<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
FILE NO. 333-61899
FILE NO. 811-08967
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
---------------------
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 Principal Executive Office)
1-515-225-5400
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):
/X/ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485;
/ / ON (DATE) PURSUANT TO PARAGRAPH (b) OF RULE 485;
/ / DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) OF RULE 485;
/ / ON (DATE) PURSUANT TO PARAGRAPH (a) OF RULE 485.
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<PAGE>
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EQUITRUST LIFE ANNUITY ACCOUNT II
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACT
------------------------------------------------------------------------
PROSPECTUS
May 1, 1999
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.
You may find additional information about your Contract and the Account in the
Statement of Additional Information. To obtain a copy of this document, please
contact us at the address or phone number shown on the cover of this prospectus.
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
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DEFINITIONS................................................................................................... 3
EXPENSE TABLES................................................................................................ 5
SUMMARY OF THE CONTRACT....................................................................................... 9
CONDENSED FINANCIAL INFORMATION............................................................................... 11
THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS................................................................... 12
EquiTrust Life Insurance Company........................................................................ 12
EquiTrust Life Annuity Account II....................................................................... 12
Investment Options...................................................................................... 12
Addition, Deletion or Substitution of Investments....................................................... 15
DESCRIPTION OF ANNUITY CONTRACT............................................................................... 16
Issuance of a Contract.................................................................................. 16
Premiums................................................................................................ 16
Free-Look Period........................................................................................ 16
Allocation of Premiums.................................................................................. 16
Variable Accumulated Value.............................................................................. 17
Transfer Privilege...................................................................................... 18
Partial Withdrawals and Surrenders...................................................................... 18
Special Transfer and Withdrawal Options................................................................. 19
Death Benefit Before the Retirement Date................................................................ 20
Death Benefit After the Retirement Date................................................................. 21
Proceeds on the Retirement Date......................................................................... 22
Payments................................................................................................ 22
Modification............................................................................................ 22
Reports to Owners....................................................................................... 23
Inquiries............................................................................................... 23
THE DECLARED INTEREST OPTION.................................................................................. 23
Minimum Guaranteed and Current Interest Rates........................................................... 23
Transfers From Declared Interest Option................................................................. 24
Payment Deferral........................................................................................ 24
CHARGES AND DEDUCTIONS........................................................................................ 24
Surrender Charge (Contingent Deferred Sales Charge)..................................................... 24
Annual Administrative Charge............................................................................ 25
Transfer Processing Fee................................................................................. 25
Mortality and Expense Risk Charge....................................................................... 25
Investment Option Expenses.............................................................................. 26
Premium Taxes........................................................................................... 26
Other Taxes............................................................................................. 26
PAYMENT OPTIONS............................................................................................... 26
Election of Options..................................................................................... 26
Description of Options.................................................................................. 27
YIELDS AND TOTAL RETURNS...................................................................................... 27
FEDERAL TAX MATTERS........................................................................................... 29
Introduction............................................................................................ 29
Tax Status of the Contract.............................................................................. 29
Taxation of Annuities................................................................................... 30
Transfers, Assignments or Exchanges of a Contract....................................................... 32
Withholding............................................................................................. 33
Multiple Contracts...................................................................................... 33
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Taxation of Qualified Plans............................................................................. 33
Possible Charge for the Company's Taxes................................................................. 35
Other Tax Consequences.................................................................................. 35
DISTRIBUTION OF THE CONTRACTS................................................................................. 35
LEGAL PROCEEDINGS............................................................................................. 36
VOTING RIGHTS................................................................................................. 36
YEAR 2000..................................................................................................... 37
FINANCIAL STATEMENTS.......................................................................................... 37
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS......................................................... 38
</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>
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DEFINITIONS
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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 weekdays before and after Christmas (in
1999), the weekday after New Year's Day (in 2000) 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 "OUR"): EquiTrust Life Insurance Company.
CONTRACT: The individual flexible premium deferred variable annuity contract we
offer and describe in this prospectus, which term includes the Contract
described in this prospectus, the Contract application, and any supplemental
applications and any endorsements.
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.
NON-QUALIFIED CONTRACT: A Contract that is not a Qualified Contract.
3
<PAGE>
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), 408
or 408A 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.
4
<PAGE>
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EXPENSE TABLES
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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>
* 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
<CAPTION>
Annual Account Expenses (as a percentage of average net assets)
<S> <C>
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
(AFTER WAIVER (AFTER WAIVER
ADVISORY OR OR
INVESTMENT OPTION FEE REIMBURSEMENT) REIMBURSEMENT)
EquiTrust Variable Insurance Series Fund
<S> <C> <C> <C>
Value Growth 0.45% 0.11% 0.56%
High Grade Bond 0.30% 0.20% 0.50%
High Yield Bond 0.45% 0.16% 0.61%
Money Market 0.25% 0.27% 0.52%
Blue Chip 0.20% 0.10% 0.30%
<CAPTION>
T. Rowe Price Equity Series, Inc.
<S> <C> <C> <C>
Equity Income 0.85% 0.00% 0.85%(1)
Mid-Cap Growth 0.85% 0.00% 0.85%(1)
New America Growth 0.85% 0.00% 0.85%(1)
Personal Strategy Balanced 0.90% 0.00% 0.90%(1)
<CAPTION>
T. Rowe Price International Series, Inc.
<S> <C> <C> <C>
International Stock 1.05% 0.00% 1.05%(1)
<CAPTION>
Dreyfus Variable Investment Fund
<S> <C> <C> <C>
Capital Appreciation Portfolio 0.75% 0.06% 0.81%
Disciplined Stock Portfolio 0.75% 0.13% 0.88%
Growth and Income Portfolio 0.75% 0.03% 0.78%
International Equity Portfolio 0.75% 0.24% 0.99%
Small Cap Portfolio 0.75% 0.02% 0.77%
</TABLE>
(1) Total annual investment option expenses are an all-inclusive fee and
pay for investment management services and other operating costs.
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 a more complete description of the various costs
and expenses see "Charges and Deductions" and the prospectus for each Investment
Option which accompanies this Prospectus.
