, or breach of this Agreement or any other agreement between
Wholesaler, Retailer and Insurer including, but not limited to, any
unauthorized use of sales materials, any misrepresentations, or any sales
practices concerning the Policies.
16. INTEREST
Any unpaid obligation of Wholesaler to Insurer or Distributor under this
Agreement shall accrue interest at the lesser of the rate of fifteen percent
per annum, or the maximum interest rate otherwise permitted by applicable law.
17. LIMITATIONS
Nothing in this Agreement shall be construed as authorizing Wholesaler to
incur any indebtedness on behalf of Insurer or Distributor or any of its
affiliates. No party other than Insurer and Distributor shall have the
authority on behalf of Insurer or Distributor to enter into any selling
agreement, or to make, alter, waive or discharge any policy, contract, or
certificate issued by Insurer, to waive any forfeiture or to grant, permit,
nor extend the time for making any payments nor to guarantee earnings or
rates, nor to alter the forms which Insurer may prescribe or substitute other
forms in place of those prescribed by Insurer, nor to enter into any
proceeding in a court of law or before a regulatory agency in the name of or
on behalf of Insurer.
<PAGE>
18. INDEPENDENT CONTRACTORS
Wholesaler, Agency and Retailers are independent contractors with respect to
Insurer and Distributor. Nothing contained within this Agreement shall be
construed as creating a partnership between the parties hereto. Wholesaler,
Agency and their respective agents, representatives, and employees shall not
at any time hold themselves out to the public to be employees of Insurer or
Distributor.
19. NOTICES
All notices or communications shall be sent to the address shown below or to
such other address as the party may request by giving written notice to the
other parties:
Insurer:
EquiTrust Life Insurance Company
Suite 440
5000 Westown Parkway
West Des Moines, Iowa 50266
Distributor:
EquiTrust Marketing Services, Inc.
5400 University Avenue
West Des Moines IA 50266
Wholesaler:
(b) For purpose of communications pertaining to compliance and
supervision, Wholesaler hereby designates the following person and address to
receive such communications and notices at the following address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
Wholesaler covenants to promptly notify Insurer and Distributor of any change
in such designated person or address.
<PAGE>
20. ENTIRE AGREEMENT
This Agreement is the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings among such parties with respect to such subject
matter. No course of dealing, course of performance and no parole evidence
of any nature shall be used to supplement or modify any terms hereof,
provided, however, any obligation of Wholesaler to Insurer or any of its
affiliates pursuant to a prior agreement of any type shall continue as an
obligation thereunder.
21. SEVERABILITY
Any provision of this Agreement which is found to be invalid, void or illegal
shall in no way affect, impair or invalidate any other provision hereof, and
such other provisions shall remain in full force and effect.
22. AMENDMENT OF AGREEMENT
Insurer and Distributor reserve the right to amend this Agreement at any
time, and the receipt of compensation on any Policy written by any Retailer
recruited by Wholesaler after notice of any such amendment has been sent to
Wholesaler shall constitute the Wholesaler's agreement to any such amendment.
23. ASSIGNMENT
This Agreement may not be assigned except upon the written consent of all
parties; provided, however, that the rights, obligations, duties and
responsibilities of Distributor hereunder may be assigned to a properly
qualified affiliate of Insurer upon the written consent of Insurer and
Distributor.
24. WAIVER
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any of the
conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute
a waiver of any other provisions, whether or not similar, nor shall any
waiver constitute a continuing waiver.
25. BINDING EFFECT
This Agreement shall be binding on and shall inure to the benefit of the
parties to hereto and their respective successors and assigns; provided that
Wholesaler may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Insurer.
<PAGE>
26. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the laws
of the state of Iowa.
27. TERMINATION
This Agreement may be terminated, without cause, by any party upon thirty
(30) days prior written notice; and may be terminated for failure to perform
satisfactorily or other cause by any party immediately; and shall be
terminated if Insurer or Wholesaler shall cease to be broker-dealers, or a
registered representative of such a registered broker-dealer, under the
Exchange Act or members in good standing with the NASD. Without limiting the
foregoing, Insurer or Distributor may terminate this Agreement if it is
determined by Insurer or Distributor, in their sole and absolute discretion,
that Wholesaler is not adequately recruiting Retailers or promoting or
providing services to facilitate the solicitations for and sales of the
Policies. Upon termination of this Agreement, the terms of Sections 8, 11,
12, 13,14, 15, 16, 17 and 26 shall survive and be binding upon the parties
hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
INSURER:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
DISTRIBUTOR:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
WHOLESALER:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
AGENCY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT A
THE POLICIES
EquiTrust Life Annuity Account
EquiTrust Life Variable Account
<PAGE>
EXHIBIT B
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
[INSERT BROKER/DEALER].
AND
[INSERT INSURANCE AGENCY]
This Administrative Services Agreement, made as of the _____
day of __________, 199___, by and between ___________________.
("Broker/Dealer"), a corporation organized and existing under the laws of the
State of ___________, and _________________________. ("Insurance Agency"), a
corporation organized and existing under the laws of the State of ______.
WITNESSETH:
WHEREAS, Broker/Dealer is a broker/dealer registered with the
Securities and Exchange Commission ("SEC");
WHEREAS, Broker/Dealer desires to market variable insurance
product in (_______);
WHEREAS; variable insurance products may be sold in (_______) only
by persons that are licensed insurance agencies;
WHEREAS; (________) imposes requirements relating to domestic
incorporation of insurance agencies that Broker/Dealer cannot satisfy;
WHEREAS; Insurance Agency is a licensed insurance agency and is
associated with Broker/Dealer through stock ownership or contractual
arrangement; and
WHEREAS; Broker/Dealer and Insurance Agency desire to enter
into an arrangement for the offer and sale of variable insurance products
through common employees and representatives of Broker/Dealer and Insurance
Agency that complies with the terms and conditions of the First of America
Brokerage Service, Inc. no-action letter issued by the SEC staff (pub. avail
Sept. 28, 1995) so that neither Insurance Agency nor its unregistered
employees (defined below) will be required to register separately with the
SEC as broker/dealers pursuant to Section 15(b) of the Securities Exchange
Act of 1934 (the "1934 Act");
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties set forth below, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DUAL REPRESENTATIVES. Individuals who are registered principals
or representatives of Broker/Dealer and licensed insurance agents associated
with Insurance Agency.
<PAGE>
1.2 EFFECTIVE DATE. The date as of which this Agreement is executed.
1.3 UNREGISTERED EMPLOYEES. Individuals associated with Broker/Dealer
or Insurance Agency that do not hold all of the required registrations, licenses
and qualifications to sell Variable Products.
1.4 VARIABLE PRODUCTS. The variable life insurance policies and
variable annuity contracts offered from time to time by Broker/Dealer and
Insurance Agency in (__________).
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 ORGANIZATION AND GOOD STANDING. Each party hereto represents and
warrants that it is a corporation duly organized, validly existing and in good
standing under the laws of that jurisdiction set forth on page one (1) of this
Agreement; has all requisite corporate power to carry on its business as it is
now being conducted and is qualified to do business in each jurisdiction in
which such qualification is necessary under applicable law.
2.2 REGISTRATION OF BROKER/DEALER. Broker/Dealer represents and
warrants that, at all times when performing its functions and fulfilling its
obligations under this Agreement, it is or will be registered as a broker/dealer
with the SEC and in each state or other jurisdiction in which Broker/Dealer
intends to perform its functions and fulfill its obligations hereunder, if
required, and is or will be a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD").
2.3 LICENSING AND APPOINTMENT OF INSURANCE AGENCY. Insurance Agency
represents and warrants that, at all times when performing its functions and
fulfilling its obligations under this Agreement, it is or will be: (a) licensed
to sell Variable Products in each state or other jurisdiction in which Insurance
Agency intends to perform its functions and fulfill its obligations hereunder;
and (b) appointed by the insurance company issuing the Variable Products.
2.4 AUTHORIZATION. Each party hereto represents and warrants that the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate action, and when so executed and delivered this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
2.5 NO CONFLICTS. Each party hereto represents and warrants that the
consummation of the transactions contemplated herein, and the fulfillment of the
terms of this Agreement, will not conflict with, result in any breach of any of
the terms and provisions of, or constitute (with or without notice or lapse of
time) a default under, the articles of incorporation or bylaws of such party, or
any indenture, agreement, mortgage, deed of trust, or other instrument to which
such party is a party or by which it is bound, or violate any law, or, to the
best of such party's knowledge, any order, rule or regulation applicable to such
party of any court or of any federal or state regulatory body, administrative
agency or any other governmental instrumental having jurisdiction over such
party or any of its properties.
