<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1999
FILE NO. 333-61899
FILE NO. 811-08967
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO.
---------------------
EQUITRUST LIFE ANNUITY ACCOUNT II
(Exact Name of Registrant)
EQUITRUST LIFE INSURANCE COMPANY
(Name of Depositor)
------------------------
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: 1-888-349-4656
STEPHEN M. MORAIN, ESQUIRE
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
(Name and Address of Agent for Service of Process)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQUIRE
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2415
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
SECURITIES BEING OFFERED: FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
CONTRACTS
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485;
/ / ON MAY 1, 1999 PURSUANT TO PARAGRAPH (b) OF RULE 485;
/X/ 78 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) OF RULE 485;
/ / ON (DATE) PURSUANT TO PARAGRAPH (a) OF RULE 485.
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<PAGE>
PROSPECTUS
EquiTrust Life Annuity Account II
Individual Flexible Premium Deferred
Variable Annuity Contract
EquiTrust Life Insurance Company (the "Company") is offering the individual
flexible premium deferred variable annuity contract (the "Contract") described
in this prospectus. The Company sells the Contract to retirement plans,
including those that qualify for special federal tax treatment under the
Internal Revenue Code.
The owner of a Contract ("You" or "Your") may allocate premiums and
Accumulated Value to 1) the Declared Interest Option, an account that provides a
specified rate of interest, and/or 2) Subaccounts of EquiTrust Life Annuity
Account II, each of which invests in one of the following Investment Options:
<TABLE>
<S> <C>
Value Growth Portfolio High Grade Bond Portfolio
High Yield Bond Portfolio Money Market Portfolio
Blue Chip Portfolio Equity Income Portfolio
Mid-Cap Growth Portfolio New America Growth Portfolio
Personal Strategy Balanced Portfolio International Stock Portfolio
Capital Appreciation Portfolio Disciplined Stock Portfolio
Growth and Income Portfolio International Equity Portfolio
Small Cap Portfolio
</TABLE>
The accompanying prospectus for each Investment Option describes the
investment objectives and attendant risks of each Investment Option. If you
allocate premiums to the Subaccounts, the amount of the Contract's Accumulated
Value prior to the retirement date will vary to reflect the investment
performance of the Investment Options you select.
Please read this prospectus carefully and retain it for future reference. A
prospectus for each Investment Option must accompany this prospectus and you
should read it in conjunction with this prospectus.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES OR
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRSENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Issued By
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
1-888-349-4656
THE DATE OF THIS PROSPECTUS IS
MAY 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DEFINITIONS................................................................................................ 3
EXPENSE TABLES............................................................................................. 5
SUMMARY.................................................................................................... 9
THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS................................................................ 11
EquiTrust Life Insurance Company......................................................................... 11
EquiTrust Life Annuity Account II........................................................................ 11
Investment Options....................................................................................... 11
Addition, Deletion or Substitution of Investments........................................................ 14
DESCRIPTION OF ANNUITY CONTRACT............................................................................ 14
Issuance of a Contract................................................................................... 14
Premiums................................................................................................. 14
Free-Look Period......................................................................................... 15
Allocation of Premiums................................................................................... 15
Variable Accumulated Value............................................................................... 15
Transfer Privilege....................................................................................... 16
Partial Withdrawals and Surrenders....................................................................... 17
Special Transfer and Withdrawal Options.................................................................. 17
Death Benefit Before the Retirement Date................................................................. 18
Death Benefit After the Retirement Date.................................................................. 19
Proceeds on the Retirement Date.......................................................................... 20
Payments................................................................................................. 20
Modification............................................................................................. 20
Reports to Owners........................................................................................ 20
Inquiries................................................................................................ 21
THE DECLARED INTEREST OPTION............................................................................... 21
Minimum Guaranteed and Current Interest Rates............................................................ 21
Transfers From Declared Interest Option.................................................................. 22
Payment Deferral......................................................................................... 22
CHARGES AND DEDUCTIONS..................................................................................... 22
Surrender Charge (Contingent Deferred Sales Charge)...................................................... 22
Annual Administrative Charge............................................................................. 23
Transfer Processing Fee.................................................................................. 23
Mortality and Expense Risk Charge........................................................................ 23
Investment Option Expenses............................................................................... 23
Premium Taxes............................................................................................ 23
Other Taxes.............................................................................................. 23
PAYMENT OPTIONS............................................................................................ 23
Election of Options...................................................................................... 24
Description of Options................................................................................... 24
YIELDS AND TOTAL RETURNS................................................................................... 24
FEDERAL TAX MATTERS........................................................................................ 26
Introduction............................................................................................. 26
Tax Status of the Contract............................................................................... 26
Taxation of Annuities.................................................................................... 28
Transfers, Assignments or Exchanges of a Contract........................................................ 30
Withholding.............................................................................................. 30
Multiple Contracts....................................................................................... 30
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Taxation of Qualified Plans.............................................................................. 30
Possible Charge for the Company's Taxes.................................................................. 32
Other Tax Consequences................................................................................... 32
DISTRIBUTION OF THE CONTRACTS.............................................................................. 32
LEGAL PROCEEDINGS.......................................................................................... 33
VOTING RIGHTS.............................................................................................. 33
YEAR 2000.................................................................................................. 33
FINANCIAL STATEMENTS....................................................................................... 34
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS...................................................... 34
</TABLE>
The Contract may not be available in all jurisdictions. This prospectus
constitutes an offering or solicitation only in those jurisdictions where such
offering or solicitation may lawfully be made.
2
<PAGE>
DEFINITIONS
<TABLE>
<S> <C>
Account......................... EquiTrust Life Annuity Account II.
Accumulated Value............... The total amount invested under the Contract, which 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 Company pays the proceeds on the
death of the owner/annuitant.
Business Day.................... Each day that the New York Stock Exchange is open for
trading, except the day after Thanksgiving, the day before
Christmas (in 1999) 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.
The Company ("We", "Us" or EquiTrust Life Insurance Company.
"Our")........................
Contract Anniversary............ The same date in each Contract Year as the Contract Date.
Contract Date................... The date on which the Company receives a properly
completed application at the Home Office. It is the date
set forth on the data page of the Contract which the
Company uses 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.............. Satisfactory documentation provided to the Company
verifying proof of death. This documentation may include
the following:
(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.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Non-Qualified Contract.......... A Contract that is not a Qualified Contract.
Owner ("You" or "Your")......... The person who owns the Contract and who is entitled to
exercise all rights and privileges provided in the
Contract.
Qualified Contract.............. A Contract the Company issues 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 Company applies the Accumulated Value
under a payment option, if the annuitant is still living.
SEC............................. The U.S. Securities and Exchange Commission.
Subaccount...................... A subdivision of the Account which invests its assets 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 signed by the owner in a form
satisfactory to the Company which the Company receives at
the Home Office.
</TABLE>
4
<PAGE>
EXPENSE TABLES
The following expense information assumes that the entire accumulated value
is variable accumulated value.
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charge Imposed on Premiums.................................................... None
</TABLE>
Surrender Charge (contingent deferred sales charge) as a percentage of the
amount surrendered:
<TABLE>
<CAPTION>
CONTRACT YEAR* SURRENDER CHARGE
- --------------------------------------- -----------------------
<S> <C>
1...................................... 6%
2...................................... 5
3...................................... 4
4...................................... 3
5...................................... 2
6...................................... 1
7 and after............................ 0
</TABLE>
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* In each Contract Year after the first Contract Year, you may withdraw up to
10% of the Accumulated Value on your most recent Contract Anniversary
without incurring a surrender charge. If you subsequently surrender your
Contract during the Contract Year, the Company will apply a Surrender Charge
to any partial withdrawals taken. The amount that you may withdraw without
incurring a Surrender Charge is not cumulative from Contract Year to
Contract Year.
<TABLE>
<S> <C>
Transfer Processing Fee............................................................. None*
</TABLE>
- ------------------------
* Fees are waived for the first twelve transfers during a Contract Year,
although the Company may charge $25 for each subsequent transfer during the
Contract Year.
<TABLE>
<S> <C>
Annual Administrative Charge......................................................... $ 30
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>
5
<PAGE>
ANNUAL INVESTMENT OPTION EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
OTHER TOTAL
EXPENSES EXPENSES
ADVISORY (AFTER WAIVER OR (AFTER WAIVER OR
INVESTMENT OPTION FEE REIMBURSEMENT) REIMBURSEMENT)
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<S> <C> <C> <C>
EquiTrust Variable Insurance Series Fund**
Value Growth........................................................ % % %
High Grade Bond..................................................... % % %
High Yield Bond..................................................... % % %
Money Market........................................................ % % %
Blue Chip........................................................... % % %
T. Rowe Price Equity Series, Inc.
Equity Income....................................................... % % %(1)
Mid-Cap Growth...................................................... % % %(1)
New America Growth.................................................. % % %(1)
Personal Strategy Balanced.......................................... % % %(1)
T. Rowe Price International Series, Inc.
International Stock................................................. % % %(1)
Dreyfus Variable Investment Fund Capital Appreciation Portfolio....... % % %(2)
Disciplined Stock Portfolio......................................... % % %(2)
Growth and Income Portfolio......................................... % % %(2)
International Equity Portfolio...................................... % % %(2)
Small Cap Portfolio................................................. % % %(3)
</TABLE>
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6
<PAGE>
** 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
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 1998 fiscal year would have been:
(1) Total annual investment option expenses are an all-inclusive fee and pay for
investment management services and other operating costs.