6
<PAGE>
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
EquiTrust Variable Insurance Series Fund
<S> <C> <C> <C> <C>
Value Growth $ 111 $ 195 $ 278 $ 525
High Grade Bond 111 193 275 519
High Yield Bond 112 196 280 530
Money Market 111 193 276 521
Blue Chip 109 187 265 498
<CAPTION>
T. Rowe Price Equity Series, Inc.
<S> <C> <C> <C> <C>
Equity Income 114 203 292 555
Mid-Cap Growth 114 203 292 555
New America Growth 114 203 292 555
Personal Strategy Balanced 115 204 295 560
<CAPTION>
T. Rowe Price International Series, Inc.
<S> <C> <C> <C> <C>
International Stock 116 209 302 574
<CAPTION>
Dreyfus Variable Investment Fund
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio 114 202 290 550
Disciplined Stock Portfolio 115 204 294 558
Growth and Income Portfolio 114 201 289 548
International Equity Portfolio 116 207 299 569
Small Cap Portfolio 114 201 288 547
</TABLE>
7
<PAGE>
2. If you do not surrender or annuitize the Contract at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
EquiTrust Variable Insurance Series Fund
<S> <C> <C> <C> <C>
Value Growth $ 50 $ 151 $ 255 $ 525
High Grade Bond 49 149 252 519
High Yield Bond 50 153 257 530
Money Market 49 150 253 521
Blue Chip 47 143 242 498
<CAPTION>
T. Rowe Price Equity Series, Inc.
<S> <C> <C> <C> <C>
Equity Income 53 160 270 555
Mid-Cap Growth 53 160 270 555
New America Growth 53 160 270 555
Personal Strategy Balanced 53 162 272 560
<CAPTION>
T. Rowe Price International Series, Inc.
<S> <C> <C> <C> <C>
International Stock 55 166 280 574
<CAPTION>
Dreyfus Variable Investment Fund
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio 52 159 267 550
Disciplined Stock Portfolio 53 161 271 558
Growth and Income Portfolio 52 158 266 548
International Equity Portfolio 54 164 277 569
Small Cap Portfolio 52 158 266 547
</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>
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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 "DESCRIPTION OF ANNUITY CONTRACT--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 "DESCRIPTION OF ANNUITY CONTRACT--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 subsequent premium payments (minimum $50 each) at any time. (See
"DESCRIPTION OF ANNUITY CONTRACT--Premiums.")
ALLOCATION OF PREMIUMS. You can allocate premiums to one or more Subaccounts,
the Declared Interest Option, or both (see "DESCRIPTION OF ANNUITY
CONTRACT--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 Declared Interest Option on or before the
retirement date (see "DESCRIPTION OF ANNUITY CONTRACT--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 the 13th and
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 "DESCRIPTION OF
ANNUITY CONTRACT--Partial Withdrawals and Surrenders--PARTIAL WITHDRAWALS").
SURRENDER. You may surrender your Contract upon written notice on or before
the retirement date (see "DESCRIPTION OF ANNUITY CONTRACT--Partial Withdrawals
and Surrenders--SURRENDERS").
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 "CHARGES AND
9
<PAGE>
DEDUCTIONS--Surrender Charge (Contingent Deferred Sales Charge)--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 "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent
Deferred Sales Charge)--AMOUNTS NOT SUBJECT TO SURRENDER CHARGE.")
We reserve the right to waive the Surrender Charge as provided in the
Contract. (See "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent Deferred
Sales Charge)--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 "CHARGES AND DEDUCTIONS--Annual Administrative Charge"). We
currently waive this charge:
- with an initial premium payment of $50,000, or
- if you have a Net Accumulated Value of $50,000 on your Contract
Anniversary.
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 "CHARGES AND
DEDUCTIONS--Mortality and Expense Risk Charge").
INVESTMENT OPTION EXPENSES. The assets of the Account will reflect the
investment advisory fee and other operating expenses incurred by each
Investment Option. The table on page 6 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. These contracts may have different charges that could
affect Subaccount performance, and may offer different benefits more suitable
to your needs. You may contact the Company to obtain more information about
these contracts.
10
<PAGE>
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The Account commenced operations on December 1, 1998; however, no premiums
were received until December 18, 1998. The information presented below
reflects the accumulation unit information for the Subaccounts through
December 31, 1998.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNIT VALUE AT UNIT VALUE NUMBER OF UNITS
SUBACCOUNT BEGINNING OF AT END OF AT
YEAR ENDED 12/31/98 YEAR YEAR END OF YEAR
<S> <C> <C> <C>
Value Growth $ 10.000000 $ 10.137670 18.014000
High Grade Bond $ 10.000000 $ 10.000000 0.000000
High Yield Bond $ 10.000000 $ 10.000000 0.000000
Money Market $ 10.000000 $ 10.010155 2,675.156157
Blue Chip $ 10.000000 $ 10.000000 0.000000
Capital Appreciation $ 10.000000 $ 10.037471 24.018000
Disciplined Stock $ 10.000000 $ 10.000000 0.000000
Growth & Income $ 10.000000 $ 10.000000 0.000000
International Equity $ 10.000000 $ 10.000000 0.000000
Small Cap $ 10.000000 $ 10.417346 30.023000
Equity Income $ 10.000000 $ 10.000000 0.000000
Mid-Cap Growth $ 10.000000 $ 10.444654 18.014000
New America Growth $ 10.000000 $ 10.420677 30.023000
Personal Strategy Balanced $ 10.000000 $ 10.000000 0.000000
International Stock $ 10.000000 $ 10.000000 0.000000
</TABLE>
11
<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 "separate 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. While you may be invested in all Subaccounts, we
only permit you to "actively participate" in a maximum of 10 Investment
Options at any one time.
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.
12
<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:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
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 (commonly known as
"junk bonds"). 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 ofprincipal. 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 AND ITS AGENCIES. THERE CAN BE NO
ASSURANCE THAT THE 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.
</TABLE>
13
<PAGE>
T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Associates, Inc. is the
investment adviser to the Fund.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Equity Income Portfolio - This Portfolio seeks to provide substantial dividend income
and long-term capital appreciation by investing primarily in
established companies considered by the adviser to have
favorable prospects for both increasing dividends and
capital appreciation.