ARTICLE 3
RESPONSIBILITIES AND OBLIGATIONS OF BROKER/DEALER
3.1 REGISTRATION OF DUAL REPRESENTATIVES: ASSOCIATED PERSONS.
Broker/Dealer shall ensure that each Dual Representative will be registered and
qualified as necessary with the NASD and any appropriate state regulatory
authority, and will be deemed an associated person of Broker/Dealer within the
meaning of Section 3(a)(18) of the 1934 Act.
<PAGE>
3.2 TRAINING AND SUPERVISION. Broker/Dealer, through its designated
principals or members of its staff authorized to supervise employees, shall
train, supervise, control, and assume responsibility for all of the securities
activities of the Dual Representatives in connection with the offer and sale of
Variable Products.
3.3 CONDUCT MANUALS TO UNREGISTERED EMPLOYEES. Broker/Dealer shall
provide conduct manuals to be given to Unregistered Employees of Insurance
Agency that specify the limitations on their permissible activities, as set
forth below in Section 4.4. Insurance Agency shall provide such conduct manuals
to its Unregistered Employees. A form of such manual is attached hereto as
EXHIBIT A.
3.4 SUPERVISORY PROCEDURES TO DUAL REPRESENTATIVES. Broker/Dealer
shall require Dual Representatives to adhere to the policies and procedures
contained in Broker/Dealer's written Supervisory Procedures for registered
representatives, and Broker/Dealer shall monitor their compliance in this
regard.
3.5 COMPLIANCE WITH APPLICABLE LAW. Broker/Dealer shall comply, and
shall require that the Dual Representatives comply, with all applicable
statutory and regulatory requirements of the federal and state securities laws,
rules, regulations and regulatory policies and all applicable NASD rules and
regulatory policies.
3.6 ADVERTISEMENTS AND PROMOTIONAL MATERIALS. Neither Broker/Dealer
nor Insurance Agency shall use any advertisements or promotional materials
unless a designated principal of Broker/Dealer shall have approved such
advertisements and promotional materials prior to their distribution to ensure
that they are in compliance with federal and state securities laws and NASD
rules. Broker/Dealer shall assume full responsibility for all such
advertisements and promotional materials, and all such materials shall be deemed
to be Broker/Dealer's materials.
3.7 MAINTENANCE OF BOOKS AND RECORDS. Broker/Dealer shall maintain
books and records relating to transactions in Variable Products in its home
office in _________________> Where state insurance law mandates, duplicate
books and records relating to the sales of Variable Products may be maintained
by Insurance Agency, as stated below in Section 4.6. Such books and records
will be deemed books and records of Broker/Dealer and will be readily accessible
for examination by the SEC, the NASD, and other self-regulatory organizations of
which Broker/Dealer may become a member and other governmental authorities.
ARTICLE 4
RESPONSIBILITIES AND OBLIGATIONS OF INSURANCE AGENCY
4.1 ASSOCIATED PERSON. Insurance Agency shall be deemed an associated
person of Broker/Dealer within the meaning of Section 3(a)(18) of the 1934 Act.
4.2 DUAL REPRESENTATIVES. All securities services in connection with
the sale of Variable Products will be provided by the Insurance Agency only
through the Dual Representatives. Insurance Agency shall ensure that the Dual
Representatives will effect securities transactions and provide securities
services related to variable insurance products.
4.3 SUSPENSION. Insurance Agency shall terminate or suspend from all
Variable Products activities conducted by Insurance Agency any Dual
Representative whom the SEC, the NASD or any other self-regulatory organization
bars or suspends from association with Broker/Dealer or any other broker/dealer.
4.4 UNREGISTERED EMPLOYEES. Insurance Agency shall ensure that its
Unregistered Employees shall not: (a) engage in any securities activities; or
(b) receive any compensation based on transactions in securities or the
provision of securities advice. Insurance Agency shall further ensure that
<PAGE>
its Unregistered Employees will not recommend any security, give investment
advice with respect to securities, discuss the merits of any security or type of
security, or handle any question that might require familiarity with the
securities industry. Insurance Agency shall require all Unregistered Employees
to refer all Variable Products-related questions to Dual Representatives.
Insurance Agency shall further ensure that Unregistered Employees will not
handle or maintain customer funds in connection with securities transactions
other than providing clerical or ministerial assistance. These obligations
concerning Unregistered Employees are included in Broker/Dealer's conduct manual
for Unregistered Employees, which will be provided to Unregistered Employees of
Insurance Agency, as stated in Sections 3.3 and 4.5, and is attached hereto as
Exhibit A.
4.5 MONITORING UNREGISTERED EMPLOYEES. Insurance Agency shall monitor
the activities of its Unregistered Employees, and ensure their compliance with
the limitations on their permissible activities as set forth in Broker/Dealer's
conduct manual for Unregistered Employees.
4.6 MAINTENANCE OF BOOKS AND RECORDS. Where state insurance law
mandates, duplicates of those books and records maintained by Broker/Dealer
relating to the sales of Variable Products will be maintained by Insurance
Agency, although such books and records will be deemed books and records will be
deemed books and records of Broker/Dealer. Insurance Agency shall ensure that
such books and records will be readily accessible for examination by the SEC,
and NASD, any other self-regulatory organization of which Broker/Dealer may
become a member, and other governmental authorities.
ARTICLE 5
PAYMENTS FOR VARIABLE PRODUCTS
5.1 CUSTOMER CHECKS: HANDLING CUSTOMER FUNDS. Broker/Dealer and
Insurance Agency shall take all necessary and appropriate steps to ensure that
the following procedures are observed:
(a) Initial checks and applications for the purchase of Variable
Products shall be forwarded by Broker/Dealer by noon of the
following business day to the insurance company issuing the
Variable Products and shall bear the initials of a principal of
the Broker/Dealer indicating that the application has been
reviewed by such principal for suitability, completeness and
accuracy;
(b) any subsequent payments will be sent directly by the customer to
the insurance company issuing the Variable Products;
(c) if any checks or applications are received by Broker/Dealer or
Insurance Agency, such checks and applications will be forwarded
to the insurance company issuing the Variable Products by
Broker/Dealer, or its Dual Representatives, by noon of the next
business day following such receipt;
(d) if the insurance company issuing the Variable Products receives
customer checks and applications directly, Broker/Dealer shall
request from such insurance company copies necessary to make any
required suitability determinations; and
(e) only Dual Representatives (and no Unregistered Employees) will:
(i) handle checks routed through Broker/Dealer and Insurance
Agency; and (ii) receive or handle customer funds in connection
with the sale of Variable Products.
Neither Broker/Dealer, Insurance Agency, nor any of their employees shall
cash premium checks, or use any portion of a premium check for a commission,
if any, or for any other purpose other than as a premium.
<PAGE>
ARTICLE 6
COMPENSATION
6.1 COMPENSATION. (INSERT COMPENSATION TERMS OR REFER TO
SCHEDULE.) Insurance Agency shall pay to Broker/Dealer as compensation for
Broker/Dealer's services hereunder one hundred (100) percent of the
compensation it receives for the sale of Variable Products, net of any
payments made to Dual Representatives, so that such compensation can be
included in the revenues of the Broker/Dealer for purposes of complying with
applicable laws, rules, regulations, and regulatory policies. Any
compensation paid to Dual Representatives for securities transactions shall
be determined solely by Broker/Dealer and such payments shall be paid as
directed by, and on behalf of, Broker/Dealer and shall be included in the
revenues of the Broker/Dealer.
ARTICLE 7
GENERAL PROVISIONS
7.1 TERM OF AGREEMENT: TERMINATION. This Agreement will become
effective as of the Effective Date and will remain in effect for a period of one
year, and will automatically continue in effect for one-year periods thereafter.
This Agreement may be terminated earlier by agreement in writing by all the
parties hereto. After termination takes effect, Insurance Agency shall not hold
itself out as being authorized or able to sell Variable Products or as being
associated with Broker/Dealer. Furthermore, upon termination of this Agreement,
all authorizations, rights, and obligations shall cease except: (a) the
agreements contained in Sections 4.6 and 7.10 hereof; and (b) the obligation to
settle accounts hereunder.