(2) The advisory fee is a combined investment advisory and sub-investment
advisory fee.
(3) Total expenses were not reduced for the 1998 fiscal year by any waiver or
reimbursement.
The above tables are intended to assist you in understanding the costs and
expenses that you will bear directly or indirectly. The tables reflect the
expenses for the Account based on the actual expenses for each Investment Option
for the 1998 fiscal year. For 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: You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
1. If you surrender or annuitize the Contract 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............................................................... $ $ $ $
High Grade Bond............................................................
High Yield Bond............................................................
Money Market...............................................................
Blue Chip..................................................................
T. Rowe Price Equity Series, Inc.
Equity Income..............................................................
Mid-Cap Growth.............................................................
New America Growth.........................................................
Personal Strategy Balanced.................................................
T. Rowe Price International Series, Inc.
International Stock........................................................
Dreyfus Variable Investment Fund.............................................
Capital Appreciation Portfolio.............................................
Disciplined Stock Portfolio................................................
Growth and Income Portfolio................................................
International Equity Portfolio.............................................
Small Cap Portfolio........................................................
</TABLE>
7
<PAGE>
2. If you surrender or annuitize the Contract 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............................................................... $ $ $ $
High Grade Bond............................................................
High Yield Bond............................................................
Money Market...............................................................
Blue Chip..................................................................
T. Rowe Price Equity Series, Inc.
Equity Income..............................................................
Mid-Cap Growth.............................................................
New America Growth.........................................................
Personal Strategy Balanced.................................................
T. Rowe Price International Series, Inc.
International Stock........................................................
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio.............................................
Disciplined Stock Portfolio................................................
Growth and Income Portfolio................................................
International Equity Portfolio.............................................
Small Cap Portfolio........................................................
</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 $30 and that the accumulated value per contract is $10,000, which
translates the administrative charge into an assumed .30% charge for the
purposes of the examples based on a $1,000 investment.
Please do not consider the examples a representation of past or future
expenses. The assumed 5% annual rate of return is hypothetical and is a
representation of past or future annual returns, which may be greater or less
than this assumed rate.
8
<PAGE>
SUMMARY OF THE CONTRACT
ISSUANCE OF A CONTRACT. The Contract is an individual flexible premium
deferred variable annuity contract with no maximum age required of owners on the
Contract Date (see "Issuance of a Contract"). The Contracts are:
- "flexible premium" because you do not have to pay premiums according to a
fixed schedule; and
- "variable" because, to the extent Accumulated Value is attributable to the
Account, Accumulated Value will increase and decrease based on the
investment performance of the Investment Options corresponding to the
Subaccounts to which you allocate your premiums.
FREE-LOOK PERIOD. You have the right to return the Contract within 20 days
after you receive it (see "Free-Look Period"). If you return the Contract, it
will become void and you will receive either the greater of:
- premiums paid, or
- the Accumulated Value on the date the Company receives the returned
Contract at the Home Office, plus administrative charges and charges
deducted from the Account.
PREMIUMS. The minimum initial premium amount the Company accepts is $1,000.
You may make minimum subsequent premium payments of $50. (See "Premiums.")
ALLOCATION OF PREMIUMS. You can allocate premiums to one or more
Subaccounts, the Declared Option, or both (see "Allocation of Premiums").
- The Company will allocate the initial premium to the Money Market
Subaccount for 10 days.
- At the end of that period, the Company will allocate those monies among
the Subaccounts and the Declared Interest Option according to the
instructions in your application.
TRANSFERS. You may transfer monies in a Subaccount or the Declared Interest
Option to another Subaccount or the Declard Interest Option on or before the
retirement date (see "Transfer Privilege").
- The mimimum amount of each transfer is $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.
- The Company waives fees for the first twelve transfers during a Contract
Year.
- The Company may assess a transfer processing fee of $25 for each
subsequent transfer during a Contract Year.
PARTIAL WITHDRAWAL. You may withdraw part of the Accumulated Value upon
written notice at any time before the retirement date (see "Partial
Withdrawals").
SURRENDER. You may surrender your Contract upon written notice on or before
the retirement date (see "Surrender").
9
<PAGE>
CHARGES AND DEDUCTIONS
Your Contract will be assessed the following charges and deductions:
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). We apply a charge if
you make a partial withdrawal from or surrender your Contract during the first
six Contract Years (see "Charge for Partial Withdrawal or Surrender"). We deduct
this charge from the amount surrendered.
<TABLE>
<CAPTION>
YEAR CHARGE
----- -------
<S> <C>
1 6%
2 5
3 4
4 3
5 2
6 1
7 and
after 0
</TABLE>
In each Contract Year after the first Contract Year, you may withdraw up to
10% of the Accumulated Value on your most recent Contract Anniversary without a
Surrender Charge. If you subsequently surrender your Contract during the
Contract Year, we will apply a Surrender Charge to any partial withdrawals
you've taken. (See "Amounts Not Subject to Surrender Charge.")
We reserve the right to waive the Surrender Charge as provided in the
Contract. (See "Waiver of Surrender Charge.")
ANNUAL ADMINISTRATIVE CHARGE. We charge an annual administrative charge of
$30 on the Contract date and on each Contract Anniversary prior to the
retirement date (see "Annual Administrative Charge").
MORTALITY AND EXPENSE RISK CHARGE. We apply a daily mortality and expense
risk charge (calculated 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. We apply the investment advisory fee and other
operating expenses incurred by each Investment Option against the assets of the
Account. A table above titled "Annual Investment Option Expenses" lists these
fees.
ANNUITY PROVISIONS
On your retirement date, you may choose to have the Net Accumulated Value
distributed to you as follows:
- Under a payment option, or
- In a lump sum (see "Payment Options").
FEDERAL TAX MATTERS
You may be subject to adverse tax consequences if you take a distribution
from your Contract (see "Federal Tax Matters").
OTHER CONTRACTS
We offer other variable annuity contracts that invest in the same Investment
Options of the Funds, and which may have different charges that could affect
Subaccount performance and offer different benefits. You may contact the Company
to obtain more information about these contracts.
10
<PAGE>
THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS
EQUITRUST LIFE INSURANCE COMPANY The Company was incorporated on June 3,
1966 as a stock life insurance company in the State of Iowa and is principally
engaged in the offering of life insurance policies and annuity contracts. We are
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. Our Home Office is at 5400
University Avenue, West Des Moines, Iowa 50266.
EQUITRUST LIFE ANNUITY ACCOUNT II On January 6, 1998, we established the
Account pursuant to the laws of the State of Iowa. The Account:
- will receive and invest premiums paid to it under the Contract;
- will receive and invest premiums for other variable annuity contracts we
issue;
- meets the definition of a "separte account" under the federal securities
laws;
- is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940 ("1940 Act"). Such registration does not involve
supervision by the SEC of the management or investment policies or
practices of the Account, us or the Funds.
We own the Account's assets. However, we cannot charge the Account with
liabilities arising out of any other business we may conduct. The Account's
assets are available to cover the general liabilities of the Company only to the
extent that the Account's assets exceed its liabilities. We may transfer assets
which exceed these reserves and liabilities to our General Account. All
obligations arising under the Contracts are general corporate obligations of the
Company.
INVESTMENT OPTIONS There are currently fifteen Subaccounts available under
the Account, each of which invests exclusively in shares of a single
corresponding Investment Option. Each of the Investment Options was formed as an
investment vehicle for insurance company separate accounts. Each Investment
Option has its own investment objectives and separately determines the income
and losses for that Investment Option. However, we only permit you to "actively
participate" in a maximum of 10 Investment Options over the lifetime of your
Contract.
The investment objectives and policies of certain Investment Options are
similar to the investment objectives and policies of other portfolios that the
same investment adviser, sub-investment adviser or manager may manage. 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.
11
<PAGE>
We have summarized below the investment objectives and policies of each
Investment Option. There is no assurance that any Investment Option will achieve
its stated objectives. You should also read the prospectus for each Investment
Option, which must accompany or precede this Prospectus, for more detailed
information, including a description of risks and expenses.
EQUITRUST VARIABLE INSURANCE SERIES FUND
EquiTrust Investment Management Services, Inc. is the investment adviser to
the Fund which is comprised of six portfolios, the following five of which are
available under the Contract:
VALUE GROWTH PORTFOLIO. This Portfolio seeks long-term capital appreciation.
The Portfolio pursues this objective by investing primarily in equity
securities of companies that the investment adviser believes have a
potential to earn a high return on capital and/or in equity securities that
the investment adviser believes are undervalued by the market place. Such
equity securities may include common stock, preferred stock and securities
convertible or exchangeable into common stock.
HIGH GRADE BOND PORTFOLIO. This Portfolio seeks as high a level of current
income as is consistent with an investment in a high grade portfolio of debt
securities. The Portfolio will pursue this objective by investing primarily
in debt securities rated AAA, AA or A by Standard & Poor's or Aaa, Aa or A
by Moody's Investors Service, Inc. and in securities issued or guaranteed by
the United States government or its agencies or instrumentalities.