Mid-Cap Growth Portfolio - This Portfolio seeks long-term capital appreciation by
investing primarily in common stocks of medium-sized
(mid-cap) growth companies which offer the potential for
above-average earnings growth.
New America Growth Portfolio - This Portfolio seeks long-term capital growth by investing
primarily in common stocks of U.S. growth companies
operating in service industries.
Personal Strategy Balanced - This Portfolio seeks the highest total return over time
Portfolio consistent with an emphasis on both capital appreciation and
income.
</TABLE>
T. ROWE PRICE INTERNATIONAL SERIES, INC. Rowe Price-Fleming International, Inc.
is the investment adviser to the Fund.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
International Stock Portfolio - This Portfolio seeks to provide capital appreciation through
investments primarily in established companies based outside
the United States.
</TABLE>
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.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Dreyfus Variable Investment - This Portfolio primarily seeks long-term capital growth,
Fund: Capital Appreciation consistent with the preservation of capital; current income
Portfolio is a secondary investment objective. This Portfolio invests
primarily in the common stocks of domestic and foreign
issuers.
Dreyfus Variable Investment - This Portfolio seeks to provide investment results that are
Fund: Disciplined Stock greater than the total return performance of publicly-traded
Portfolio 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 - This Portfolio seeks to provide long-term capital growth,
Fund: Growth and Income current income and growth of income, consistent with
Portfolio reasonable investment risk by investing primarily in equity
securities, debt securities and money market instruments of
domestic and foreign issuers.
Dreyfus Variable Investment - This Portfolio seeks to maximize capital growth through
Fund: International Equity investments in equity securities of foreign issuers located
Portfolio throughout the world.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Dreyfus Variable Investment - This Portfolio seeks maximum capital appreciation by
Fund: Small Cap Portfolio 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.
</TABLE>
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).
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 Accumulated 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 deem 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,
15
<PAGE>
- 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 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.
16
<PAGE>
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 sending 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 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.
17
<PAGE>
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.
(b) is 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 may 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 the
13th and 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 "DECLARED INTEREST
OPTION--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-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 partially withdraw is $500.
18
<PAGE>
- The maximum amount which you may partially 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
partial 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 partially 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 partial 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.
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 is not considered in the twelve free transfers during a
Contract Year.
- This feature cannot be utilized in combination with Dollar Cost
Averaging.
19
<PAGE>
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 will terminate this option when monies in the source account are
inadequate.
- This feature is considered in the twelve free transfers during a
Contract Year.
- 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.
We may terminate these privileges at any time.
- --------------------------------------------------------------------------------
DEATH BENEFIT BEFORE THE RETIREMENT DATE
DEATH OF OWNER. If an owner dies prior to the retirement date, any surviving
owner becomes the sole owner. If there is no surviving owner, the annuitant
becomes the new owner unless the deceased owner was also the annuitant. If
the 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 surviving owners or new owners are afforded the following options:
1. If the sole surviving owner or the sole new owner is the spouse
of the deceased owner, he or she may continue the Contract as
the new owner.
2. If the surviving owner or the new 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
20
<PAGE>
of the owner, or over a period that does not exceed the
life expectancy of the owner.
Under either of these options, 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.
Other rules may apply to a Qualified Contract.
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.
Other rules may apply to a Qualified Contract.
- --------------------------------------------------------------------------------
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. On or after the
retirement date, if any owner dies before the entire interest in the
Contract has been distributed, the remaining portion of such interest will
be distributed at least as quickly as under the method of distribution being
used as of the date of death.
21
<PAGE>
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;
- 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;
22
<PAGE>
- 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;
- necessary to reflect a change in the operation of the Account; or
- 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.
23
<PAGE>
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.
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 may 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.
<TABLE>
<CAPTION>
CONTRACT YEAR IN WHICH CHARGE AS PERCENTAGE OF
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
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<PAGE>
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 during the
Contract Year. (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 payments will be made to the number
of Contract Years since your Contract inception and applying this sum in the
table of Surrender Charges.
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.
We currently waive the annual administrative charge:
- with an initial premium payment of $50,000, or
- upon a Net Accumulated Value of $50,000 on your Contract
Anniversary.
We may terminate this privilege at any time.
- --------------------------------------------------------------------------------
TRANSFER PROCESSING FEE
We waive the transfer processing fee for the first twelve transfers during a
Contract Year, but may 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
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<PAGE>
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
The assets of the Account will reflect the investment advisory fee and other
operating expenses incurred by each Investment Option. (See the Expense
Tables in this prospectus and the accompanying Investment Option
prospectuses.)
- --------------------------------------------------------------------------------
PREMIUM TAXES
Currently, 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 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;
26
<PAGE>
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.
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.
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<PAGE>
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 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 rankings 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.
28
<PAGE>
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), 408 or 408A 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 in connection with:
- purchasing a Qualified Contract with proceeds from a tax-qualified
plan, and
- receiving 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
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.
29
<PAGE>
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 fully 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.
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
30
<PAGE>
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 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. 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, and special rules apply
to distributions from Roth IRAs.
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
31
<PAGE>
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. Special rules apply to distributions from Roth IRAs.
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.
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.
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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 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 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 April 1
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of the calendar year following the calendar year in which the owner (or plan
participant) reaches age 70 1/2. For Roth IRAs under Section 408A,
distributions are not required during the owner's (or plan participant's)
lifetime. 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 IRAS. Section 408(p) of the Code permits small employers to establish
SIMPLE IRAs under which employees may elect to defer a percentage of their
compensation up to $6,000 (as increased for cost of living adjustments). The
sponsoring employer is required to make a matching contribution on behalf of
contributing employees. Distributions from a SIMPLE IRA 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.
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 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 any Roth IRA.
34
<PAGE>
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. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or otherwise. 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.
- --------------------------------------------------------------------------------
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 do so. 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/or 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
35
<PAGE>
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 6% of the premiums paid under a Contract during the first Contract
year, 4.5% of the premiums paid in the second through sixth Contract years
and 1.25% of the premiums paid in the seventh 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.
