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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 Dreyfus Variable Investment Fund: Capital Appreciation
Portfolio, Dreyfus Variable Investment Fund: Disciplined Stock Portfolio,
Dreyfus Variable Investment Fund: Growth and Income Portfolio, Dreyfus Variable
Investment Fund: International Equity Portfolio and Dreyfus Variable Investment
Fund: Small Cap Portfolio. 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 32 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.
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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
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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........................................................ 17
Modification.................................................... 17
Reports to Owners............................................... 17
Inquiries....................................................... 17
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THE DECLARED INTEREST OPTION.............................................. 18
Minimum Guaranteed and Current Interest Rates................... 18
Transfers From Declared Interest Option......................... 19
Payment Deferral................................................ 19
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CHARGES AND DEDUCTIONS.................................................... 19
Surrender Charge (Contingent Deferred Sales Charge)............. 19
Annual Administrative Charge.................................... 20
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........................................................... 21
Election of Options............................................. 21
Description of Options.......................................... 21
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YIELDS AND TOTAL RETURNS.................................................. 22
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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............... 27
Withholding..................................................... 27
Multiple Contracts.............................................. 27
Taxation of Qualified Plans..................................... 27
Possible Charge for the Company's Taxes......................... 29
Other Tax Consequences.......................................... 29
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DISTRIBUTION OF THE CONTRACTS............................................. 29
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LEGAL PROCEEDINGS......................................................... 29
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VOTING RIGHTS............................................................. 30
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YEAR 2000................................................................. 30
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FINANCIAL STATEMENTS...................................................... 31
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS..................... 32
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2
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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
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EXPENSE TABLES
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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
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<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>
* 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 Portfolio.................. 0.75%(3) 0.05% 0.80%(4)
Disciplined Stock Portfolio..................... 0.75% 0.27% 1.02%(4)
Growth and Income Portfolio..................... 0.75% 0.05% 0.80%(4)
International Equity Portfolio.................. 0.75% 0.31% 1.06%(4)
Small Cap Portfolio............................. 0.75% 0.03% 0.78%(4)
</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
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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 advisory fee is a combined investment advisory and sub-investment
advisory fee.
(4) Total expenses were not reduced for the 1997 fiscal year by any waiver or
reimbursement.
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 Portfolio................ 157 291 428 725
Disciplined Stock Portfolio................... 156 290 425 719
Growth and Income Portfolio................... 154 284 415 698
International Equity Portfolio................ 157 291 427 723
Small Cap Portfolio........................... 154 283 414 696
</TABLE>
5
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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 Portfolio................ 70 212 356 725
Disciplined Stock Portfolio................... 69 210 353 719
Growth and Income Portfolio................... 67 203 342 698
International Equity Portfolio................ 70 211 355 723
Small Cap Portfolio........................... 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
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SUMMARY
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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.")
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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.
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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
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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 Dreyfus Variable Investment Fund: Capital
Appreciation Portfolio, Dreyfus Variable Investment Fund:
Disciplined Stock Portfolio, Dreyfus Variable Investment
Fund: Growth and Income Portfolio, Dreyfus Variable
Investment Fund: International Equity Portfolio and
Dreyfus Variable Investment Fund: Small Cap Portfolio.
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.
Each of these Investment Options was formed as an
investment vehicle for insurance company separate
accounts. The investment objectives and policies of
certain Investment Options are similar to the investment
objectives and policies of other portfolios that may be
managed by the same investment adviser, sub-investment
adviser or manager. The investment results of the
Investment Options, however, may be higher or lower than
the results of such other portfolios. There can be no
assurance, and no representation is made, that the
investment results of any of the Investment Options will
be comparable to the investment results of any other
portfolio, even if the other portfolio has the same
investment adviser, sub-investment adviser or manager.
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
9
<PAGE>
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 of comparable quality. AN INVESTMENT IN
THIS PORTFOLIO MAY ENTAIL GREATER THAN ORDINARY
FINANCIAL RISK. (See the Fund Prospectus "Principal
Risk Factors--Special Considerations--High Yield
Bonds.")
MONEY MARKET PORTFOLIO. This Portfolio seeks maximum
current income consistent with liquidity and
stability of principal. The Portfolio will pursue
this objective by investing in high quality
short-term money market instruments. AN INVESTMENT IN
THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
BLUE CHIP PORTFOLIO. This Portfolio seeks growth of
capital and income. The Portfolio pursues this
objective by investing primarily in common stocks of
well-capitalized, established companies. Because this
Portfolio may be invested heavily in particular
stocks or industries, an investment in this Portfolio
may entail relatively greater risk of loss.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Associates, Inc. is the investment adviser
to the Fund.