HIGH YIELD BOND PORTFOLIO. This Portfolio seeks as a primary objective, as
high a level of current income as is consistent with investment in a
portfolio of fixed-income securities rated in the lower categories of
established rating services. As a secondary objective, the Portfolio seeks
capital appreciation when consistent with its primary objective. The
Portfolio pursues these objectives by investing primarily in fixed-income
securities rated Baa or lower by Moody's Investors Service, Inc. and/or BBB
or lower by Standards & Poor's, or in unrated securities of comparable
quality. AN INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN ORDINARY
FINANCIAL RISK. (See the Fund Prospectus "HIGHER RISK SECURITIES AND
INVESTMENT STRATEGIES--Lower Rated Debt Securities.")
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.
12
<PAGE>
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.
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.
We currently do 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, we will monitor
events in order to identify any material irreconcilable conflicts that might
possibly arise. In that event, we would determine what action, if any, should be
taken in response to the conflict. In addition, if we believe that a Fund's
response to any of those events or conflicts insufficiently protects owners, we
will take appropriate action on our own, which may include withdrawing the
Account's investment in that Fund. (See the Fund prospectuses for more detail.)
We may receive compensation from an affiliate(s) of one or more of the Funds
based upon an annual percentage of the average assets we hold in the Investment
Options. These amounts are intended to compensate us for administrative and
other services we provide to the Funds and/or affiliate(s).
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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
We reserve the right, subject to compliance with 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. We reserve the right to eliminate
the shares of any Investment Option and to substitute any shares of another
Investment Option. We will not substitute any shares attributable to your
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.
We also reserve the right to establish additional subaccounts of the
Account, each of which would invest in a new Investment Option, or in shares of
another investment company with a specified investment objective. We may
establish new subaccounts when, in our sole discretion, marketing needs or
investment conditions warrant, and we will make any new subaccounts available to
existing Contract owners on a basis we determine. We may also eliminate one or
more Subaccounts if, in our sole discretion, marketing, tax, regulatory
requirements or investment conditions warrant.
In the event of any such substitution, deletion or change, we may make
appropriate changes in this and other contracts to reflect such substitution,
deletion or change. If you allocated all or a portion of your premiums to any of
the current subaccounts that are being substituted for or deleted, you may
surrender the portion of the Accumlated Value funded by such subaccount without
paying the associated Surrender Charge. You may also transfer the portion of the
Accumulated Value affected without paying a transfer charge.
If we deems it to be in the best interest of persons having voting rights
under the Contracts, we may:
- operate the Account as a management investment company under the 1940 Act,
- deregister the Account under that Act in the event such registration is no
longer required, or
- combine the Account with our other separate accounts.
In addition, we may, when permitted by law, restrict or eliminate your
voting rights under the Contract.
DESCRIPTION OF ANNUITY CONTRACT
ISSUANCE OF A CONTRACT You must complete an application in order to
purchase a Contract, which can be obtained through a licensed representative of
the Company, who is also a registered representative of EquiTrust Marketing
Services, LLC ("EquiTrust Marketing"), a broker-dealer having a selling
agreement with EquiTrust Marketing or a broker-dealer having a selling agreement
with such broker-dealer. Your Contract Date will be the date the properly
completed application is received at our Home Office. (If this date is the 29th,
30th or 31st of any month, the Contract Date will be the 28th of such month.)
The Company sells the Contract to retirement plans that qualify for special
federal tax treatment under the Code. We do not apply a maximum age for owners
on the Contract Date.
PREMIUMS The minimum initial premium amount the Company will accept is
$1,000. You may make mimimum subsequent premium payments of $50 at any time
during the annuitant's lifetime and before the retirement date.
You may select to receive a premium reminder notice schedule based on an
annual, semi-annual or quarterly payment, for which you may change the amount
and frequency of the notice at any time. Also, under the Automatic Payment Plan,
you can select a monthly payment schedule for premium payments to
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<PAGE>
be automatically deducted from a bank account or other source. Your Contract
will not necessarily lapse even if premiums are not paid.
FREE-LOOK PERIOD We provide for an initial "free-look" period during which
time you have the right to return the Contract within 20 days after you receive
it. If you return the Contract, it will become void and you will receive the
greater of:
- premiums paid, or
- the Accumulated Value on the date we receive the returned Contract at the
Home Office, plus administrative charges and charges deducted from the
Account.
ALLOCATION OF PREMIUMS Upon receipt at our Home Office of your properly
completed Contract application and initial premium payment, we will allocate the
initial premium to the Money Market Subaccount within two business days. If your
application is not properly completed, we reserve the right to retain your
initial premium for up to five business days while we attempt to complete the
application. At the end of this 5-day period, if the application is not
complete, we will inform you of the reason for the delay and we will return the
initial premium immediately, unless you specifically provide us your consent to
retain the premium until the application is complete.
You can allocate premiums paid to one or more Subaccounts, the Declared
Interest Option, or both. Each allocation must be in whole percentages for a
minimum of 10% of your premium payment.
- We will allocate the initial premium to the Money Market Subaccount for
10-days.
- At the end of that period, we will allocate those monies among the
Subaccounts and the Declared Interest Option according to the instructions
in your application.
- We will allocate subsequent premiums in the same manner at the end of the
valuation period when we receive them at our Home Office, unless the
allocation percentages are changed.
- If you change your allocation percentages, we will allocate subsequent
premium payments in accordance with the allocation schedule in effect.
- You may, however, direct individual payments to a specific Subaccount, the
Declared Interest Option, or any combination thereof, without changing the
existing allocation schedule.
You may change your allocation schedule at any time by written notice to the
Home Office. Changing your allocation schedule will not alter the allocation of
your existing accumulated values among the Subaccounts or the Declared Interest
Option.
Because the Accumulated Values in each Subaccount will vary with that
Subaccount's investment experience, you bear the entire investment risk. You
should periodically review your premium allocation schedule in light of market
conditions and your overall financial objectives.
VARIABLE ACCUMULATED VALUE The variable accumulated value of your Contract
will reflect the investment experience of your selected Subaccounts, any
premiums paid, surrenders or partial withdrawals, transfers and charges
assessed. The Company does not guarantee a minimum variable accumulated value,
and, because your Contract's variable accumulated value on any future date
depends upon a number of variables, it cannot be predetermined.
CALCULATION OF VARIABLE ACCUMULATED VALUE. Your Contract's variable
accumulated value is determined at the end of each valuation period and is the
aggregate of the values in each of the Subaccounts under your Contract. These
values are determined by multiplying each Subaccount's unit value by the number
of units allocated to that Subaccount.
DETERMINATION OF NUMBER OF UNITS. The amounts you allocate to your selected
Subaccounts are converted into Subaccount units. The number of units credited to
each Subacount in your Contract is
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<PAGE>
calculated at the end of the valuation period by dividing the dollar amount
allocated by the unit value for that Subaccount. At the end of the valuation
period, we will increase the number of units in each Subaccount by:
- any premiums paid, and
- any amounts transferred from another Subaccount or the Declared Interest
Option.
We will decrease the number of units in each Subaccount by:
- any amounts withdrawn,
- applicable charges assessed, and
- any amounts transferred to another Subaccount.
DETERMINATION OF UNIT VALUE. We have set the unit value for each
Subaccount's first valuation period at $10. We calculate the unit value for a
Subaccount 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 You may transfer monies in a Subaccount or the Declared
Interest Option to another Subaccount or the Declared Interest Option on or
before the retirement date. We will process all transfers as of the Business Day
on or next following receipt of your written request at the Home Office.
- The minimum amount of each transfer is $100 or the entire amount in that
Subaccount, if less.
- Transfers out of the Declared Interest Option must be for no more than 25%
of the Accumulated Value in that option.
- If a transfer would reduce the Accumulated Value in the Declared Interest
Option below $1,000, you must transfer the entire amount in that option.
- The Company waives fees for the first twelve transfers during a Contract
Year.
- The Company will assess a transfer processing fee of $25 for each
subsequent transfer during a Contract Year.
- We allow an unlimited number of transfers among or between the Subaccounts
or the Declared Interest Option. (See "Transfers from Declared Interest
Option.")
All transfer requests received in a valuation period will be considered to
be one transfer, regardless of the Subaccounts or Declared Interest Option
affected. We will deduct the transfer processing fee on a pro-
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<PAGE>
rata basis from the Subaccounts or Declared Interest Option to which the
transfer is made unless it is paid in cash.
You may also transfer monies via telephone request if you selected this
option on your initial application or have provided us with proper
authorization. We reserve the right to suspend telephone transfer privileges at
any time.
PARTIAL WITHDRAWALS AND SURRENDERS
PARTIAL WITHDRAWALS. You may withdraw part of the Accumulated Value upon
written notice at any time before the retirement date.
- The minimum amount which you may withdraw is $500.
- The maximum amount which you may withdraw is that which would leave the
remaining Accumulated Value equal to or less than $2,000.
If your partial withdrawal reduces your Accumulated Value to $2,000 or less,
it will be treated as a full surrender of the Contract. We will process your
withdrawal as of the Business Day on or next following receipt of your written
request at the Home Office. You may elect to have any applicable Surrender
Charge deducted from your remaining Accumulated Value or the amount withdrawn.