36
<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 statutory-basis balance sheets of the Company as of December 31,
1998 and 1997, and the related statutory-basis statements of operations,
changes in net worth and cash flow for the years then ended, 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 statements of operations
and changes in net assets for the period from December 18, 1998 (date
operations commenced) through December 31, 1998, as well as the related
Report of Independent Auditors are contained in the Statement of Additional
Information.
37
<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....................................... 3
Other Total Returns................................................ 5
Effect of the Administrative Charge on Performance Data............ 5
LEGAL MATTERS............................................................ 5
EXPERTS.................................................................. 6
OTHER INFORMATION........................................................ 6
FINANCIAL STATEMENTS..................................................... 6
</TABLE>
38
<PAGE>
If you would like a copy of the Statement of Additional Information, please
complete the information below and detach and mail this card to the Company at
the address shown on the cover of this prospectus.
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
- -------------------------------------------------------------------------------
39
<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>
<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......................................... 3
Other Total Returns.................................................. 5
Effect of the Administrative Fee On Performance Data................. 5
LEGAL MATTERS.............................................................. 5
EXPERTS.................................................................... 6
OTHER INFORMATION.......................................................... 6
FINANCIAL STATEMENTS....................................................... 6
</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,
1
<PAGE>
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.
The charges and deductions include 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 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.
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.
2
<PAGE>
- --------------------------------------------------------------------------------
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 annualized yield of 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 than 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, including periods
before the Subaccounts were in existence. 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.
Adjusted historic 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.
Adjusted historic average annual total returns for each Subaccount are
calculated based on the assumption that they were in existence during the
stated periods with the level of Contract charges
3
<PAGE>
which were in effect at the inception of each Subaccount. For purposes of
calculating average annual total return, an average annual administrative
fee per dollar of Contract value is used. The calculation also assumes
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.
ERV = 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>
The adjusted historic 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
EquiTrust Variable Insurance Series Fund
<S> <C> <C> <C> <C>
Value Growth(1) (32.13)% 0.50% 6.14% 3.98%
High Grade Bond(1) (0.19) 5.33 7.49 7.72
High Yield Bond(1) (0.82) 6.89 9.17 9.46
Money Market(2) (2.70) 2.72 -- 3.07
Blue Chip(3) 11.21 18.09 -- 17.78
<CAPTION>
T. Rowe Price Equity Series, Inc.
<S> <C> <C> <C> <C>
Equity Income(4) 1.37 -- -- 18.42
Mid-Cap Growth(5) 14.38 -- -- 15.73
New America Growth(4) 10.81 -- -- 20.50
Personal Strategy Balanced(6) 6.62 -- -- 16.07
<CAPTION>
T. Rowe Price International Series, Inc.
<S> <C> <C> <C> <C>
International Stock(4) 8.16 -- -- 7.54
<CAPTION>
Dreyfus Variable Investment Fund
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio(7) 22.52 21.46 -- 19.79
Disciplined Stock Portfolio(8) 19.02 -- -- 26.15
Growth and Income Portfolio(9) 4.11 -- -- 19.71
International Equity Portfolio(9) (3.21) -- -- 4.43
Small Cap Portfolio(10) (11.14) 10.78 -- 35.70
</TABLE>
4
<PAGE>
(1) The Value Growth, High Grade Bond and High Yield Bond Portfolios
commenced operations on October 17, 1987.
(2) The Money Market Portfolio commenced operations on February 20,
1990.
(3) The Blue Chip Portfolio commenced operations on October 15, 1990.
(4) The Equity Income, New America Growth and International Stock
Portfolios commenced operations on March 31, 1994.
(5) The Mid-Cap Growth Portfolio commenced operations on December 31,
1996.
(6) The Personal Strategy Balanced Portfolio commenced operations on
December 30, 1994.
(7) The Capital Appreciation Portfolio commenced operations on April
5, 1993.
(8) The Disciplined Stock Portfolio commenced operations on April 30,
1996.
(9) The Growth and Income and International Equity Portfolios
commenced operations on May 2, 1994.
(10) 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.
5
<PAGE>
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
The Account's statement of net assets as of December 31, 1998 and the
related statements of operations and changes in net assets for the period
from December 18, 1998 (date operations commenced) through December 31, 1998
and the statutory-basis balance sheets of the Company at December 31, 1998
and 1997 and the related statutory-basis statements of operations, changes
in net worth and cash flow for the years then ended, 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.
- --------------------------------------------------------------------------------
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 statutory-basis 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.
6
<PAGE>
Report of Independent Auditors
The Board of Directors and Participants
EquiTrust Life Insurance Company
We have audited the accompanying statement of net assets of EquiTrust Life
Annuity Account II (comprised of the Value Growth, Money Market, Capital
Appreciation, Small Cap, New America Growth and Mid-Cap Growth Subaccounts) as
of December 31, 1998, the related statements of operations and changes in net
assets for the period from December 18, 1998 (date operations commenced) through
December 31, 1998. These financial statements are the responsibility of the
Accounts management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the mutual funds' transfer agents. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EquiTrust Life Annuity
Account II at December 31, 1998, and the results of its operations and changes
in its net assets for the period from December 18, 1998 through December 31,
1998, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
March 15, 1999
1
<PAGE>
EquiTrust Life Annuity Account II
Statement of Net Assets
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments in EquiTrust Variable Insurance Series Fund:
Value Growth Subaccount:
Value Growth Portfolio, 19.23 shares at net asset
value of $9.50 per share (cost: $180) $ 183
Money Market Subaccount:
Money Market Portfolio, 26,779.00 shares at net asset value
of $1.00 per share (cost: $26,779) 26,779
Investments in Dreyfus Variable Investment Fund:
Capital Appreciation Subaccount:
Capital Appreciation Portfolio, 6.68 shares at net asset
value of $36.11 per share (cost: $240) 241