7.2 ASSIGNMENT SUCCESSION. This Agreement will not be assignable by
any party hereto except that each party may assign its rights (but not its
obligations) hereunder to any affiliated company, provided that such company is
properly licensed and registered. This Agreement will insure to the benefit of
and be binding upon the parties and each of their successors.
7.3 ENTIRE AGREEMENT: MODIFICATION. This Agreement contains the
entire agreement and understanding of the parties with respect to the subject
matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between the parties, and no waiver,
modification or change of any of its provisions will be valid unless in writing
and signed by the parties hereto, or in the case of a waiver, by the party
waiving compliance.
7.4 WAIVER OF BREACH. Failure of any party to enforce any provision
of this Agreement will not constitute a course of conduct or waiver in the
future of the right to enforce the same or any other provision.
7.5 SEVERABILITY: PARTIAL INVALIDITY. The parties to this Agreement
desire and intend that the terms and conditions of this Agreement be enforced to
the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. The parties agree
specifically that, if any particular term or condition of this Agreement is
adjudicated, or becomes by operation or law, invalid or unenforceable, this
Agreement will be deemed amended to delete the portion that is adjudicated, or
that becomes by operation of law, invalid or unenforceable, the deletion or
reduction to apply only with respect to the operation of the term or condition,
and the remainder of the Agreement to remain in full force and effect. A
deletion or reduction resulting from any adjudication will apply only with
respect to the operation of that term in the particular jurisdiction in which
the adjudication is made.
<PAGE>
7.6 NOTICES. Any notice, request, demand or other communication
required or permitted hereunder will be in writing and will be delivered in one
of the following manners: by personal delivery, which will be effective on the
day so delivered; by registered or certified mail, which will be effective three
days after mailing; by telecopier, which will be effective when receipt is
acknowledged; and by courier guaranteeing next day delivery, which will be
effective on the earlier of the second business day after timely delivery to the
courier or the day of actual delivery by the courier. All notices to a party
will be sent to the following addresses or to such other address or person as
such party may designate by notice to each other party hereunder:
(a) TO BROKER/DEALER:
(b) TO INSURANCE AGENCY:
7.7 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the internal laws of the State of (__________) without regard
to the conflict of law provisions thereof.
7.8 COUNTERPARTS. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
7.9 HEADINGS. The headings in the sections of this Agreement are
inserted for convenience only and will not constitute a part hereof.
7.10 COMPLAINTS AND INVESTIGATIONS. The parties will notify each other
promptly if either receives any customer complaint or notice of any regulatory
investigation or proceeding or judicial proceeding with respect to their
respective activities or the activities of any Dual Representative. The parties
will cooperate fully in investigating any such complaint and in responding to
any such proceeding.
IN WITNESS HEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date and year first above written.
[Broker/Dealer].
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[Insurance Agency]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT A
CONDUCT MANUAL
CONDUCT MANUAL RELATING TO
ACTIVITIES OF UNREGISTERED EMPLOYEES OF
[INSURANCE AGENCY]
IN CONNECTION WITH THE SALE OF VARIABLE INSURANCE PRODUCTS
Since you are not licensed or qualified to sell variable insurance
products ("Variable Products"), you must be very careful not to perform any
activities or provide any information to customers that could confuse a customer
as to your role in the sale of Variable Products. Under federal and state
securities laws, and state insurance laws, only properly licensed registered,
and qualified persons may solicit customers or recommend or discuss insurance or
investment products with a customer.
In sum, this means that you should provide only "clerical" and
"ministerial" services. The permissible activities for employees of
______________________. ("Insurance Agency") who do not hold all the required
securities registrations and insurance licenses (hereinafter "Unregistered
Employees") shall be limited to:
(a) referring prospective customers to an individual who holds
all the requisite insurance and securities qualifications
(a "Dual Representative");
(b) arranging an appointment with or taking a message for a
Dual Representative if a Dual Representative is absent or
unavailable;
(c) referring telephone calls and other written and oral
communications to a Dual Representative; and
(d) referring all Variable Products-related questions to a Dual
Representative.
When engaging in any of the foregoing permissible activities,
Unregistered Employees shall limit his or her discussion of the Variable
Products to statements advising customers of the availability of information
about the Variable Products from the broker/dealer affiliated with Insurance
Agency, i.e., _________________-, and the referral of such customer to a Dual
Representative. Such Unregistered Employees shall not offer investment advice,
make recommendations, discuss the features, merits, investment options, or
suitability of any Variable Product or handle any question that might require
familiarity with the securities industry. Such Unregistered Employees shall not
handle or maintain customer funds in connection with securities transactions,
handle or maintain securities, or have any involvement in securities
transactions other than providing clerical or ministerial advice. Nothing in
this Conduct Manual shall limit the ability of Insurance Agency or its employees
to provide administrative or clerical services to _________________________.
<PAGE>
EXHIBIT C
COMPENSATION
<PAGE>
<TABLE>
<CAPTION>
<S><C>
EQUITRUST LIFE
INSURANCE COMPANY
P.O. Box 9353 ANNUITY APPLICATION
Des Moines IA 50306-9353 (PLEASE PRINT CLEARLY)
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1. ANNUITANT (OWNER) Sex: / / Male / / Female
Name___________________________________________________________ S.S. No./Tax ID:________________________________________
Address:_______________________________________________________ Date of Birth:__________________________________________
City:_____________________________ State ________ ZIP ________ Daytime Phone ( )_____________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
2. JOINT-ANNUITANT (OWNER) (NOT AVAILABLE FOR QUALIFIED PLANS) Sex: / / Male / / Female
Name___________________________________________________________ S.S. No./Tax ID:________________________________________
Address:_______________________________________________________ Date of Birth:__________________________________________
City:_____________________________ State ________ ZIP ________ Daytime Phone ( )_____________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
3. OWNER IF ANNUITANT(S) ARE NOT ALSO THE OWNER(S), THEN SPECIFY THE OWNER HERE Sex: / / Male / / Female
Name___________________________________________________________ S.S. No./Tax ID:________________________________________
Address:_______________________________________________________ Date of Birth:__________________________________________
City:_____________________________ State ________ ZIP ________ Daytime Phone ( )_____________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
4. BENEFICIARY as to proceeds at death of the Annuitant; Survivors within a class (Primary or Secondary) entitled to the
proceeds shall share equally unless otherwise specified.
NAME ADDRESS RELATIONSHIP TO SOCIAL SECURITY
ANNUITANT NUMBER
Primary ___________________________________________________________________________________________________________________________
Secondary _________________________________________________________________________________________________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
5. PLAN TYPE (Check the appropriate boxes.) 6. MATURITY DATE___________________________________________
/ / Non-qualified (If not stated: age 95, nonqualified; age 70 1/2,
QUALIFIED: (CHECK THE APPROPRIATE PLAN DESCRIPTION) qualified)
/ / IRA / / SEP/IRA / / Simple IRA
/ / Roth IRA / / Roth Conversion IRA
/ / Keogh/Corporate Pension / / Sec. 457 Def. Comp.
/ / TSA/403(b)
/ / Other _____________________________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
7. PREMIUM PAYMENTS
SINGLE/INITIAL PREMIUM PAYMENT $_______________________________ FUTURE PREMIUM PAYMENTS $_______________________________
(Minimums: $1,000 Qualified - $5,000 non-qualified) (Minimum $50)
By: / / Check / / Transfer / / Rollover By: / / Mo. EFT / / Salary Savings / / Other
Year for which contribution applies ___________ (IF QUALIFIED) / / Quarterly / / Semiannual / / Annual
- -----------------------------------------------------------------------------------------------------------------------------------
8. NET PREMIUM PAYMENTS. The net premium payments (as described in the prospectus) are to be allocated to the appropriate
subaccounts as follows:
[1. Value Growth _________% 9. T. Rowe Price Equity Income _________%
2. High Grade Bond _________% 10. T. Rowe Price Personal Strategy Balanced _________%
3. High Yield Bond _________% 11. Dreyfus International Equity _________%
4. Money Market _________% 12. Dreyfus Small Cap Stock _________%
5. Blue Chip _________% 13. Dreyfus Capital Appreciation _________%
6. T. Rowe Price International Stock _________% 14. Dreyfus Disciplined Stock _________%
7. T. Rowe Price Mid-Cap Growth _________% 15. Dreyfus Growth and Income _________%
8. T. Rowe Price New America Growth _________% 16. Declared Interest Option _________%]
If any portion of a new premium is allocated to a particular subaccount, that portion must be at least 10% on the date the
allocation takes effect. All percentage allocations must be in whole numbers and not fractions.