(See "Surrender Charge.")
You may specify the amount of the partial withdrawal to be made from
selected Subaccounts or the Declared Interest Option. If you do not so specify,
or if the amount in the designated Subaccount(s) or Declared Interest Option is
insufficient to comply with your request, we will make the withdrawal from each
Subaccount and the Declared Interest Option based on the proportion that each
Subaccount's value bears to the total Accumulated Value on the date we receive
your request at the Home Office.
SURRENDER. You may surrender your Contract upon written notice on or before
the retirement date. We will determine your Net Accumulated Value as of the
Business Day on or next following receipt of your written request at the Home
Office, which must be accompanied by your Contract. You may choose to have the
Net Accumulated Value distributed to you as follows:
- Under a payment option, or
- In a lump sum.
SURRENDER AND PARTIAL WITHDRAWAL RESTRICTIONS. Your right to make partial
withdrawals and surrenders is subject to any restrictions imposed by applicable
law or employee benefit plan and you may realize adverse federal income tax
consequences, including a penalty tax, upon utilization of these features. (See
"Taxation of Annuities.")
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS. Surrenders
and partial withdrawals of Contracts which are used as funding vehicles for Code
Section 403(b) retirement plans are subject to certain restrictions. (See
"FEDERAL TAX MATTERS--Taxation of Qualified Plans--TAX SHELTERED ANNUITIES.")
SPECIAL TRANSFER AND WITHDRAWAL OPTIONS You may elect the following options
on your initial application or at a later date by completing the applicable
Request form and returning it to the Home Office. The options selected will
remain in effect until we receive a written termination request from you at the
Home Office. The use of Automatic Rebalancing or Dollar Cost Averaging does not
guarantee profits, nor protect you against losses.
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AUTOMATIC REBALANCING. You may automatically reallocate your Accumulated
Value among the Subaccounts and Declared Interest Option.
- We will reallocate monies according to the percentage allocation schedule
in effect on your Contract Anniversary.
- The maximum number of Subaccounts which you may select at any one time is
ten.
- Rebalancing will occur on the fifth Business Day of the month following
your Contract Anniversary.
- This feature cannot be utilized in combination with Dollar Cost Averaging.
DOLLAR COST AVERAGING. You may periodically transfer a specified amount
among the Subaccounts or the Declared Interest Option.
- The minimum amount of each transfer is $100.
- The maximum number of Subaccounts which you may select at any one time is
ten, including the Declared Interest Option.
- You select the date to implement this program which will occur on the same
date each month, or on the next Business Day.
- We may terminate this option if monies in the source account are
inadequate.
- This feature cannot be utilized in combination with Automatic Rebalancing
or Systematic Withdrawals.
SYSTEMATIC WITHDRAWALS. You may elect to receive automatic partial
withdrawals.
- You specify the amount of the partial withdrawals to be made from selected
Subaccounts or the Declared Interest Option.
- You specify the allocation of the withdrawals among the Subaccounts and
Declared Interest Option, and the frequency (monthly, quarterly,
semi-annually or annually).
- The minimum amount which you may withdraw is $500.
- The maximum amount which you may withdraw is that which would leave the
remaining Accumulated Value equal to or less than $2,000.
- You may annually withdraw a maximum of 10% of Accumulated Value without
incurring a Surrender Charge.
- Distributions will take place on the same date each month as the Contract
Date.
- You may change the amount and frequency upon written request to the Home
Office.
- This feature cannot be utilized in combination with Dollar Cost Averaging.
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 sole surviving owners or new owners are afforded the following options:
1. If the owner is the spouse of the deceased owner, he or she may
continue the Contract as the new owner.
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2. If the owner is not the spouse of the deceased owner:
(a) he or she may elect to receive the net accumulated value in a
single sum within 5 years of the deceased owner's death; or
(b) he or she may elect to receive the net accumulated value paid out
under one of the annuity payment options, with payments beginning within
one year after the date of the owner's death and with payments being made
over the lifetime of the owner, or over a period that does not exceed the
life expectancy of the owner.
Under either of these options, sole surviving owners or new owners may
exercise all ownership rights and privileges from the date of the deceased
owner's death until the date that the net accumulated value is paid.
DEATH OF AN ANNUITANT. If the annuitant dies before the retirement date, we
will pay the death benefit under the Contract to the beneficiary. If there is no
surviving beneficiary, we 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), plus the Accumulated
Value on the date we receive 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 will be determined as of the date we receive due proof of death and is
equal to the greater of:
- the sum of the premiums paid, less the sum of all partial withdrawal
reductions (including applicable surrender charges), or
- the Accumulated Value.
A partial withdrawal reduction is defined as (a) times (b) divided by (c)
where:
(a) is the death benefit immediately prior to withdrawal
(b) is the amount of the partial withdrawal (including applicable
surrender charges) and
(c) is the Accumulated Value immediately prior to withdrawal.
We will pay the death benefit to the beneficiary in a lump sum unless the owner
or beneficiary elects a payment option. We do not pay a death benefit if the
annuitant dies after the retirement date.
If the annuitant who is also 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:
- payments under the option begin within 1 year of the annuitant's death;
and
- 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 and
retains the rights provided to owners during the annuity period, including the
right to name successor payees if the deceased owner had not previously done so.
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If the annuitant dies before 120 payments have been received, we will make
any remaining payments 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 You select the retirement date. 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, we will apply the proceeds under the life income
annuity payment option with ten years guaranteed, unless you choose to have the
proceeds paid under another option or in a lump sum. (See "Payment Options.") If
a payment option is elected, we will apply the Accumulated Value less any
applicable Surrender Charge. If a lump sum payment is chosen, we will pay the
net accumulated value on the retirement date.
You may change the retirement date subject to these limitations:
- we must receive a written notice 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 We will usually pay any surrender, partial withdrawal or death
benefit within seven days of receipt of a written request at the Home Office. We
also require any information or documentation necessary to process the request,
and in the case of a death benefit, we must receive due proof of death. We may
postpone payments if:
- 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
- the SEC permits by an order the postponement for the protection of owners;
or
- 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 you have submitted a recent check or draft, we have the right to delay
payment until we are assured that the check or draft has been honored.
We have the right to defer payment of any surrender, partial withdrawal or
transfer from the Declared Interest Option for up to six months. If payment has
not been made within 30 days after receipt of all required documentation, or
such shorter period as necessitated by a particular jurisdiction, we will add
interest at the rate of 3% (or a higher rate if required by a particular state)
to the amount paid from the date all documentation was received.
MODIFICATION Upon notification to you, we may modify your Contract if:
- necessary to make your Contract or the Account comply with any law or
regulation issued by a governmental agency to which the Company is
subject; or
- necessary to assure continued qualification of your Contract under the
Code or other federal or state laws relating to retirement annuities or
variable annuity contracts; or
- necessary to reflect a change in the operation of the Account; or
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- the modification provides additional Subaccount and/or fixed accumulation
options.
We will make the appropriate endorsement to your Contract in the event of
most such modifications.
REPORTS TO OWNERS We will mail to you, at least annually, a report
containing the Accumulated Value of your Contract (reflecting each Subaccount
and the Declared Interest Option), premiums paid, withdrawals taken and charges
deducted since your last report, and any other information required by any
applicable law or regulation.
INQUIRIES You may contact the Company in writing at our Home Office if you
have any questions regarding your Contract
THE DECLARED INTEREST OPTION
You may allocate some or all of your premium payments, and transfer some or
all of your 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%).
IN COMPLIANCE WITH SPECIFIC STATE INSURANCE REGULATIONS, THE DECLARED
INTEREST OPTION IS NOT AVAILABLE IN ALL STATES. A REGISTERED REPRESENTATIVE CAN
PROVIDE INFORMATION ON THE AVAILABILITY OF THIS INVESTMENT OPTION.
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 your 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 your 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, we assume 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
accumulated value is guaranteed to accumulate at a minimum effective annual
interest rate of 3%. While we intend to credit the Declared Interest Option
accumulated value with current rates in excess of the minimum guarantee, we are
not obligated to do so. These current interest rates are influenced by, but do
not necessarily correspond to, prevailing general market interest rates, and any
interest credited on your amounts in the Declared Interest Option in excess of
the minimum guaranteed rate will be determined in the sole discretion of the
Company. You, therefore, assume the risk that interest credited may not exceed
the guaranteed rate.
Occasionally, we establish new current interest rates for the Declared
Interest Option. The rate applicable to your Contract is the rate in effect on
your most recent Contract Anniversary. This rate will remain unchanged until
your next Contract Anniversary (i.e., for your entire Contract Year). During
each Contract Year, your entire Declared Interest Option accumulated value
(including amounts allocated or transferred to the Declared Interest Option
during the year) is credited with the interest rate in effect for that period
and becomes part of your Declared Interest Option accumulated value.
We reserve the right to change the method of crediting interest, provided
that such changes do not have the effect of reducing the guaranteed interest
rate below 3% per annum, or shorten the period for which the current interest
rate applies to less than a Contract year.
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CALCULATION OF DECLARED INTEREST OPTION ACCUMULATED VALUE. The Declared
Interest Option accumulated value is equal to:
- amounts allocated and transferred to it, plus
- interest credited, less
- amounts deducted, transferred or withdrawn.