Small Cap Subaccount:
Small Cap Portfolio, 5.80 shares at net asset value of
$53.91 per share (cost: $300) 313
Investments in T. Rowe Price Equity Series, Inc.:
New America Growth Subaccount:
New America Growth Portfolio, 12.65 shares at net asset
value of $24.74 per share (cost: $300) 313
Mid-Cap Growth Subaccount:
Mid-Cap Growth Portfolio, 13.19 shares at net asset value of
$14.27 per share (cost: $180) 188
--------
Total investments (cost: $27,979) 28,017
LIABILITIES -
--------
NET ASSETS $28,017
--------
--------
</TABLE>
<TABLE>
<CAPTION>
EXTENDED
UNITS UNIT VALUE VALUE
-----------------------------------------
<S> <C> <C> <C>
Net assets are represented by:
Value Growth Subaccount 18.014000 10.137670 $ 183
Money Market Subaccount 2,675.156157 10.010155 26,779
Capital Appreciation
Subaccount 24.018000 10.037471 241
Small Cap Subaccount 30.023000 10.417346 313
New America Growth Subaccount 30.023000 10.420677 313
Mid-Cap Growth Subaccount 18.014000 10.444654 188
----------
Total net assets $28,017
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
EquiTrust Life Annuity Account II
Statement of Operations
Period from December 18, 1998 (date operations
commenced) through December 31, 1998
<TABLE>
<CAPTION>
VALUE
GROWTH
COMBINED SUBACCOUNT
----------------------
<S> <C> <C>
Net investment income:
Dividend income $ 9 $-
Mortality and expense risk charges (3) -
----------------------
Net investment income 6 -
Net unrealized gain on investments:
Change in unrealized appreciation/depreciation
of investments 38 3
----------------------
Net gain on investments 38 3
----------------------
Net increase in net assets resulting from
operations $44 $3
----------------------
----------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
EquiTrust Life Annuity Account II
Statement of Operations (Continued)
Period from December 18, 1998 (date operations
commenced) through December 31, 1998
<TABLE>
<CAPTION>
CAPITAL NEW AMERICA
MONEY MARKET APPRECIATION SMALL CAP GROWTH MID-CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
Net investment income:
Dividend income $9 $- $ - $ - $-
Mortality and expense risk charges (3) - - - -
--------------------------------------------------------------------------------
Net investment income 6 - - - -
Net unrealized gain on investments:
Change in unrealized appreciation/depreciation
of investments - 1 13 13 8
--------------------------------------------------------------------------------
Net gain on investments - 1 13 13 8
--------------------------------------------------------------------------------
Net increase in net assets resulting from
operations $6 $1 $13 $13 $8
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
EquiTrust Life Annuity Account II
Statement of Changes in Net Assets
Period from December 18, 1998 (date operations
commenced) through December 31, 1998
<TABLE>
<CAPTION>
VALUE GROWTH
COMBINED SUBACCOUNT
-----------------------
<S> <C> <C>
Operations:
Net investment income $ 6 $ -
Change in unrealized appreciation/depreciation
of investments 38 3
-----------------------
Net increase in net assets resulting from
operations 44 3
Capital share transactions:
Transfers of net premiums 27,973 -
Transfers between subaccounts, including fixed
interest subaccount - 180
-----------------------
Net increase in net assets resulting from
capital share transactions 27,973 180
-----------------------
Total increase in net assets 28,017 183
Net assets at beginning of period - -
-----------------------
Net assets at end of period $28,017 $183
-----------------------
-----------------------
</TABLE>
5
<PAGE>
EquiTrust Life Annuity Account II
Statement of Changes in Net Assets (Continued)
Period from December 18, 1998 (date operations
commenced) through December 31, 1998
<TABLE>
<CAPTION>
MONEY CAPITAL NEW AMERICA
MARKET APPRECIATION SMALL CAP GROWTH MID-CAP GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 6 $ - $ - $ - $ -
Change in unrealized appreciation/depreciation
of investments - 1 13 13 8
--------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 6 1 13 13 8
Capital share transactions:
Transfers of net premiums 27,973 - - - -
Transfers between subaccounts, including fixed
interest subaccount (1,200) 240 300 300 180
--------------------------------------------------------------------------------
Net increase in net assets resulting from
capital share transactions 26,773 240 300 300 180
--------------------------------------------------------------------------------
Total increase in net assets 26,779 241 313 313 188
Net assets at beginning of period - - - - -
--------------------------------------------------------------------------------
Net assets at end of period $ 26,779 $ 241 $ 313 $ 313 $ 188
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
EquiTrust Life Annuity Account II
Notes to Financial Statements
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
EquiTrust Life Annuity Account II (the Account) is a unit investment trust
registered under the Investment Company Act of 1940. The Account was established
as a separate investment account within EquiTrust Life Insurance Company (the
Company) to fund flexible premium deferred variable annuity insurance policies.
The Account commenced operations on December 18, 1998.
The Account has available fifteen separate subaccounts, each of which invests
solely, as directed by contract owners, in a different portfolio of EquiTrust
Variable Insurance Series Fund, Dreyfus Variable Investment Fund, T. Rowe Price
Equity Series, Inc. and T. Rowe Price International Series, Inc. (the Funds),
which are open-end, diversified management investment companies. At December 31,
1998, six subaccounts had been utilized by contract owners. Contract owners also
may direct investments to a fixed interest subaccount held in the general assets
of the Company.
Investments in shares of the Funds are stated at market value, which is the
closing net asset value per share as determined by the Funds. The average cost
basis has been used in determining the net realized gain or loss from investment
transactions and unrealized appreciation or depreciation on investments.
Dividends paid to the Account are automatically reinvested in shares of the
Funds on the payable date.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Account's financial statements and accompanying notes
requires management to make estimates and assumptions that affect the amounts
reported and disclosed. These estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.
2. EXPENSE CHARGES
The Account pays the Company certain amounts relating to the distribution and
administration of the policies funded by the Account and as reimbursement for
certain mortality and other risks assumed by the Company. The following
summarizes those amounts.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts a daily mortality and
expense risk charge from the Account at an effective annual rate of 1.40% of the
average daily net asset value of the Account. These charges are assessed in
return for the Company's assumption of risks associated with adverse mortality
experience or excess administrative expenses in connection with policies issued.
7
<PAGE>
EquiTrust Life Annuity Account II
Notes to Financial Statements (continued)
2. EXPENSE CHARGES (CONTINUED)
ADMINISTRATIVE CHARGE: Prior to the annuity payment period, the Company will
deduct an annual administrative charge of $30 to reimburse it for administrative
expenses related to the contract. A portion of this charge may be deducted from
funds held in the fixed interest subaccount.