Net premiums will be initially allocated to the money market account. On the eleventh day following the policy date, we will
transfer part or all of the accumulated value in the money market subaccount to the subaccounts or the declared interest
option in accordance with the premium allocation percentage shown above.
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
9. TRANSFER BETWEEN PORTFOLIOS
I authorize transfers between the subaccounts upon instruction from any person by telephone. Yes No
If neither box is checked, the telephone privilege will be provided.......................................... / / / /
The first twelve transfers in each Policy Year will be made without charge;
Subsequent transfers in a Policy Year will be assessed a transfer charge of $25.
- -----------------------------------------------------------------------------------------------------------------------------------
10. SPECIAL INSTRUCTIONS___________________________________________ 11. WILL THIS CONTRACT REPLACE OR CHANGE ANY EXISTING LIFE
INSURANCE OR ANNUITY IN THIS OR ANY OTHER COMPANY?
_______________________________________________________________
/ /Yes / /No If Yes:
_______________________________________________________________ What Company?___________________________________________
What Contract Number?___________________________________
_______________________________________________________________
Have all required documents been completed in compliance
_______________________________________________________________ with applicable state regulations? / /Yes / /No
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12. SUITABILITY MUST BE COMPLETED BY OWNER. ANNUAL EARNINGS ESTIMATED NET WORTH
Occupation_____________________________________________________ / / $ 25,000-$ 49,999 / / $ 25,000-$ 74,999
Employer_______________________________________________________ / / $ 50,000-$ 99,999 / / $ 75,000-$124,999
Address________________________________________________________ / / $100,000-$199,999 / / $125,000-$249,999
City______________________________ State ________ Zip ________
FINANCIAL OBJECTIVES CHECK ALL THAT APPLY.
/ /Preservation of Capital / /Income / /Long Term Growth / /Maximum Capital Appreciation
INITIAL SOURCE OF FUNDS: CHECK ALL THAT APPLY.
/ / CDs/Saving Acct. / / Investments / / Stocks/Bonds / / Sale of Personal Property / / Current Income
/ / Policy Cash Value, Dividend or Loan / / Policy Surrender / / Other_________________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
13. SIGNATURES
I/We acknowledge receipt of a current prospectus, declare that all statements in this Application are true to the best of
my/our knowledge and belief, and agree that this Application shall be a part of the Annuity Contract issued by the Company.
Under penalties of perjury, I/we certify that the Social Security Number, as listed on this Application, is correct. I/WE
UNDERSTAND THAT ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT MAY VARY AS TO DOLLAR AMOUNT TO THE EXTENT THEY ARE BASED ON
THE INVESTMENT EXPERIENCE OF THE SELECTED PORTFOLIO(S). With this in mind, I/we feel the Contract applied for will meet
anticipated financial needs.
The accumulation values under the variable accumulation provisions of the Contract being applied for are variable and are not
guaranteed as to fixed dollar amounts.
___________________________________________________________________________________________________________ __________________
Signature of Owner (if other than Proposed Annuitant) Date
___________________________________________________________________________________________________________ __________________
Signature of Annuitant(s) Date
___________________________________________________________________________________________________________ __________________
Witness or Agent/Broker/Registered Representative Date
- -----------------------------------------------------------------------------------------------------------------------------------
14. REGISTERED REPRESENTATIVE INFORMATION
_______________________________________________________________ __________________________________________ __________________
Agent/Broker/Registered Representative Phone Date
_______________________________________________________________ ______________________________________________________________
Branch or Agency Number Branch or Agency Address
_______________________________________________________________ ______________________________________________________________
Registered Representative Signature City State Zip
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
AMONG
EQUITRUST VARIABLE INSURANCE SERIES FUND,
EQUITRUST INVESTMENT MANAGEMENT SERVICES, INC.,
AND
EQUITRUST LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 5th day of June, 1998
by and among EquiTrust Life Insurance Company (hereinafter, the "Company"),
an Iowa insurance company, on its own behalf and on behalf of each segregated
asset account of the Company set forth on Schedule A hereto as may be amended
from time to time (each account hereinafter referred to as the "Account"),
and the undersigned fund, a business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter referred to as the "Fund") and
EquiTrust Investment Management Services, Inc. (hereinafter the
"Underwriter"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(l5) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933,
<PAGE>
2
as amended (hereinafter the "1933 Act"); and
WHEREAS, EquiTrust Investment Management Services, Inc. (hereinafter
referred to as the "Adviser") is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use its best efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Trustees of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or
<PAGE>
3
suspend or terminate the offering of shares of any Designated Portfolio if such
action is required by law or by regulatory authorities having jurisdiction, or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Designated Portfolios will be sold to the general public. The Fund and
the Underwriter will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles I, III and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee
of the Fund for receipt of purchase and redemption orders from the Account, and
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order by 3:00 p.m. central time and the Fund receives
notice of such order by 9:30 a.m. central time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt of
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. central time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. central time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For purposes
of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock
<PAGE>
4
certificates will not be issued to the Company or any Account. Shares ordered
from the Fund will be recorded in an appropriate title for each Account or the
appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 5:30
p.m. central time) and shall use its best efforts to make such net asset value
per share available by 6:00 p.m. central time. If the net asset value is
materially incorrect through no fault of the Company, the Company on behalf of
each Account, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value in accordance with
Fund procedures. Any material error in the net asset value shall be reported to
the Company promptly upon discovery. Any administrative or other costs or losses
incurred for correcting underlying Contract owner accounts shall be at Company's
expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Iowa insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws of the state of Iowa and all applicable
federal and state securities laws and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration
<PAGE>
5
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Iowa to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Iowa and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $2.5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any
<PAGE>
6
amounts received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund if, and when, applicable. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies. The Company
agrees to exercise its best efforts to ensure that other individuals/entities
not employed or controlled by the Company and dealing with the money and/or
securities of the Fund maintain a similar bond or coverage in a reasonable
amount.
ARTICLE III. PROSPECTUSES. STATEMENTS OF ADDITIONAL INFORMATION. AND PROXY
STATEMENTS: VOTING
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and semi-
annual reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or on diskette) and other assistance as
is reasonably necessary in order for the Company (at the Company's expense) to
print such shareholder communications for distribution to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from
<PAGE>
7
Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Designated Portfolio for which instructions have been
received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least ten calendar days prior to
its use. No such material shall be used if the Fund or its designee reasonably
object to such use within ten calendar days after receipt of such material. The
Fund or its designee reserves the right to reasonably object to the continued
use of such material, and no such material shall be used if the Fund or its
designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be
<PAGE>
8
used if the Company reasonably objects to such use within ten calendar days
after receipt of such material. The Company reserves the right to reasonably
object to the continued use of such material and no such material shall be used
if the Company so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, within a reasonable time
after the filing of such document(s) with the SEC or other regulatory
authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(I.E., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-l to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise
<PAGE>
9
payable to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's prospectus
(in accordance with 3.1) and of distributing the Fund's prospectus, proxy
materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity, endowment, or
life insurance contracts, whichever is appropriate, under the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations issued thereunder (or
any successor provisions). Without limiting the scope of the foregoing, each
Designated Portfolio of the Fund will comply with Section 817(h) of the Code and
Treasury Regulation SECTION 1.817-5, and any Treasury interpretations thereof,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts, and any amendments or other modifications or successor
provisions to such Section or Regulations. In the event of a breach of this
Article VI by the Fund, it will take all reasonable steps (a) to notify the
Company of such breach and (b) to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified
<PAGE>
10
endowment contract" as that term is defined in Section 7702A of the Code (or any
successor or similar provision), shall identify such contract as a modified
endowment contract.