TRANSFERS FROM DECLARED INTEREST OPTION You may make an unlimited number of
transfers from the Declared Interest Option to any or all of the Subaccounts in
each Contract Year. The amount you transfer may not exceed 25% of the Declared
Interest Option accumulated value on the date of transfer. However, if the
balance after the transfer is less than $1,000, you must transfer the entire
amount.
PAYMENT DEFERRAL We have the right to defer payment of any surrender,
partial withdrawal or transfer from the Declared Interest Option for up to six
months.
CHARGES AND DEDUCTIONS
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
CHARGE FOR PARTIAL WITHDRAWAL OR SURRENDER. We apply a charge if you make a
partial withdrawal from or surrender your Contract during the first six Contract
years. We deduct this charge from the amount surrendered.
<TABLE>
<CAPTION>
CHARGE AS PERCENTAGE OF
CONTRACT YEAR IN WHICH SURRENDER OCCURS AMOUNT SURRENDERED
- ------------------------------------------------------ ------------------------
<S> <C>
1..................................................... 6%
2..................................................... 5
3..................................................... 4
4..................................................... 3
5..................................................... 2
6..................................................... 1
7 and after........................................... 0
</TABLE>
If 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 Company will retain the excess. 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. In each Contract Year after the
first Contract Year, you may withdraw up to 10% of the Accumulated Value on your
most recent Contract Anniversary without a Surrender Charge. If you subsequently
surrender your Contract during the Contract Year, we will apply a Surrender
Charge to any partial withdrawals you've taken. (This right is not cumulative
from Contract Year to Contract Year.)
SURRENDER CHARGE AT THE RETIREMENT DATE. A Surrender Charge will be
assessed against your Accumulated Value at the retirement date if you select a
payment option other than options 2-5 described below (see "Payment Options").
We do not apply a Surrender Charge if you select payment options 3 or 5. If you
select payment options 2 or 4, we assess a Surrender Charge by adding the number
of years for which
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payments will be made to the number of Contract Years since your Contract
inception and applying this sum in the table of Surrender Charges.
We reserve the right to waive the Surrender Charge as provided in the
Contract. (See "Waiver of Surrender Charge.")
WAIVER OF SURRENDER CHARGE. We reserve the right to waive the Surrender
Charge after your first Policy Year if the annuitant is terminally ill (as
defined in your Contract), stays in a qualified nursing center for 90 days, or
is required to satisfy minimum distribution requirements in accordance with the
Code. We must receive written notification, before the retirement date, at the
Home Office in order to activate this waiver.
ANNUAL ADMINISTRATIVE CHARGE We apply an annual administrative charge of
$30 on the Contract Date and on each Contract Anniversary prior to the
retirement date. We deduct this charge from your Accumulated Value and use it to
reimburse us for administrative expenses relating to your Contract. We will make
the withdrawal from each Subaccount and the Declared Interest Option based on
the proportion that each Subaccount's value bears to the total Accumulated
Value. We do not assess this charge during the annuity payment period.
TRANSFER PROCESSING FEE We waive the transfer processing fee for the first
twelve transfers during a Contract Year, but will assess a $25 charge for each
subsequent transfer. We will deduct this fee on a pro-rata basis from the
Subaccounts or Declared Interest Option to which the transfer is made unless it
is paid in cash.
MORTALITY AND EXPENSE RISK CHARGE We apply a daily mortality and expense
risk charge at an annual rate of 1.40% (daily rate of 0.0038091%) (approximately
1.01% for mortality risk and 0.39% for expense risk). This charge is used to
compensate the Company for assuming mortality and expense risks.
The mortality risk we assume is that annuitants may live for a longer period
of time than estimated when the guarantees in the Contract were established.
Through these guarantees, each payee is assured that longevity will not have an
adverse effect on the annuity payments received. The mortality risk also
includes a guarantee to pay a death benefit if the owner/annuitant dies before
the retirement date. The expense risk we assume is that the annual
administrative and transfer processing fees may be insufficient to cover actual
future expenses.
We may realize a profit from this charge and we may use such profit for any
lawful purpose including paying distribution expenses.
INVESTMENT OPTION EXPENSES We apply the investment advisory fee and other
operating expenses incurred by each Investment Option against the assets of the
Account. (See the Expense Tables in this prospectus and the accompanying
Investment Option prospectuses.)
PREMIUM TAXES Currently, we do not charge for premium taxes levied by
various states and other governmental entities on annuity contracts issued by
insurance companies. These taxes range up to 3.5% and are subject to change. We
reserve the right, however, to deduct such taxes from Accumulated Value.
OTHER TAXES Currently, we do not charge for any federal, state or local
taxes incurred by the Company which may be attributable to the Account or the
Contracts. We reserve the right, however, to make such a charge in the future.
PAYMENT OPTIONS
Your Contract ends on the retirement date. At that time, your Net
Accumulated Value will be applied under a payment option, unless you elect to
receive this amount in a single sum. Should you not elect a
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payment option on the retirement date, proceeds will be paid as a life income
annuity with payments guaranteed for ten years.
Prior to the retirement date, you may have your Net Accumulated Value
applied under a payment option, or a beneficiary can have the death benefit
applied under a payment option. In either case, the Contract must be surrendered
for a lump sum payment to be made, or a supplemental contract to be issued for
the payment option.
We have provided a description of the available payment options below. The
term "payee" means a person who is entitled to receive payment under that
option. All payment options offer a fixed and guaranteed amount to be paid
during the annuity payment period, independent of the investment experience of
the Account.
ELECTION OF OPTIONS While the annuitant is living, you may elect, revoke or
change a payment option at any time before the retirement date. Upon an
annuitant's death, if a payment option is not in effect or if payment will be
made in one lump sum under an existing option, the beneficiary may elect one of
the options after the death of the owner/annuitant.
We will initiate an election, revocation or change of a payment option upon
receipt of your written request at the Home Office.
We reserve the right to refuse the election of a payment option, other than
in a lump sum, if:
1) the total payments 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. The proceeds are left with the Company to earn a
set interest rate. The payee may elect to have the interest paid monthly,
quarterly, semi-annually or annually. Under this option, the payee may withdraw
part or all of the proceeds at any time.
OPTION 2--INCOME FOR A FIXED TERM. The proceeds are paid in equal
installments for a fixed number of years.
OPTION 3--LIFE INCOME OPTION WITH TERM CERTAIN. The proceeds are 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 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 dollar amount of
any remaining guaranteed payments will be paid in one lump 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 dollar amount
of any remaining guaranteed payments will be paid in one lump sum to the
executors or administrators of the beneficiary's estate. The amount to be paid
is calculated as of the date of death of the payee, or beneficiary if
applicable, and the calculation of present value shall be no less than 3%.
OPTION 4--INCOME FOR FIXED AMOUNT. The proceeds are paid in equal
installments (at intervals elected by the payee) for a specific amount and will
continue until all the proceeds plus interest are exhausted.
OPTION 5--JOINT AND TWO-THIRDS TO SURVIVOR MONTHLY LIFE INCOME. The
proceeds are paid in equal installments while two joint payees live. When one
payee dies, future proceeds equal to two-thirds of the initial payment will be
made to the survivor for their lifetime.
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The amount of each payment is calculated from the tables in the Contract
which apply to that particular option using the payee's age and sex. Age is
determined as the last birthday at the date of the first payment.
ALTERNATE PAYMENT OPTION. The Company may make available an alternative
payment option.
YIELDS AND TOTAL RETURNS
We 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
also advertise, or include in sales literature, performance relative to certain
performance rankings and indices compiled by independent rating organizations.
You may refer to the Statement of Additional Information for more detailed
information relating to performance.
The effective yield and total return calculated for each Subaccount is based
on the investment performance of the corresponding Investment Option, which
includes the Investment Option's total operating expenses. (See the accompanying
Investment Option prospectuses.)
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. This yield is calculated by assuming that the income
generated during that 30-day or one-month period is generated each period over
12-months and is shown as a percentage of the investment.
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.
This yield is calculated by assuming that the income generated for that
seven-day period is generated each period for 52-weeks 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 total return of a Subaccount refers to return quotations of an
investment in a Subaccount for various periods of time. Total return figures are
provided for each Subaccount for one, five and ten year periods, respectively.
For periods prior to the date the Account commenced operations, performance
information is calculated based on the performance of the Investment Options and
the assumption that the Subaccounts were in existence for those same periods,
with the level of Contract charges which were in effect at inception of the
Subaccounts.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000 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 you terminated your Contract at the end of each period indicated, but
excluding any deductions for premium taxes).
In addition to standardized average annual total return, non-standardized
total return information may be used in advertisements or sales literature.
Non-standardized return information will be computed on the same basis as
described above, but does not include a surrender charge. In addition, the
Company may disclose cumulative total return for Contracts funded by
Subaccounts.
Each Investment Option's yield, and standardized and non-standardized
average annual total returns may also be disclosed, which may include investment
periods prior to the date the Account commenced operations. Non-standardized
performance data will only be disclosed if standardized performance data is
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also disclosed. Please refer to the Statement of Additional Information for
additional information regarding the calculation of other performance data.