SURRENDER CHARGE: A surrender charge is imposed in the event of a full or
partial surrender during the first six contract years. During the second through
sixth contract years, this charge is not assessed on the first 10% of cash value
surrendered. The amount charged is 6% of the amount surrendered during the first
contract year and declines by 1% in each of the next five contract years. No
surrender charge is deducted if the partial surrender or surrender occurs after
six full contract years.
TRANSFER CHARGE: A transfer charge of $25 will be imposed for the thirteenth and
each subsequent transfer between subaccounts in any one policy year.
3. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, operations of
the Company, which is taxed as a life insurance company under the Internal
Revenue Code. Under current law, no federal income taxes are payable with
respect to the Account's net investment income or net realized gain on
investments. Accordingly, no charge for income tax is currently being made to
the Account. If such taxes are incurred by the Company in the future, a charge
to the Account may be assessed.
4. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount for the period from December 18, 1998
(date operations commenced) through December 31, 1998 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------
<S> <C> <C>
Value Growth Subaccount $ 180 $-
Money Market Subaccount 26,782 3
Capital Appreciation Subaccount 240 -
Small Cap Subaccount 300 -
New America Subaccount 300 -
Mid-Cap Growth Subaccount 180 -
------------------
Combined $27,982 $3
------------------
------------------
</TABLE>
8
<PAGE>
EquiTrust Life Annuity Account II
Notes to Financial Statements (continued)
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units of each subaccount for the period from December 18, 1998
(date operations commenced) through December 31, 1998 were as follows:
<TABLE>
<CAPTION>
UNITS SOLD UNITS REDEEMED NET INCREASE
-------------- -------------- -----------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
-------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Value Growth Subaccount 18 $ 180 - $ - 18 $ 180
Money Market Subaccount 2,795 27,973 120 1,200 2,675 26,773
Capital Appreciation
Subaccount 24 240 - - 24 240
Small Cap Subaccount 30 300 - - 30 300
New America Growth
Subaccount 30 300 - - 30 300
Mid-Cap Growth
Subaccount 18 180 - - 18 180
-------------- -------------- -----------------
Combined 2,915 $29,173 120 $1,200 2,795 $27,973
-------------- -------------- -----------------
-------------- -------------- -----------------
</TABLE>
6. NET ASSETS
The Account has an unlimited number of units of beneficial interest authorized
with no par value. Net assets as of December 31, 1998 consisted of:
<TABLE>
<CAPTION>
VALUE CAPITAL NEW AMERICA MID-CAP
GROWTH MONEY MARKET APPRECIATION SMALL CAP GROWTH GROWTH
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paid-in capital $27,973 $180 $26,773 $240 $300 $300 $180
Accumulated undistributed net
investment income 6 - 6 - - - -
Net unrealized appreciation of
investments 38 3 - 1 13 13 8
------------------------------------------------------------------------------------------------
Net assets $28,017 $183 $26,779 $241 $313 $313 $188
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
EquiTrust Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of EquiTrust
Life Insurance Company as of December 31, 1998 and 1997, and the related
statutory-basis statements of operations, changes in net worth, and cash flow
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles. The
variances between such practices and generally accepted accounting principles
and the effects on the accompanying financial statements are described in Note
1.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of EquiTrust Life Insurance Company at December 31, 1998 or 1997, or the results
of its operations or its cash flow for the years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of EquiTrust Life
Insurance Company at December 31, 1998 and 1997, and the results of its
operations and its cash flow for the years then ended, in conformity with
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa.
Ernst & Young LLP
Des Moines, Iowa
February 15, 1999
1
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
<S> <C> <C>
--------------------
ADMITTED ASSETS
Bonds:
United States Government and
agencies $ 30,526 $ 5,515
State, municipal and other
governments 1,524 --
Public utilities 2,085 --
Industrial and miscellaneous 15,570 --
--------------------
49,705 5,515
Cash and short-term
investments 22,963 2,593
--------------------
Cash and invested assets 72,668 8,108
Premiums deferred and
uncollected 11 --
Investment income due and
accrued 361 54
Other assets 98 --
Assets held in separate
accounts 503 --
--------------------
Total admitted assets $ 73,641 $ 8,162
--------------------
--------------------
LIABILITIES AND NET WORTH
Liabilities:
Life and annuity policy
reserves $ 21,668 $ --
Policy and contract claims 476 --
Interest maintenance reserve 40 57
Payable to affiliates 102 --
Payable for securities 19,154 --
Federal income taxes payable 302 1
Other liabilities 390 --
Asset valuation reserve 45 --
Liabilities related to
separate accounts 503 --
--------------------
Total liabilities 42,680 58
Commitments and contingencies
Net worth:
Common stock, par value
$1,500 per
share--authorized 2,500
shares;
issued and outstanding
2,000 shares 3,000 3,000
Additional paid-in capital 27,748 5,125
Unassigned funds for the
protection of
policyholders 213 (21)
--------------------
Total net worth 30,961 8,104
--------------------
Total liabilities and net
worth $ 73,641 $ 8,162
--------------------
--------------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1998 1997
<S> <C> <C>
-----------------
Revenues:
Life and annuity premiums $22,633 $ --
Net investment income 1,409 476
Other income 150 --
-----------------
Total revenues 24,192 476
Benefits and expenses:
Benefits paid or provided for:
Annuity benefits 478 --
Increase in policy reserves 21,668 --
-----------------
22,146 --
Commissions 79 --
General expenses 750 --
Insurance taxes, licenses and fees 76 --
Net transfers to separate accounts 423 --
Other 99 --
-----------------
Total benefits and expenses 23,573 --
-----------------
Gain from operations before federal income taxes
and net realized capital gains 619 476
Federal income taxes 341 148
-----------------
Net gain from operations before net realized capital gains 278 328
Net realized capital gains, less related federal income
tax expense (benefit) [1998--$(6); 1997--$61] and
amounts transferred to (from) interest maintenance
reserve [1998--$(9); 1997--$33] 1 --
-----------------
Net income $ 279 $328
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET WORTH--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNASSIGNED
FUNDS FOR
THE
ADDITIONAL PROTECTION
COMMON PAID-IN OF TOTAL NET
STOCK CAPITAL POLICYHOLDERS WORTH
<S> <C> <C> <C> <C>
--------------------------------------------------
Balance at January 1, 1997 $ 3,000 $ 7,510 $ 22,847 $ 33,357
Net income for 1997 -- -- 328 328