ARTICLE VII. POTENTIAL CONFLICTS.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to
the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be
<PAGE>
11
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the company for the purchase (and redemption) of shares of
the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
<PAGE>
12
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus, or statement of
additional information ("SAI") for the Contracts or
contained in the Contracts or sales literature or other
promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company
by or on behalf of the Fund for use in the Registration
Statement, prospectus or SAI for the Contracts or in the
Contracts or sales literature or other promotional material
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature or
other promotional material of the Fund not supplied by the
Company or persons under its control) or wrongful conduct of
the Company or persons under its authorization or control,
with respect to the sale or distribution of the Contracts or
Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, SAI, or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf
<PAGE>
13
of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the qualification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
<PAGE>
14
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or SAI or sales
literature or other promotional material of the Fund (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales
literature or other promotional material (or any amendment
or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature or other promotional material for the
Contracts not supplied by the Underwriter or persons under
its control) or wrongful conduct of the Fund or
Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, SAI, or sales literature or other
promotional material of the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission
<PAGE>
15
was made in reliance upon information furnished to the
Company by or on behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
<PAGE>
16
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own
<PAGE>
17
expense, in the defense thereof. The Fund also shall be entitled to assume the
expense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct. After
notice from the Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Iowa.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to some
or all Designated Portfolios, by six (6) months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based
upon the Company's determination that shares of the Fund are
not reasonably available to meet the requirements of the
Contracts; provided that such termination shall apply only to
the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the
use of such shares as the underlying
<PAGE>
18
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of any Account, or
the purchase of the Fund shares; provided, however, that the
Fund or Underwriter determines in its sole judgment exercised
in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Company
to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in
the event that such Designated Portfolio ceases to qualify as
a Regulated Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification requirements
specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify
or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the
qualifications specified in Section 6.3 hereof; or if the Fund
or Underwriter reasonably believes that such Contracts may
fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund or the
Underwriter has suffered a
<PAGE>
19
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund and
the Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
EquiTrust Variable Insurance Series Fund
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
<PAGE>
20
If to the Company:
EquiTrust Life Insurance Company
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
If to Underwriter:
EquiTrust Investment Management Services, Inc.
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
ARTICLE XII. MISCELLANEOUS
12.1 All references herein to the Adviser relate solely to the Adviser of
such individual Fund, as appropriate. All persons dealing with a Fund must look
solely to the property of such Fund, and in the case of a series company, the
respective Designated Portfolio listed on Schedule A hereto as though such
Designated Portfolio had separately contracted with the Company and the
Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
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12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Iowa Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Iowa
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or its
designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year.
(b) the Company's quarterly statements (statutory) (and GAAP, if any), as
soon as practical and in any event within 45 days after the end of
each quarterly period.
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22
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: EquiTrust Life Insurance Company
By its authorized officer
By: /s/ William J. Oddy
Title: Executive Vice President, General
Manager & Director
Date: June 5, 1998.
FUND: EquiTrust Variable Insurance Series Fund
By its authorized officer
By: /s/ Richard D. Harris
Title: Senior Vice President Secretary -
Treasurer & Trustee
Date: June 5, 1998.
UNDERWRITER: EquiTrust Investment Management Services, Inc.
By its authorized officer
By: /s/ William J. Oddy
Title: President
Date: June 5, 1998.
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SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE ESTABLISHED BY BOARD OF DIRECTORS
EquiTrust Life Variable Account 1/6/98
EquiTrust Life Annuity Account 1/6/98
CONTRACTS FUNDED BY SEPARATE ACCOUNT
Flexible Premium Variable Life Insurance Policies
Flexible Premium Deferred Variable Annuity Contracts
DESIGNATED PORTFOLIOS
Value Growth Portfolio
High Grade Bond Portfolio
High Yield Bond Portfolio
Money Market Portfolio
Blue Chip Portfolio
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FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 8th day of June, 1998, between
EquiTrust Life Insurance Company, a life insurance company organized under the
laws of the State of Iowa ("Insurance Company"), and each of DREYFUS VARIABLE
INVESTMENT FUND; THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; DREYFUS
LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND); AND
DREYFUS INVESTMENT PORTFOLIOS (each a "Fund").
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may
be, of a Fund, which has the responsibility for management and control of
the Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying
investment medium. Individuals who participate under a group Contract
are "Participants".
1.6 "Contractholder" shall mean any entity that is a party to a Contract with
a Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as
defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
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1.10 "Participating Fund" shall mean each Fund, including, as applicable, any
series thereof, specified in Exhibit A, as such Exhibit may be amended
from time to time by agreement of the parties hereto, the shares of which
are available to serve as the underlying investment medium for the
aforesaid Contracts.
1.11 "Prospectus" shall mean the current prospectus and statement of
additional information of a Fund, as most recently filed with the
Commission.
1.12 "Separate Account" shall mean EquiTrust Life Annuity Account and
EquiTrust Life Variable Account, individually, each a separate account
established by Insurance Company in accordance with the laws of the State
of Iowa.
1.13 "Software "Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations
where the Lion System or any other Software Program used by a Fund is not
available, such information may be provided by telephone. The Lion
System shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates that invest in a Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to the
Iowa Insurance Code for the purpose of offering to the public certain
individual and group variable annuity and life insurance contracts; (c)
it has registered the Separate Account as a unit investment trust under
the Act to serve as the segregated investment account for the Contracts;
and (d) the Separate Account is eligible to invest in shares of each
Participating Fund without such investment disqualifying any
Participating Fund as an investment medium for insurance company separate
accounts supporting variable annuity contracts or variable life insurance
contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to notify each Participating Fund promptly of any
investment restrictions, of which Insurance Company has knowledge,
imposed by state insurance law and applicable to the Participating Fund.
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2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without regard to other
income, gains or losses from assets allocated to any other accounts of
Insurance Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate from
Insurance Company's General Account and any other separate accounts
Insurance Company may have, and will not be charged with liabilities from
any business that Insurance Company may conduct or the liabilities of any
companies affiliated with Insurance Company.
2.4 Each Participating Fund represents that it is registered with the
Commission under the Act as an open-end, management investment company
and possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating Fund
to operate and offer its shares as an underlying investment medium for
Participating Companies.
2.5 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every effort
to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company immediately
upon having a reasonable basis for believing that it has ceased to so
qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies
or annuity contracts, whichever is appropriate, under applicable
provisions of the Code, and that it will make every effort to maintain
such treatment and that it will notify each Participating Fund and
Dreyfus immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future. Insurance Company agrees that any prospectus
offering a Contract that is a "modified endowment contract," as that term
is defined in Section 7702A of the Code, will identify such Contract as a
modified endowment contract (or policy).
2.7 Each Participating Fund agrees that its assets shall be managed and
invested in a manner that complies with the requirements of Section
817(h) of the Code.
2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares
available to other Participating Companies and Contractholders.
2.9 Each Participating Fund represents and warrants that any of its
directors, trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the
Participating Fund are and shall continue to be at all times
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covered by a blanket fidelity bond or similar coverage for the benefit of
the Participating Fund in an amount not less than that required by Rule
17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than $2.5 million.
The aforesaid Bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for purchase
at the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, each Participating Fund may
refuse to sell its shares to any person, or suspend or terminate the
offering of its shares, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion
of its Board, acting in good faith and in light of its fiduciary duties
under federal and any applicable state laws, necessary and in the
best interests of the Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund will
be sold only to (a) Participating Companies and their separate accounts
or (b) "qualified pension or retirement plans" as determined under
Section 817(h)(4) of the Code. Except as otherwise set forth in this
Section 3.3, no shares of any Participating Fund will be sold to the
general public.
3.4 Each Participating Fund shall use its best efforts to provide closing net
asset value, dividend and capital gain information on a per-share basis
to Insurance Company by 6:00 p.m. Eastern time on each Business Day. Any
material errors in the calculation of net asset value, dividend and
capital gain information shall be reported immediately upon discovery to
Insurance Company. Non-material errors will be corrected in the next
Business Day's net asset value per share.
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3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the unit values
of the Separate Account for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received by
it by the close of the trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar
amount of each Participating Fund's shares that will be purchased or
redeemed at that day's closing net asset value per share. The net
purchase or redemption orders will be transmitted to each Participating
Fund by Insurance Company by 11:00 a.m. Eastern time on the Business Day
next following Insurance Company's receipt of that information. Subject
to Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of each Participating Fund next calculated after receipt of the
order by the Participating Fund or its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such
orders by Insurance Company acting as agent ("effective trade date"),
provided that the Participating Fund receives notice of such orders by
11:00 a.m. Eastern time on the next following Business Day and, if such
orders request the purchase of Participating Fund shares, the conditions
specified in Section 3.8, as applicable, are satisfied. A redemption or
purchase request that does not satisfy the conditions specified above and
in Section 3.8, as applicable, will be effected at the net asset value
per share computed on the Business Day immediately preceding the next
following Business Day upon which such conditions have been satisfied in
accordance with the requirements of this Section and Section 3.8.
Insurance Company represents and warrants that all orders submitted by
the Insurance Company for execution on the effective trade date shall
represent purchase or redemption orders received from Contractholders
prior to the close of trading on the New York Stock Exchange on the
effective trade date.