In advertising and sales literature, Subaccount performance may be compared
to the performance of other issuers of variable annuity contracts which invest
in mutual fund portfolios with similar investment objectives. 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 according to investment objectives on an industry-wide
basis.
The ranking provided by Lipper include variable life insurance issuers as
well as variable annuity issuers, whereas the rankings provided by VARDS 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 deductions for operating expenses. Other
independent ranking services and indices may also be used as a source of
performance comparison.
We 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 based on the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of the
continuation of these current tax laws and interpretations. Moreover, no attempt
has been made to consider any applicable state or other tax laws.
A 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"). A 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 effect
of federal income taxes on 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, the tax and employment status of the
individual concerned, and the Company's tax status. In addition, an individual
must satisfy certain requirements to:
- purchase a Qualified Contract with proceeds from a tax-qualified plan, and
- receive distributions from a Qualified Contract in order to continue to
receive favorable tax treatment.
Therefore, purchasers of Qualified Contracts are encouraged to seek
competent legal and tax advice regarding the suitability and tax considerations
specific to their situation. The following discussion assumes
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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 The Company believes that the Contract will be
subject to tax as an annuity contract under the Code, which generally means that
any increase in Accumulated Value will not be taxable until monies are received
from the Contract, either in the form of annuity payments or in some other form.
The following Code requirement must be met in order to be subject to annuity
contract treatment for tax purposes:
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code provides that
separate account investments must be "adequately diversified" in accordance
with Treasury regulations in order for the Contract to qualify as an annuity
contract for federal tax purposes. The Account, through each Investment
Option, intends to comply with the diversification requirements prescribed
in regulations under Section 817(h) of the Code, which affect how the assets
in each Subaccount may be invested. Although the investment adviser of
EquiTrust Variable Insurance Series Fund is an affiliate of the Company, we
do not have control over the Fund or its investments. Nonetheless, the
Company believes that each Investment Option in which the Account owns
shares will meet the diversification requirements.
OWNER CONTROL. 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
includable in the variable annuity contract owner's gross income. The IRS
has stated in published rulings that a variable annuity contract owner will
be considered the owner of separate account assets if the contract owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. The Treasury Department also
announced, in connection with the issuance of regulations concerning
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 stated that guidance would be
issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular subaccounts without
being treated as owners of the underlying assets."
The ownership rights under the Contracts are similar to, but different
in certain respects from, those described by the IRS in rulings in which it
was determined that contract owners were not owners of separate account
assets. For example, the contract owner has additional flexibility in
allocating premium payments and Accumulated Values. These differences could
result in a contract owner being treated as the owner of a pro rata potion
of the assets of the Account. In addition, the Company does not know what
standards will be set forth, if any, in the regulations or rulings which the
Treasury Department has stated it expects to issue. The Company therefore
reserves the right to modify the Contract as necessary to attempt to prevent
the contract owner from being considered the owner of the assets of the
Account.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires any
Non-Qualified Contract to provide that:
- if any owner dies on or after the retirement date but before the 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
- if any owner dies prior to the date annuity payments begin, the interest
in the Contract will be distributed within five years after the date of
the owner's death.
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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 designated beneficiary is the surviving spouse
of the owner, the Contract may be continued with the surviving spouse as the new
owner.
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.
TAXATION OF ANNUITIES
THE FOLLOWING DISCUSSION ASSUMES THAT THE CONTRACTS WILL QUALIFY AS ANNUITY
CONTRACTS FOR FEDERAL INCOME TAX PURPOSES.
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 through a
partial withdrawal, surrender or annuity payment. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the
Accumulated 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.
NON-NATURAL OWNER. A non-natural owner of an annuity contract generally
must include any excess of cash value over the "investment in the contract" as
income during the taxable year. However, there are some exceptions to this rule.
Certain Contracts will generally be treated as held by a natural person if:
- the nominal owner is a trust or other entity which holds the contract as
an agent for a natural person (but not in the case of certain
non-qualified deferred compensation arrangements);
- the Contract is acquired by an estate of a decedent by reason of the death
of the decedent;
- the Contract is issued in connection with certain Qualified Plans;
- the Contract is purchased by an employer upon the termination of certain
Qualified Plans;
- the Contract is used in connection with a structured settlement agreement;
or
- the Contract is purchased with a single payment within a year of the
annuity starting date and substantially equal periodic payments are made,
not less frequently than annually, during the annuity period.
A prospective owner that is not a natural person should to discuss these
exceptions with their tax adviser.
THE FOLLOWING DISCUSSION GENERALLY APPLIES TO CONTRACTS OWNED BY NATURAL
PERSONS.
PARTIAL WITHDRAWALS. Under Section 72(e) of the Code, if a partial
withdrawal is taken from a Qualified Contract, 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.
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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.
Under Section 72(e) of the Code, if a partial withdrawal is taken from a
Non-Qualified Contract, amounts received are generally first treated as taxable
income to the extent that the Accumulated 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 and the contract received is
treated as a new contract for purposes of the penalty and distribution-at-death
rules. Special rules and procedures apply to Section 1035 transactions and
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:
- if distributed in a lump sum, they are taxed in the same manner as a
surrender of the contract, or
- if distributed under a payment option, they are taxed in the same way as
annuity payments.
For these purposes, 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 from a
Non-Qualified Contract, a 10% federal tax penalty may be imposed. However
generally, there is no penalty applied on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of the holder (or if the holder is not an
individual, the death of the primary annuitant);
- attributable to the taxpayer becoming disabled;
- 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;
- made under certain annuities issued in connection with structured
settlement agreements;
- 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
- any payment allocable to an investment (including earnings thereon) made
before August 14, 1982 in a contract issued before that date.
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Other tax penalties may apply to certain distributions under a Qualified
Contract. Contract owners should consult their tax adviser.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
Certain tax consequences may result upon:
- 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.
An owner contemplating any of these actions should consult their tax adviser.
WITHHOLDING
Generally, distributions from a Contract are subject to withholding of
federal income tax at a rate which varies according to the type of distribution
and the owner's tax status.
Eligible rollover distributions from section 401(a) plans and section 403(b)
tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An "eligible rollover distribution" is the taxable portion
of any distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the owner chooses a "direct
rollover" from the plan to another tax-qualified plan or IRA.
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; and
- 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
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Contract, but the Company shall not be bound by the terms and conditions of such
plans to the extent such terms contradict the Contract, unless the Company
consents. Some retirement plans are subject to distribution and other
requirements that are not incorporated into our Contract administration
procedures. Owners, participants and beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. For qualified plans under
Section 401(a), 403(a), 403(b), and 457, the Code requires that distributions
generally must commence no later than the later of April 1 of the calendar year
following the calendar year in which the owner (or plan participant) (i) reaches
age 70 1/2 or (ii) retires, and must be made in a specified form or manner. If
the plan participant is a "5 percent owner" (as defined in the Code),
distributions generally must begin no later than April 1 of the calendar year
following the calendar year in which the owner (or plan participant) reaches age
70 1/2. For IRAs described in Section 408, distributions generally must commence
no later than the later of April 1 of the calendar year following the calendar
year in which the owner (or plan participant) reaches age 70 1/2. 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. Earnings in an IRA are not taxed
until distribution. IRA contributions are limited each year to the lesser of
$2,000 or 100% of the owner's adjusted gross income and may be deductible in
whole or in part depending on the individual's income. The limit on the amount
contributed to an IRA does not apply to distributions from certain other types
of qualified plans that are "rolled over" on a tax-deferred basis into an IRA.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age 59 1/2 (unless certain
exceptions apply) are subject to a 10% penalty tax.
Employers may establish Simplified Employee Pension (SEP) Plans to provide
IRA contributions on behalf of their employees. In addition to all of the
general Code rules governing IRAs, such plans are subject to certain Code
requirements regarding participation and amounts of contributions.
SIMPLE RETIREMENT ACCOUNTS. Section 408(p) of the Code permits small
employers to establish Simple Retirement Accounts 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. 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
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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:
- before age 59 1/2 (subject to certain exceptions) or
- 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:
- elective contributions made in years beginning after December 31, 1988;
- earnings on those contributions; and
- 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
The Company currently 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. We reserve 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 our 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. You should consult your tax adviser for further
information.
32
<PAGE>
DISTRIBUTION OF THE CONTRACTS
The Contracts will be offered to the public on a continuous basis. We do not
anticipate discontinuing the offering of the Contracts, but reserve the right to
discontinue the offering. Applications for Contracts are solicited by agents,
who in addition to being licensed by applicable state insurance authorities to
sell the variable annuity contracts and variable life insurance policies for the
Company, 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 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 serves 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 and 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, as well as
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 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
To the extent required by 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, and, as a result, the Company determines that it is permitted to vote
the Fund shares in its own right, it may elect to do so.
The number of votes you have the right to instruct will be calculated
separately for each Subaccount to which you have Accumulated Value, and may
include fractional votes. (You only have voting interest prior to the retirement
date.) The number of votes attributable to a Subaccount is determined by
dividing your Accumulated Value in that Subaccount by the net asset value per
share of the Investment Option of the corresponding Subaccount.