Transfer of assets to TMG Life
Insurance Company under assumption
reinsurance agreement -- (2,823) (22,847) (25,670)
Increase in nonadmitted assets -- -- (349) (349)
Other -- 438 -- 438
--------------------------------------------------
Balance at December 31, 1997 3,000 5,125 (21) 8,104
Net income for 1998 -- -- 279 279
Decrease in nonadmitted assets -- -- 38 38
Increase in asset valuation reserve -- -- (45) (45)
Capital contribution from parent -- 22,623 -- 22,623
Other -- -- (38) (38)
--------------------------------------------------
Balance at December 31, 1998 $ 3,000 $ 27,748 $ 213 $ 30,961
--------------------------------------------------
--------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1998 1997
<S> <C> <C>
----------------------
CASH FROM OPERATIONS
Premiums and other considerations $ 22,622 $ --
Net investment income 1,150 440
Other income 52 --
----------------------
23,824 440
Annuity benefits (2) --
Commissions, general insurance expenses and taxes (1,287) --
Federal income taxes (40) (180)
----------------------
NET CASH FROM OPERATIONS 22,495 260
CASH FROM INVESTMENTS
Proceeds from bonds sold, matured or repaid 2,298 5,793
Federal income taxes on capital gains and losses 6 --
----------------------
Total cash from investments 2,304 5,793
Cost of bonds acquired (46,557) (5,518)
----------------------
Net cash from investments (44,253) 275
CASH FROM FINANCING AND MISCELLANEOUS SOURCES
Capital and surplus paid in 22,623 438
Other cash provided 19,594 27
Other cash applied (89) (16,333)
----------------------
Net cash from financing and miscellaneous sources 42,128 (15,868)
----------------------
Net change in cash and short-term investments 20,370 (15,333)
Cash and short-term investments at beginning of year 2,593 17,926
----------------------
Cash and short-term investments at end of year $ 22,963 $ 2,593
----------------------
----------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1.SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
EquiTrust Life Insurance Company (the Company), a wholly-owned subsidiary of
Farm Bureau Life Insurance Company which, in turn, is wholly-owned by FBL
Financial Group, Inc., operates predominantly in the life insurance industry.
The Company currently markets its products, which consist primarily of variable
universal life insurance policies and annuity contracts, to individuals in
thirty-eight states.
All in force policies, annuities and certificates of the Company were ceded to
TMG Life Insurance Company (TMG Life), formerly an affiliated company, through
an assumption reinsurance agreement as of January 1, 1997. At December 31, 1997,
the Company had no insurance in force. The Company was purchased by Farm Bureau
Life Insurance Company on December 30, 1997. The Company was previously owned by
TMG Life which is owned by The Mutual Group (U. S.), Inc. [TMG (U. S.)], which
itself is a wholly owned subsidiary of The Mutual Life Assurance Company of
Canada.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa, which practices differ in some
respects from generally accepted accounting principles. The more significant of
these differences are as follows: (a) bonds are generally carried at amortized
cost rather than segregating the portfolio into held-to-maturity (carried at
amortized cost), available-for-sale (carried at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring new
business are charged to current operations as incurred rather than deferred and
amortized over the life of the policies; (c) policy reserves on certain
investment products use discounting methodologies utilizing statutory interest
rates rather than full account values; (d) deferred income taxes are not
provided for the difference between the financial statement and income tax bases
of assets and liabilities; (e) net realized gains or losses attributed to
changes in the level of interest rates in the market are deferred and amortized
over the remaining life of the bond or mortgage loan, rather than recognized as
gains or losses in the statement of operations when the sale is completed; (f)
declines in the estimated realizable value of investments are provided for
through the establishment of a formula-determined statutory investment reserve
(carried as a liability) changes to which are charged directly to net worth,
rather than through recognition in the statement of operations for declines in
value, when such declines are judged to be other than temporary; (g) certain
assets designated as "non-admitted assets" are charged to net worth rather than
being reported as assets; (h) revenues for investment products consist of
premiums received rather than policy charges for the cost of insurance policy
administration charges, amortization of policy initiation fees and surrender
charges assessed; and (i) pension income or expense is recognized in accordance
with rules and regulations permitted by the Employee Retirement Income Security
Act of 1974 rather than Statement of Financial Accounting Standards (SFAS) No.
87, EMPLOYERS' ACCOUNTING FOR PENSIONS.
6
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of net income for the year ended December 31, 1998, and net
worth at December 31, 1998 and 1997, between amounts stated in conformity with
generally accepted accounting principles and amounts presented herein is as
follows:
<TABLE>
<CAPTION>
NET WORTH
NET INCOME --------------------
1998 1998 1997
---------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amounts stated in conformity with generally accepted
accounting principles $ 358 $ 32,780 $ 9,694
Net unrealized appreciation on fixed maturity securities
available for sale -- (597) --
Other adjustments to investments (56) 227 --
Deferred policy acquisition costs (61) (61) --
Goodwill 72 (1,461) (1,533)
Future policy benefits 8 8 --
Deferred income taxes (152) 57 --
Interest maintenance reserve 17 (40) (57)
Asset valuation reserve -- (45) --
Other 93 93 --
---------------------------------
As set forth herein $ 279 $ 30,961 $ 8,104
---------------------------------
---------------------------------
</TABLE>
Prior to December 31, 1997, separate financial statements prepared in conformity
with generally accepted principles were not maintained by the Company.
In 1998, the National Association of Insurance Commissioners (NAIC) adopted
codified statutory accounting principles ("Codification"). Codification will
likely change, to some extent, prescribed statutory accounting practices and may
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. Codification will require adoption by
the various states before it becomes the prescribed statutory basis of
accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the State of
Iowa must adopt Codification as the prescribed basis of accounting on which
domestic insurers must report their statutory-basis results to the Insurance
Division, Department of Commerce, of the State of Iowa. At this time, it is
unclear whether the State of Iowa will adopt Codification. Management has not
yet determined the impact of Codification to the Company's statutory-basis
financial statements.