3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any unusually large purchase or
redemption orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall
make all reasonable efforts to transmit to the applicable Participating
Fund payment in Federal Funds by 12:00 noon Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
Section 3.5. Each applicable Participating Fund will execute such orders
at the applicable net asset value per share determined as of the close of
trading on the effective trade date if the Participating Fund receives
payment in Federal Funds by 12:00 midnight Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
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Section 3.5. If payment in Federal Funds for any purchase is not
received or is received by a Participating Fund after 12:00 noon Eastern
time on such Business Day, Insurance Company shall promptly, upon each
applicable Participating Fund's request, reimburse the respective
Participating Fund for any charges, costs, fees, interest or other
expenses incurred by the Participating Fund in connection with any
advances to, or borrowings or overdrafts by, the Participating Fund, or
any similar expenses incurred by the Participating Fund, as a result of
portfolio transactions effected by the Participating Fund based upon such
purchase request. If Insurance Company's order requests the redemption
of any Participating Fund's shares valued at or greater than $1 million
dollars, the Participating Fund will wire such amount to Insurance
Company within seven days of the order.
3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times.
3.10 Each Participating Fund will confirm each purchase or redemption order
made by Insurance Company. Transfer of Participating Fund shares will be
by book entry only. No share certificates will be issued to Insurance
Company. Insurance Company will record shares ordered from a
Participating Fund in an appropriate title for the corresponding account.
3.11 Each Participating Fund shall credit Insurance Company with the
appropriate number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business
Day, on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital gain,
if any, per share. All dividends and capital gains shall be
automatically reinvested in additional shares of the applicable
Participating Fund at the net asset value per share on the ex-dividend
date. Each Participating Fund shall, on the day after the ex-dividend
date or, if not on a Business Day, on the first Business Day thereafter,
notify Insurance Company of the number of shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as of
the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of
the Participating Fund's Prospectuses, proxy materials, notices, periodic
reports and other printed materials (which the Participating Fund
customarily provides to its shareholders) in quantities as
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Insurance Company may reasonably request for distribution to each
Contractholder and Participant.
4.3 Each Participating Fund will provide to Insurance Company at least
one complete copy of all registration statements, Prospectuses,
reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to
the Participating Fund or its shares, contemporaneously with the
filing of such document with the Commission or other regulatory
authorities.
4.4 Insurance Company will provide to each Participating Fund at least one
copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the
Separate Account, contemporaneously with the filing of such document
with the Commission.
ARTICLE V
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be made in
the determination of the Participating Fund's daily net asset value per
share.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of any Participating Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the following
expenses or costs:
a. Such amount of the production expenses of any Participating
Fund materials, including the cost of printing a Participating
Fund's Prospectus, or marketing materials for prospective
Insurance Company Contractholders and Participants as Dreyfus and
Insurance Company shall agree from time to time.
b. Distribution expenses of say Participating Fund materials or
marketing materials for prospective Insurance Company
Contractholders and Participants.
c. Distribution expenses of any Participating Fund materials or
marketing materials for Insurance Company Contractholders and
Participants.
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Except as provided herein, all other expenses of each Participating Fund
shall not be borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of (i) the amended order dated
December 31, 1997 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to Dreyfus Variable Investment Fund
and Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order dated
February 5, 1998 of the Securities and Exchange Commission under Section
6(c) of the Act with respect to The Dreyfus Socially Responsible Growth
Fund, Inc. and Dreyfus Investment Portfolios, and, in particular, has
reviewed the conditions to the relief set forth in each related Notice.
As set forth therein, if Dreyfus Variable Investment Fund, Dreyfus Life
and Annuity Index Fund, Inc., The Dreyfus Socially Responsible Growth
Fund, Inc. or Dreyfus Investment Portfolios is a Participating Fund,
Insurance Company agrees, as applicable, to report any potential or
existing conflicts promptly to the respective Board of Dreyfus Variable
Investment Fund, Dreyfus Life and Annuity Index Fund, Inc., The Dreyfus
Socially Responsible Growth Fund, Inc. and/or Dreyfus Investment
Portfolios, and, in particular, whenever contract voting instructions
are disregarded, and recognizes that it will be responsible for
assisting each applicable Board in carrying out its responsibilities
under such application. Insurance Company agrees to carry out such
responsibilities with a view to the interests of existing
Contractholders.
6.2 If a majority of the board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in a Participating Fund, the Board
Shall give prompt notice to all Participating Companies and any other
Participating Fund. If the Board determines that Insurance Company is
responsible for causing or creating said conflict, Insurance Company
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Board
Members), take such action as is necessary to remedy or eliminate
the irreconcilable material conflict. Such necessary action may
include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of all affected contractholders;
and/or
b. Establishing a new registered management investment company.
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6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions and
said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in a
Participating Fund, Insurance Company may be required, at the Board's
election, to withdraw the investments of the Separate Account in that
Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a new
funding medium for any Contract. Insurance Company shall not be required
by this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result
of any act or failure to act by Insurance Company pursuant to this
Article VI, shall relieve Insurance Company of its obligations under,
or otherwise affect the operation of, Article V, VOTING OF PARTICIPATING
FUND SHARES.
ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at
no cost to Insurance Company, of the Participating Fund's proxy
material, reports to shareholders and other communications to
shareholders in such quantity as Insurance Company shall reasonably
require for distributing to Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants
on a timely basis and in accordance with applicable law;
(b) vote the Participating Fund shares in accordance with
instructions received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no instructions have
been received in the same proportion as Participating Fund shares
for which instructions have been received.
Insurance Company agrees at all times to vote its General Account shares
in the same proportion as the Participating Fund shares for which
instructions have been received from Contractholders or Participants.
Insurance Company further agrees to be
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responsible for assuring that voting the Participating Fund shares for
the Separate Account is conducted in a manner consistent with other
Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of each applicable Participating Fund and Dreyfus, solicit, induce
or encourage Contractholders to (a) change or supplement the
Participating Fund's current investment adviser or (b) change, modify,
substitute, add to or delete from the current investment media for the
Contracts.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as
Insurance Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne by Insurance
Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating Fund,
its investment adviser or the administrator is named, at least fifteen
Business Days prior to its use. No such material shall be used unless the
Participating Fund or its designee approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. Each
applicable Participating Fund or its designee, as the case may be, shall
use all reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Prospectus of, as may be amended or
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supplemented from time to time, or in reports or proxy statements for,
the applicable Participating Fund, or in sales literature or other
promotional material approved by the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of the Participating Fund's sales
literature or other promotional material in which Insurance Company or
the Separate Account is named, at least fifteen Business Days prior to
its use. No such material shall be used unless Insurance Company approves
such material. Such approval (if given) must be in writing and shall be
presumed not given if not received within ten Business Days after receipt
of such material. Insurance Company shall use all reasonable efforts to
respond within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any
representations on behalf of Insurance Company or concerning insurance
company, the Separate Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented from time
to time, or in published reports for the Separate Account that are in the
public domain or approved by Insurance Company for distribution to
Contractholders or Participants, or in sales literature or other
promotional material approved by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, or reprints or excerpts of
any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or
made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information,
shareholder reports and proxy materials, and any other material
constituting sales literature or advertising under National Association of
Securities Dealers, Inc. rules, the Act or the 1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each
Participating Fund, Dreyfus, each respective Participating Fund's
investment adviser and sub-investment adviser (if applicable), each
respective Participating Fund's distributor, and their respective
affiliates, and each of their directors, trustees, officers, employees,
agents and
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each person, if any, who controls or is associated with any of the
foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any
action, suit or proceeding or any claim asserted) for which the
Indemnified Parties may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect to thereof) (i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
information furnished by Insurance Company for use in the registration
statement or Prospectus or sales literature or advertisements of the
respective Participating Fund or with respect to the Separate Account or
Contracts, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; (ii) arise
out of or as a result of conduct, statements or representations (other
than statements or representations contained in the Prospectus and sales
literature or advertisements of the respective Participating Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which the respective Participating Fund's
shares are an underlying investment; (iii) arise out of the wrongful
conduct of Insurance Company or persons under its control with respect to
the sale or distribution of the Contracts or the respective Participating
Fund's shares; (iv) arise out of Insurance Company's incorrect calculation
and/or untimely reporting of net purchase or redemption orders; or (v)
arise out of any breach by Insurance Company of a material term of this
Agreement or as a result of any failure by Insurance Company to provide
the services and furnish the materials or to make any payments provided
for in this Agreement. Insurance Company will reimburse any Indemnified
Party in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that with respect to
clauses (i) and (ii) above Insurance Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission or
alleged omission made in such registration statement, prospectus, sales
literature, or advertisement in conformity with written information
furnished to Insurance Company by the respective Participating Fund
specifically for use therein. This indemnity agreement will be in
addition to any liability which Insurance Company may otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees, agents
and each person, if any, who controls Insurance Company within the meaning
of the 1933 Act against any losses, claims, damages or liabilities to
which Insurance Company or any such director, officer, employee, agent or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (1) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or advertisements
of the respective Participating Fund: (2) arise out of or
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<PAGE>
are based upon the omission to state in the registration statement or
Prospectus or sales literature or advertisements of the respective
Participating Fund any material fact required to be stated therein or
necessary to make the statements therein not misleading; or (3) arise out
of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the registration statement or Prospectus or
sales literature or advertisements with respect to the Separate Account or
the Contracts and such statements were based on information provided to
Insurance Company by the respective Participating Fund; and the respective
Participating Fund will reimburse any legal or other expenses reasonably
incurred by Insurance Company or any such director, officer, employee,
agent or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
the respective Participating Fund will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or omission or alleged omission made in
such registration statement, Prospectus, sales literature or advertisements
in conformity with written information furnished to the respective
Participating Fund by Insurance Company specifically for use therein. This
indemnity agreement will be in addition to any liability which the
respective Participating Fund may otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to pay
due to the respective Participating Fund's (1) incorrect calculation of the
daily net asset value, dividend rate or capital gain distribution rate; (2)
incorrect reporting of the daily net asset value, dividend rate or capital
gain distribution rate; and (3) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate; provided that the
respective Participating Fund shall have no obligation to indemnify and
hold harmless Insurance Company if the incorrect calculation or incorrect
or untimely reporting was the result of incorrect information furnished by
Insurance Company or information furnished untimely by Insurance Company or
otherwise as a result of or relating to a breach of this Agreement by
Insurance Company.