EQUITY INCOME PORTFOLIO. This Portfolio seeks to
provide substantial dividend income and long-term
capital appreciation by investing primarily in
established companies considered by the adviser to
have favorable prospects for both increasing
dividends and capital appreciation.
MID-CAP GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation by investing primarily
in common stocks of medium-sized (mid-cap) growth
companies which offer the potential for above-average
earnings growth.
NEW AMERICA GROWTH PORTFOLIO. This Portfolio seeks
long-term capital growth by investing primarily in
common stocks of U.S. growth companies operating in
service industries.
PERSONAL STRATEGY BALANCED PORTFOLIO. This Portfolio
seeks the highest total return over time consistent
with an emphasis on both capital appreciation and
income.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
Rowe Price-Fleming International, Inc. is the investment
adviser to the Fund.
INTERNATIONAL STOCK PORTFOLIO. This Portfolio seeks
to provide capital appreciation through investments
primarily in established companies based outside the
United States.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Corporation serves as the investment adviser
to the Fund. Fayez Sarofim and Co. serves as the
sub-investment adviser to the Dreyfus Variable Investment
Fund: Capital Appreciation Portfolio. The following Fund
portfolios are available under the Contract.
10
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND: CAPITAL
APPRECIATION PORTFOLIO. This Portfolio primarily
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 issuers.
DREYFUS VARIABLE INVESTMENT FUND: 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. The Portfolio will
use quantitative statistical modeling techniques to
construct a portfolio in an attempt to achieve its
investment objective, without assuming undue risk
relative to the broad stock market.
DREYFUS VARIABLE INVESTMENT FUND: 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 primarily in equity securities, debt
securities and money market instruments of domestic
and foreign issuers.
DREYFUS VARIABLE INVESTMENT FUND: INTERNATIONAL
EQUITY PORTFOLIO. This Portfolio seeks to maximize
capital growth through investments in equity
securities of foreign issuers located throughout the
world.
DREYFUS VARIABLE INVESTMENT FUND: SMALL CAP
PORTFOLIO. This Portfolio seeks maximum capital
appreciation by investing primarily in common stocks
of domestic and foreign issuers. The Portfolio will
be particularly alert to companies 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
11
<PAGE>
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.
- --------------------------------------------------------------------------------
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-annual
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
12
<PAGE>
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 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.
13
<PAGE>
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
14
<PAGE>
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
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
15
<PAGE>
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.
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 charge) 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
16
<PAGE>
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
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.
17
<PAGE>
- --------------------------------------------------------------------------------
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.
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.
18
<PAGE>
- --------------------------------------------------------------------------------
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.
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.
19
<PAGE>
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 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.
- --------------------------------------------------------------------------------
20
<PAGE>
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.
- --------------------------------------------------------------------------------
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.
21
<PAGE>
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.
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).
22
<PAGE>
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 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
23
<PAGE>
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 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
24
<PAGE>
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 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.
25
<PAGE>
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.
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;
26
<PAGE>
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 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,
27
<PAGE>
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 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
28
<PAGE>
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
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.
- --------------------------------------------------------------------------------
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."
- --------------------------------------------------------------------------------
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
29
<PAGE>
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.
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.
30
<PAGE>
- --------------------------------------------------------------------------------
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 Account will commence
operations in 1998; accordingly, no financial statements
currently exist.
31
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
LEGAL MATTERS............................................................. 6
- --------------------------------------------------------------------------------
EXPERTS................................................................... 7
- --------------------------------------------------------------------------------
OTHER INFORMATION......................................................... 7
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS...................................................... 7
- --------------------------------------------------------------------------------
32
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
33
<PAGE>
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
- --------------------------------------------------------------------------------
TEAR AT PERFORATION
<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 Portfolio (6)...................... 28.05 -- -- 19.87
Disciplined Stock Portfolio (7)......................... 31.51 -- -- 30.67
Growth and Income Portfolio (8)......................... 16.21 -- -- 24.64
International Equity Portfolio (8)...................... 9.61 -- -- 7.13
Small Cap Portfolio (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 April 30,
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.
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