The number of votes of an Investment Option which are available to you is
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. For each Subaccount in which you have a voting interest, you will
receive proxy materials and reports relating to any meeting of shareholders of
the Investment Option in which that Subaccount invests.
The Company will vote Fund shares attributable to Contracts as to which no
timely instructions are received (as well as any Fund shares held in the Account
which are not attributable to Contracts) in proportion to the voting
instructions received with respect to all Contracts participating in each
Investment Option. Voting instructions to abstain on any item to be voted upon
will be applied on a pro rata basis to reduce the votes eligible to be cast on a
matter.
33
<PAGE>
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. We have completed a comprehensive assessment of the Year 2000 issue and
developed a plan to address the issue in a timely manner. We have and will
utilize both internal and external resources to reprogram, or replace, and test
the software for Year 2000 modifications. We anticipate completing the Year 2000
project prior to any anticipated impact on our operating systems.
The Company believes it will complete the Year 2000 modifications based on
management's best estimates, which were derived utilizing numerous assumptions
of future events. We also recognize there are outside influences and
dependencies relative to its Year 2000 effort, over which we have little or no
control. However, we are 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.
FINANCIAL STATEMENTS
The audited consolidated balance sheets of the Company as of December 31,
1998 and 1997, and the related consolidated statements of income, changes in
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1998, as well as the related Report of Independent Auditors
are contained in the Statement of Additional Information. Likewise, the audited
statement of net assets for the Account as of December 31, 1998 and the related
statement of operations for the year then ended and changes in net assets for
each of the two years then ended, as well as the related Report of Independent
Auditors are contained in the Statement of Additional Information.
[Financial statements to be provided by amendment.]
34
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<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 Charge on Performance Data................ 6
LEGAL MATTERS............................................................ 6
EXPERTS.................................................................. 7
OTHER INFORMATION........................................................ 7
FINANCIAL STATEMENTS..................................................... 7
</TABLE>
35
<PAGE>
TEAR AT PERFORATION
If you would like a copy of the Statement of Additional Information, please
complete the information below and detach and mail this card to the Company at
the address shown on the cover of this prospectus.
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
- ----------------------------------------------------------------------------
36
<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 II
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information contains additional information to
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.
May 1, 1999
<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, 1998,
Iowa Farm Bureau Federation owned 54.30% 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 Contract includes the application and all other attached papers. The
statements made in the application are deemed representations and not
warranties. We will not use any statement in defense of a claim or to void the
Contract unless it is contained in the application.
INCONTESTABILITY
We 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, we will pay that
amount 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
The Company may disclose yields, total returns and other performance data
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
Advertisements and sales literature may quote the current annualized yield
of the Money Market Subaccount for a seven-day period. This figure is computed
by determining the net change (exclusive or realized gains and losses on the
sale of securities, 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 with a balance of 1 unit at the beginning
of the period, dividing this net change 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.
The net change in account value reflects:
- net income from the Investment Option attributable to the hypothetical
account; and
- charges and deductions imposed under the Contract attributable to the
hypothetical account.
<PAGE>
The charges and deductions include the per unit charges for the hypothetical
account for:
- the annual administrative fee and
- 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 $30 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>
The yield for the Money Market Subaccount will be lower than the yield for
the Money Market Investment Option due to the charges and deductions imposed
under the Contract.
The current and effective yields of the Money Market Subaccount normally
fluctuate on a daily basis and SHOULD NOT ACT AS AN INDICATION OR REPRESENTATION
OF FUTURE YIELDS OR RATES OF RETURN. The actual yield is affected by
- changes in interest rates on money market securities,
- the average portfolio maturity of the Money Market Investment Option,
- the quality of portfolio securities held by this Investment Option, and
- the operating expenses of the Money Market Investment Option.
Yields may also be presented for other periods of time.
OTHER SUBACCOUNT YIELDS
Advertisements and sales literature 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
<PAGE>
annualized yield or a subaccount refers to income generated by that subaccount
during a 30- day or one-month period which 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.
The annual administrative fee (deducted at the beginning of each Contract Year)
and mortality and expense risk charge are included in expenses of the
Subaccounts. For purposes of calculating the 30-day or one-month yield, an
average administrative fee per dollar of Contract value is used 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) (to the power of "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>
The yield for each Subaccount will be lower that the yield for the
corresponding Investment Option due to the various charges and deductions
imposed under the Contract.
The yield for each Subaccount normally will fluctuate over time AND SHOULD
NOT ACT AS AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN.
A subaccount's actual yield is affected by the quality of portfolio securities
held by the corresponding Investment Option and its operating expenses.
The Surrender Charge is not considered in the yield calculation.
AVERAGE ANNUAL TOTAL RETURNS
Advertisements and sales literature may also quote average annual total
returns for the subaccounts for various periods of time. Total return figures
are provided for each Subaccount for one, five and ten year periods. Average
annual total returns may also be disclosed for other periods of time.
Standard average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000 to
the redemption value of that investment as of the last day of each of the
periods for which total return quotations are provided. The last date of each
period is the most recent month-end practicable.
Standard average annual total returns for each Subaccount are calculated
using unit values on each valuation day, deductions for the mortality and
expense risk charge, and the annual administrative fee deducted at the beginning
of each Contract Year. For purposes of calculating average annual total return,
an average annual administrative fee per dollar of Contract value is used. The
calculation also assumes
<PAGE>
surrender of the Contract at the end of the period. 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>
Advertisements and sales literature 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 Options and the assumption that the Subaccounts
were in existence for those same periods, with the level of Contract charges
which were in effect at the inception of the Subaccounts.
The average annual total return information for the Subaccounts is as
follows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE PERIOD
1-YEAR 5-YEAR 10-YEAR FROM DATE OF
PERIOD PERIOD PERIOD INCEPTION OF
ENDED ENDED ENDED INVESTMENT OPTION
SUBACCOUNT 12/31/98 12/31/98 12/31/98 TO 12/31/98
- ------------------------------ -------- -------- -------- -----------------
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance
Series Fund
Value Growth................ % % % %
High Grade Bond.............
High Yield Bond.............
Money Market(1).............
Blue Chip(2)................
T. Rowe Price Equity Series,
Inc.
Equity Income(3)............
Mid-Cap Growth(4)...........
New America Growth(3).......
Personal Strategy
Balanced(5)...............
T. Rowe Price International
Series, Inc.
International Stock(3)......
Dreyfus Variable Investment
Fund
Capital Appreciation
Portfolio(6)..............
Disciplined Stock
Portfolio(7)..............
Growth and Income
Portfolio(8)..............
International Equity
Portfolio(8)..............
Small Cap Portfolio(9)......
</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.
<PAGE>
(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.
OTHER TOTAL RETURNS
Advertisements and sales literature may also quote average annual total
returns which do not reflect the Surrender Charge. These figures are calculated
in the same manner as average annual total returns described above, however, the
Surrender Charge is not taken into account at the end of the period.
We 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 We apply an annual
administrative charge of $30 on the Contract date and on each Contract
Anniversary prior to the retirement date. This charge is deducted from each
Subaccount and the Declared Interest Option based on the proportion that each
Subaccount's value bears to the total Accumulated Value. For purposes of
reflecting the administrative fee in yield and total return quotations, this
annual charge is converted into a per-dollar per-day charge based on the average
value of all contracts in the Account on the last day of the period for which
quotations are provided. The per-dollar per-day average charge is then 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.
EXPERTS
The Account's statement of net assets as of December 31, 1998 and the
related statements of operations for the year then ended and changes in net
assets for each of the two years in the period then ended and the consolidated
balance sheets of the Company at December 31, 1998 and 1997 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998,
appearing herein, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their respective reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
<PAGE>
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contract 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 as to the contents of the Contract and other legal instruments are
summaries. For a complete statement of the terms of these documents, reference
is made to such instruments as filed.
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.
[Financial statements to be provided by amendment.]
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B.
(b) Exhibits
<TABLE>
<C> <S>
(1) Certified resolution of the board of directors of EquiTrust Life Insurance
Company (the "Company") establishing EquiTrust Life Annuity Account II
(the "Account").(1)
(2) Not Applicable.
(3) (a) Form of Underwriting agreement among the Company, the Account and
EquiTrust Marketing Services, Inc. ("EquiTrust Marketing").(1)
(b) Form of Sales Agreement.(1)
(c) Form of Wholesaling Agreement.(1)
(4) Contract Form.(1)
(5) Contract Application.(1)
(6) (a) Articles of Incorporation of the Company.(1)
(b) By-Laws of the Company.(1)
(7) Not Applicable.
(8) (a) Participation agreement relating to EquiTrust Variable Insurance
Series Fund.(1)
(b) Participation agreement relating to Dreyfus Variable Investment
Fund.(1)
(c) Participation agreement relating to T. Rowe Price Equity Series, Inc.
and T. Rowe Price International Series, Inc.(1)
(9) Opinion and Consent of Stephen M. Morain, Esquire.(1)
(10) (a) Consent of Sutherland, Asbill & Brennan, LLP.(1)
(b) Consent of Ernst & Young LLP. (to be filed by amendment)
(c) Opinion and Consent of Christopher G. Daniels, FSA, MSAA, Life Product
Development and Pricing Vice President.(1)
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Powers of Attorney.(1)
</TABLE>
- ------------------------
(1) Incorporated by reference to the initial filing of this Registration
Statement (File No. 333-61899) on August 20, 1998.