9.4 Promptly after receipt by an indemnified party under this Article of notice
of the commencement of any action, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party under this
Article, notify the indemnifying party of the commencement thereof. The
omission to so notify the indemnifying party will not relieve the
indemnifying party from any liability under this Article IX, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a
result of the failure to give such notice. In case any such action is
brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such indemnified party, and
to the extent that the indemnifying party has given notice to such effect
to the indemnified party and is
-13-
<PAGE>
performing its obligations under this Article, the indemnifying party shall
not be liable for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable costs of investigation. Notwithstanding the foregoing, in any
such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this Agreement.
9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund
harmless against any tax liability incurred by the Participating Fund under
Section 851 of the Code arising from purchases or redemptions by Insurance
Company's General Accounts or the account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
10.2 This Agreement shall terminate without penalty:
a. As to any Participating Fund, at the option of Insurance Company or
the Participating Fund at any time from the date hereof upon 180 days'
notice, unless a shorter time is agreed to by the respective
Participating Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company, if
shares of that Participating Fund are not reasonably available to meet
the requirements of the Contracts as determined by Insurance Company.
Prompt notice of election to terminate shall be furnished by Insurance
Company, said termination to be effective ten days after receipt of
notice unless the Participating Fund makes available a sufficient
number of shares to meet the requirements of the Contracts within said
ten-day period;
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<PAGE>
c. As to a Participating Fund, at the option of Insurance Company, upon the
institution of formal proceedings against that Participating Fund by the
Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in Insurance Company's reasonable judgment, materially impair
that Participating Fund's ability to meet and perform the Participating
Fund's obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by Insurance Company with said termination to
be effective upon receipt of notice;
d. As to a Participating Fund, at the option of each Participating Fund, upon
the institution of formal proceedings against Insurance Company by the
Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in the Participating Fund's reasonable judgment, materially
impair Insurance Company's ability to meet and perform Insurance Company's
obligations and duties hereunder. Prompt notice of election to terminate
shall be furnished by such Participating Fund with said termination to be
effective upon receipt of notice;
e. As to a Participating Fund, at the option of that Participating Fund, if
the Participating Fund shall determine, in its sole judgment reasonably
exercised in good faith, that Insurance Company has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity and such material adverse change or material
adverse publicity is likely to have a material adverse impact upon the
business and operation of that Participating Fund or Dreyfus, such
Participating Fund shall notify Insurance Company in writing of such
determination and its intent to terminate this Agreement, and after
considering the actions taken by Insurance Company and any other changes in
circumstances since the giving of such notice, such determination of the
Participating Fund shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth day shall be the
effective date of termination;
f. As to a Participating Fund, upon termination of the Investment Advisory
Agreement between that Participating Fund and Dreyfus or its successors
unless Insurance Company specifically approves the selection of a new
Participating Fund investment adviser. Such Participating Fund shall
promptly furnish notice of such termination to Insurance Company;
g. As to a Participating Fund, in the event that Participating Fund's shares
are not registered, issued or sold in accordance with applicable federal
law, or such law precludes the use of such shares as the underlying
investment medium of Contracts issued or to be issued by Insurance Company.
Termination shall be effective immediately as to that Participating Fund
only upon such occurrence without notice;
-15-
<PAGE>
h. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue to
operate pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by such Participating
Fund to Insurance Company of such termination;
i. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if such Participating Fund
reasonably believes that the Contracts may fail to so qualify;
j. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;
k. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law; or
l. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, each Participating Fund and Dreyfus may, at the option of
the Participating Fund, continue to make available additional shares of
that Participating Fund for as long as the Participating Fund desires
pursuant to the terms and conditions of this Agreement as provided below,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if that Participating Fund and Dreyfus
so elect to make additional Participating Fund shares available, the
owners of the Existing Contracts or Insurance Company, whichever shall
have legal authority to do so, shall be permitted to reallocate
investments in that Participating Fund, redeem investments in that
Participating Fund and/or invest in that Participating Fund upon the
making of additional purchase payments under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 10.2
hereof, such Participating Fund and Dreyfus, as promptly as is
practicable under the circumstances, shall notify Insurance Company
whether Dreyfus and that Participating Fund will continue to make that
Participating Fund's shares available after such termination. If such
Participating Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either of that Participating Fund or Insurance Company may
terminate the Agreement as to that Participating Fund, as so continued
pursuant to this Section 10.3, upon prior written
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<PAGE>
notice to the other party, such notice to be for a period that is
reasonable under the circumstances but, if given by the Participating
Fund, need not be for more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall not
be deemed a termination as to any other Participating Fund unless
Insurance Company or such other Participating Fund, as the case may be,
terminates this Agreement as to such other Participating Fund in
accordance with this Article X.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the addition
or deletion of any Participating Fund as specified in Exhibit A, shall be
made by agreement in writing between Insurance Company and each
respective Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company: EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Attn: Sue Cornick
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
Attn: Vice President and Assistant Secretary
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Steven F. Newman
Stroock & Stroock & Lavan
180 Maiden Lane
New York, New York 10038-4982
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<PAGE>
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
director, trustee, officer or shareholder of the Fund individually. It
is agreed that the obligations of the Funds are several and not joint,
that no Fund shall be liable for any amount owing by another Fund and
that the Funds have executed one instrument for convenience only.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
EQUITRUST LIFE INSURANCE COMPANY
By: /s/ William J. Oddy
-----------------------------
Its: Executive Vice President &
General Manager
----------------------------
Attest: /s/ Dennis M. Marker
-----------------------------
DREYFUS LIFE AND ANNUITY INDEX FUND, INC.
(d/b/a DREYFUS STOCK INDEX FUND)
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
----------------------------
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<PAGE>
Attest: /s/ Doreen Plante
-----------------------------
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
----------------------------
Attest: /s/ Doreen Plante
-----------------------------
DREYFUS VARIABLE INVESTMENT FUND
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
----------------------------
Attest: /s/ Doreen Plante
-----------------------------
DREYFUS INVESTMENT PORTFOLIOS
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
----------------------------
Attest: /s/ Doreen Plante
-----------------------------
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<PAGE>
EXHIBIT A
LIST OF PARTICIPATING FUNDS
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio
Disciplined Stock Portfolio
Growth and Income Portfolio
International Equity Portfolio
Small Cap Portfolio
-20-
<PAGE>
PARTICIPATION AGREEMENT
Among
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
and
EQUITRUST LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 8th day of June, 1998
by and among EquiTrust Life Insurance Company (hereinafter, the "Company"), a
Iowa insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), and the
undersigned funds, each, a corporation organized under the laws of Maryland
(each hereinafter referred to as the "Fund") and T. Rowe Price Investment
Services, Inc. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by the
Company and the Account on those days on which the Fund calculates its net asset
value pursuant to rules of the SEC, and the Fund shall use its best efforts to
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
<PAGE>
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III and VII of this Agreement is in effect to govern such
sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt
of an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For
purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash.
The Fund shall notify the Company of the number of shares so issued as payment
of such dividends and distributions.
<PAGE>
1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated (normally
by 6:30 p.m. Baltimore time) and shall use its best efforts to make such net
asset value per share available by 7 p.m. Baltimore time. If the net asset
value is materially incorrect through no fault of the Company, the Company on
behalf of each Account, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct net asset value in
accordance with Fund procedures. Any material error in the net asset value
shall be reported to the Company promptly upon discovery. Any administrative or
other costs or losses incurred for correcting underlying Contract owner accounts
shall be at Company's expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Iowa insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Iowa and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
<PAGE>
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Iowa to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered under all applicable federal and state securities
laws and that the Adviser shall perform its obligations for the Fund in
compliance in all material respects with the laws of the State of Iowa and any
applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $2.5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund if, and when, applicable. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies. The Company
agrees to exercise its best efforts to ensure that other individuals/entities
not employed or controlled by the Company and dealing with the money and/or
securities of the Fund maintain a similar bond or coverage in a reasonable
amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
<PAGE>
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and semi-
annual reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or on diskette) and other assistance as
is reasonably necessary in order for the Company (at the Company's expense) to
print such shareholder communications for distribution to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
<PAGE>
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a Portfolio
thereof) or the Adviser or the Underwriter is named, at least ten calendar days
prior to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within ten calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within ten calendar days after receipt of
such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account, within a
reasonable time after the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
<PAGE>
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, except as otherwise provided herein. The
Fund shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior to
their sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's
prospectus (in accordance with 3.1) and of distributing the Fund's prospectus,
proxy materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such
a manner as to ensure that the Contracts will be treated as annuity, endowment,
or life insurance contracts, whichever is appropriate, under the Internal
Revenue Code of 1986, as amended (the Code ) and the regulations issued
thereunder (or any successor provisions). Without limiting the scope of the
foregoing, each Designated Portfolio of the Fund will comply with Section 817(h)
of the Code and Treasury Regulation 1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
<PAGE>
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Code (or any successor or similar provision), shall
identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
<PAGE>
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six month period the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
<PAGE>
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement, prospectus, or statement of additional information ( SAI ) for the
Contracts or contained in the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement, prospectus or SAI for the
Contracts or in the Contracts or sales literature or other promotional material
(or any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature or other promotional material of the
Fund not supplied by the Company or persons under its control) or wrongful
conduct of the Company or persons under its authorization or control, with
respect to the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, SAI, or
sales literature or other promotional material of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the Company;
or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the qualification requirements specified in Article VI of this
Agreement); or
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
<PAGE>
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or SAI or sales literature or other promotional material
of the Fund (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on behalf of the Company
for use in the Registration Statement or prospectus for the Fund or in sales
literature or other promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature or other promotional
material for the Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund or Underwriter or persons under their
control, with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
SAI, or sales literature or other promotional material of the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter;
<PAGE>
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action and to settle the claim at its own expense;
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Underwriter to such
party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
<PAGE>
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to
some or all Designated Portfolios, by six (6) months' advance written notice
delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based upon the
Company's determination that shares of the Fund are not reasonably available to
meet the requirements of the Contracts; provided that such termination shall
apply only to the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the Company by the
NASD, the SEC, the Insurance Commissioner or like official of any state or any
other regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of any Account, or the
purchase of the Fund shares; provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or Underwriter by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body; provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in the event that such
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the qualifications
specified in Section 6.3 hereof; or if the Fund or Underwriter reasonably
believes that such Contracts may fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
<PAGE>
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole judgment exercised
in good faith, that the Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any termination under
Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company s assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a Legally Required Redemption ), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund
and the Underwriter the opinion of counsel for the Company (which counsel shall
be reasonably satisfactory to the Fund and the Underwriter) to the effect that
any redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
Equitrust Life Insurance Company
5400 University Avenue
<PAGE>
West Des Moines, Iowa 50266
Attention: Sue Cornick
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All references herein to the Fund are to each of the undersigned
Funds as if this agreement were between such individual Fund and the Underwriter
and the Company. All references herein to the Adviser relate solely to the
Adviser of such individual Fund, as appropriate. All persons dealing with a
Fund must look solely to the property of such Fund, and in the case of a series
company, the respective Designated Portfolio listed on Schedule A hereto as
though such Designated Portfolio had separately contracted with the Company and
the Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all
<PAGE>
information reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as such information may come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Iowa Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Iowa
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted accounting
principles ( GAAP ), if any), as soon as practical and in any event within 90
days after the end of each fiscal year.
(b) the Company s quarterly statements (statutory) (and GAAP, if any),
as soon as practical and in any event within 45 days after the end of each
quarterly period.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
<PAGE>
COMPANY: EQUITRUST LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ William J. Oddy
Title: Executive Vice President,
General Manager & Director
Date: June 8, 1998
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: June 8, 1998
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: June 8, 1998
<PAGE>
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ Darrell N. Braman
Title: Vice President
Date: June 8, 1998
<PAGE>
SCHEDULE A
Name of Separate Account and Date Established by Board of Directors:
EquiTrust Life Variable Account
1/6/98
Contracts Funded by Separate Account:
Flexible Premium Variable Life Insurance Policy
Designated Portfolios:
T. Rowe Price Equity Series, Inc.
- Equity Income Portfolio
- Mid-Cap Growth Portfolio
- New America Growth Portfolio
- Personal Strategy Balanced Portfolio
T. Rowe Price International Series, Inc.
- International Stock Portfolio
Name of Separate Account and Date Established by Board of Directors:
EquiTrust Life Annuity Account
1/6/98
Contracts Funded by Separate Account:
Flexible Premium Deferred Variable Annuity Contract
Designated Portfolios:
T. Rowe Price Equity Series, Inc.
- Equity Income Portfolio
- Mid-Cap Growth Portfolio
- New America Growth Portfolio
- Personal Strategy Balanced Portfolio
T. Rowe Price International Series, Inc.
- International Stock Portfolio
<PAGE>
EquiTrust letterhead
May 21, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statement on Form N-4 filed by EquiTrust Life
Insurance Company ("Company") and its EquiTrust Life Annuity Account with the
Securities and Exchange Commission covering certain variable annuity contracts,
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 annuity contracts, when issued as contemplated by the said
Form N-4 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
N-4 Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Prospectus contained in the said Registration Statement.
In giving this consent, I am not admitting that I am in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Stephen M. Morain
Stephen M. Morain
Senior Vice President
& General Counsel
<PAGE>
Sutherland, Asbill & Brennan LLP letterhead
May 29, 1998
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal Matters"
in the statement of additional information filed as part of the registration
statement on Form N-4 for EquiTrust Life Annuity Account (File No. 333-46597).
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
/s/ Stephen E. Roth, Esq.
Stephen E. Roth
<PAGE>
Ernst & Young LLP letterhead
The Board of Directors
EquiTrust Life Insurance Company
We consent to the reference to our firm under the captions "Financial
Statements" and "Experts" and to the use of our report dated January 16, 1998
with respect to EquiTrust Life Insurance Company, in the Registration Statement
under the Securities Act of 1933 (Form N-4 No. 333-46597) and related Prospectus
of EquiTrust Life Annuity Account.
Sincerely,
/s/ Ernst & Young LLP
Des Moines, Iowa
June 9, 1998
<PAGE>
EquiTrust letterhead
May 21, 1998
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by EquiTrust Life
Insurance Company of a flexible premium deferred variable annuity contract
("Contract") under the Securities Act of 1933, as amended. The prospectus
included in Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-4 (File No. 333-46597) describes the Contract. I have provided actuarial
advice concerning the preparation of the contract form described in the
Registration Statement, and I am familiar with the Registration Statement and
exhibits thereto.
It is my professional opinion that the fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred and the risks assumed by the insurance
company.
I hereby consent to the use of this opinion as an exhibit to Pre-Effective
Amendment No. 1 to the Registration Statement.
Sincerely,
/s/ Christopher G. Daniels
Christopher G. Daniels, FSA, MSAA
Life Product Development and Pricing Vice President
EquiTrust Life Insurance Company