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
Incorporated herein by reference to the prospectus in the Form S-6
registration statement (File No. 33-12789) for certain variable life insurance
contracts issued by the Company and filed with the Commission on February 10,
1999.
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by FBL Financial Group, Inc. This Company and its
affiliates are described more fully in the prospectus included in this
registration statement. Various companies and other entities controlled by FBL
Financial Group, Inc., may therefore be considered to be under common control
with the registrant or the Company. Such other companies and entities, together
with the identity of the owners of their common stock (where applicable), are
set forth on the following diagram.
SEE ORGANIZATION CHART ON FOLLOWING PAGE
<PAGE>
FBL FINANCIAL GROUP, INC.
Ownership Chart
01-01-99
(added by amendment)
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 1, 1999, there were contract owners.
ITEM 28. INDEMNIFICATION
Article XII of the Company's By-Laws provides for the indemnification by the
Company of any person who is a party or who is threatened to be made a party to
any threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Article
XII also provides for the indemnification by the Company of any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or another enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification will be made in respect of any claim,
issue, or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Company
unless and only to the extent that the court in which such action or suit was
brought determines upon application that, despite the adjudication of liability
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) EquiTrust Marketing Services, LLC is the registrant's principal
underwriter and also serves as the principal underwriter of certain variable
annuity contracts and variable life insurance policies issued by other separate
accounts of the Company or its life insurance company affiliates supporting
other variable products, or to variable annuity and variable life insurance
separate accounts of insurance companies not affiliated with the Company.
<PAGE>
(b) Officers and Directors of EquiTrust Marketing Services, LLC
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
- ------------------------------ --------------------------------------------------------------------
<S> <C>
Stephen M. Morain ............ General Counsel and Assistant Secretary, Iowa Farm Bureau
Senior Vice President, Federation; General Counsel, Secretary and Director, Farm Bureau
General Counsel and Director Management Corporation; Senior Vice President, General Counsel and
Director, FBL Financial Group, Inc.; Senior Vice President and
General Counsel, Farm Bureau Life Insurance Company and other
affiliates of the foregoing. Holds various positions with
affiliates of the foregoing. Director, Computer Aided Design
Software, Inc., and Iowa Business Development Finance Corporation
Chairman, Edge Technologies, Inc.
William J. Oddy .............. Chief Operating Officer, FBL Financial Group, Inc., Farm Bureau Life
Chief Operating Officer and Insurance Company, Western Farm Bureau Life Insurance Company and
Director other affiliates of the foregoing. Holds various positions with
affiliates of the foregoing.
Dennis M. Marker ............. Investment Vice President, Administration, FBL Financial Group, Inc.
Investment Vice President, Holds various positions with affiliates of the foregoing.
Administration, Secretary
and Director
Thomas R. Gibson ............. Chief Executive Officer and Director, FBL Financial Group, Inc.;
Chief Executive Officer and Chief Executive Officer, Farm Bureau Life Insurance Company,
Director Western Farm Bureau Life Insurance Company and other affiliates of
the foregoing. Holds various positions with affiliates of the
foregoing.
Timothy J. Hoffman ........... Chief Property/Casualty Officer, FBL Financial Group, Inc.; Vice
Vice President and Director President, Farm Bureau Life Insurance Company, Western Farm Bureau
Life Insurance Company and other affiliates of the foregoing.
Holds various positions with affiliates of the foregoing.
James W. Noyce ............... Chief Financial Officer, Farm Bureau Life Insurance Company, FBL
Chief Financial Officer, Financial Group, Inc., Western Farm Bureau Life Insurance Company
Treasurer and Director and other affiliates of the foregoing. Holds various positions
with affiliates of the foregoing.
Thomas E. Burlingame ......... Vice President--Associate General Counsel, FBL Financial Group, Inc.
Director Holds various positions with affiliates of the foregoing.
F. Walter Tomenga ............ Vice President--Corporate Affairs and Marketing Services, FBL
Director Financial Group, Inc. Holds various positions with affiliates of
the foregoing.
Lynn E. Wilson ............... Vice President--Life Sales, FBL Financial Group, Inc. Holds various
President and Director positions with affiliates of the foregoing.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
- ------------------------------ --------------------------------------------------------------------
<S> <C>
Lou Ann Sandburg ............. Vice President--Investments and Assistant Treasurer, FBL Financial
Vice President, Investments Group, Inc., Farm Bureau Life Insurance Company, Western Farm
and Director Bureau Life Insurance Company and other affiliates of the
foregoing. Holds various positions with affiliates of the
foregoing.
James P. Brannen ............. Tax and Investment Accounting Vice President, FBL Financial Group,
Tax and Investment Inc. Holds various positions with affiliates of the foregoing.
Accounting Vice President
Sue A. Cornick ............... Market Conduct and Mutual Funds Vice President and Assistant
Market Conduct and Mutual Secretary, EquiTrust Investment Management Services, Inc.,
Funds Vice President and EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and
Assistant Secretary EquiTrust Variable Insurance Series Fund.
Kristi Rojohn ................ Assistant Mutual Funds Manager and Assistant Secretary, EquiTrust
Assistant Mutual Funds Investment Management Services, Inc.; Assistant Secretary,
Manager and Assistant EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and
Secretary EquiTrust Variable Insurance SeriesFund.
Elaine A. Followwill ......... Compliance Assistant and Assistant Secretary, EquiTrust Investment
Compliance Assistant and Management Services, Inc.; Assistant Secretary, EquiTrust Money
Assistant Secretary Market Fund, Inc., EquiTrust Series Fund, Inc. and EquiTrust
Variable Insurance Series Fund
Roger F. Grefe ............... Investment Management Vice President, FBL Financial Group, Inc. and
Investment Management Vice EquiTrust Investment Management Services, Inc.
President
Robert Rummelhart ............ Fixed Income Vice President, FBL Financial Group, Inc. and EquiTrust
Fixed Income Vice President Investment Management Services, Inc.
Charles T. Happel ............ Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
Laura Kellen Beebe ........... Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
</TABLE>
- ------------------------
* The principal business address of all of the persons listed above is 5400
University Avenue, West Des Moines, Iowa 50266.
ITEM 30. LOCATION BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be kept
by Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are
maintained by the Company at 5400 University Avenue, West Des Moines, Iowa
50266.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
registration statement.
<PAGE>
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective amendment
to this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for as long as purchase payments under the contracts offered
herein are being accepted.
(b) The registrant undertakes that it will include either as part of any
application to purchase a contract offered by the prospectus, a post card or
similar written communication affixed to or included in the prospectus that the
applicant can remove and send to the Company for a statement of additional
information.
(c) The registrant undertakes to deliver any statement of additional
information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request to the Company at the
address or phone number listed in the prospectus.
(d) The Company represents that in connection with its offering of the
contracts as funding vehicles for retirement plans meeting the requirements of
Section 403(b) of the Internal Revenue Code of 1986, it is relying on a
no-action letter dated November 28, 1988, to the American Council of Life
Insurance (Ref. No. IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of
the Investment Company Act of 1940, and that paragraphs numbered (1) through (4)
of that letter will be complied with.
(e) The Company represents that the aggregate charges under the Contracts
are reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by the Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, EquiTrust Life Annuity Account II has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized in the City of West Des Moines, State of Iowa, on the 8th day of
February, 1999.
<TABLE>
<S> <C> <C>
EQUITRUST LIFE INSURANCE COMPANY
EQUITRUST LIFE ANNUITY ACCOUNT II
By: /s/ EDWARD M. WIEDERSTEIN
--------------------------------------
Edward M. Wiederstein
PRESIDENT EquiTrust Life Insurance Company
Attest: /s/ RICHARD D. HARRIS
--------------------------------------
Richard D. Harris
SENIOR VICE PRESIDENT AND
SECRETARY-TREASURER EquiTrust Life
Insurance Company
</TABLE>
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities indicated on the dates
set forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ EDWARD M. WIEDERSTEIN President and Director
- ------------------------------ [Principal Executive February 8, 1999
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ------------------------------ [Principal Financial February 8, 1999
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ------------------------------ [Principal Accounting February 8, 1999
James W. Noyce Officer]
*
- ------------------------------ Vice President and February 8, 1999
Thomas R. Gibson Director
*
- ------------------------------ Director February 8, 1999
Timothy J. Hoffman
*
- ------------------------------ Director February 8, 1999
Stephen M. Morain
*
- ------------------------------ Director February 8, 1999
William J. Oddy
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, EquiTrust Life
Annuity Account II, has duly caused this Registration Statement to be signed on
its behalf by the undersigned thereunto duly authorized in the City of West Des
Moines, State of Iowa, on the 8th day of February, 1999.
<TABLE>
<S> <C> <C>
EQUITRUST LIFE ANNUITY ACCOUNT II
(Registrant)
By: EquiTrust Life Insurance Company
(Depositor)
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------------
Edward M. Wiederstein
PRESIDENT EquiTrust Life Insurance Company
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEPHEN M. MORAIN
-------------------------
Stephen M. Morain
ATTORNEY-IN-FACT,
PURSUANT TO POWER OF
ATTORNEY.
</TABLE>