The preparation of financial statements in conformity with accounting practices
prescribed or permitted by the Insurance Division, Department of Commerce, of
the State of Iowa requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the statutory-basis financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PERMITTED PRACTICE
The statutory-basis financial statements are prepared in accordance with
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa. "Prescribed" statutory accounting
practices include regulations and general administrative rules, as well as a
variety of publications of the NAIC. "Permitted" statutory accounting practices
encompass all practices that are not
prescribed, may differ from insurance company to insurance company, and may
change in the future.
7
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company received approval from the Insurance Division, Department of
Commerce, of the State of Iowa to account for the disposition of many of the
balance sheet items related to the assumption reinsurance agreement as a change
in net worth rather than reporting their effect in the statement of operations.
The majority of the assets and liabilities of the Company were transferred to
TMG Life effective January 1, 1997, leaving only that amount of invested assets,
capital and surplus required to maintain minimum capital. An analysis of these
transferred amounts follows (dollars in thousands):
<TABLE>
<S> <C>
Assets:
Bonds $ 295,713
Common stocks 82
Mortgage loans 31,697
Real estate 1,730
Policy loans 30,643
Cash and short-term investments 16,333
Other admitted assets 8,297
---------
Total assets 384,495
Less liabilities (358,825)
---------
Net transferred $ 25,670
---------
---------
Net worth has been reduced as follows:
Additional paid-in capital $ 2,823
Unassigned funds for the protection of policyholders 22,847
---------
Total $ 25,670
---------
---------
</TABLE>
In connection with the assumption reinsurance agreement, TMG Life agreed to use
its best efforts to secure appropriate policyholder and regulatory approvals to
effectuate the transfer of risk from the Company to TMG Life. State rules and
regulations require different levels of approval with respect to such transfers.
The Company received approval from the Insurance Division, Department of
Commerce, of the State of Iowa to treat all reinsured policies pursuant to
assumption reinsurance during the year ended December 31, 1997, even though
certain policyholder and/or regulatory approvals had not been secured. However,
at December 31, 1998, TMG Life still had not received appropriate approvals with
respect to certain policies. As discussed in Note 5, these policies are treated
as being reinsured under indemnity reinsurance agreements during the year ended
December 31, 1998.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value) and short-term investments are reported at cost
adjusted for amortization of premiums and accrual of discounts. Amortization is
computed using methods which result in a level yield over the expected life of
the security. The Company reviews its prepayment assumptions on mortgage and
other asset-backed securities at regular intervals and adjusts amortization
rates retrospectively when such assumptions are changed due to experience and/or
expected future patterns.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized and unrealized gains and losses, net of amounts attributed to
changes in the general level of interest rates. The Company defers, in the
Interest Maintenance Reserve, the portion of realized gains and losses on sales
of fixed income investments,
8
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining period
to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds generally when there is evidence of default or another
indication that such amounts will not be collected. At December 31, 1998 and
1997, the Company excluded no amounts of investment income due and accrued with
respect to such practices.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of twelve months or less to be
cash equivalents.
POLICY RESERVES
The reserves for life and annuity policies, all developed by actuarial methods,
are established and maintained on the basis of published mortality and morbidity
tables using assumed interest rates and valuation methods that will provide, in
the aggregate, reserves that are equal to or greater than the minimum valuation
required by law and guaranteed policy cash values.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Premiums are recognized as revenues over the premium-paying period, whereas
commissions and other costs applicable to the acquisition of new business are
charged to operations as incurred.
SEPARATE ACCOUNTS
Assets and liabilities of the Company's separate accounts formed during 1998 are
disclosed in the aggregate in the balance sheets. The statements of operations
include the premiums, benefits and other items arising from the operations of
the separate accounts of the Company. Premiums totaling $473,000 were received
during the year ended December 31, 1998 related to separate accounts.
The separate accounts, which are not guaranteed as to interest, are carried at
market value. The excess of the market value of separate account assets over the
aggregate reserves has been recorded as a liability, which represents the amount
accrued for expense allowances recognized in the reserve. Aggregate reserves and
accrued expense allowances were $455,000 and $48,000 at December 31, 1998,
respectively.
DIVIDEND RESTRICTIONS
Prior approval of insurance regulatory authorities is required for payment of
dividends to the Company's stockholder which exceed an annual limitation. During
1999, the Company could pay dividends to its stockholder of approximately $2.8
million without prior approval of the Commissioner of the Insurance Division,
Department of Commerce, of the State of Iowa.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
9
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2.INVESTMENT OPERATIONS
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1998 1997
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Bonds $ 1,161 $ 407
Short-term investments 194 70
Amortization of interest maintenance reserve 8 3
Other 65 --
--------------------
1,428 480
Less investment expenses (19) (4)
--------------------
Net investment income $ 1,409 $ 476
--------------------
--------------------
</TABLE>
At December 31, 1998 and 1997, the carrying value and estimated market value of
the Company's bonds and short-term investments, which comprise its portfolio of
debt securities, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
CARRYING UNREALIZED UNREALIZED ESTIMATED
VALUE GAINS LOSSES FAIR VALUE
------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and agencies:
Mortgage and asset-backed securities $ 22,786 $ 63 $ (4) $ 22,845
Other 7,740 65 -- 7,805
State, municipal and other governments 1,524 41 -- 1,565
Public utilities 2,085 34 (23) 2,096
Industrial and miscellaneous:
Mortgage and asset-backed securities 7,127 133 (23) 7,237
Other 8,443 154 (72) 8,525
------------------------------------------------
49,705 490 (122) 50,073
Short-term investments 22,981 -- -- 22,981
------------------------------------------------
$ 72,686 $ 490 $ (122) $ 73,054
------------------------------------------------
------------------------------------------------
DECEMBER 31, 1997
United States Government and agencies bonds $ 5,515 $ 40 $ -- $ 5,555
Short-term investments 2,593 -- -- 2,593
------------------------------------------------
$ 8,108 $ 40 $ -- $ 8,148
------------------------------------------------
------------------------------------------------
</TABLE>
10
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2.INVESTMENT OPERATIONS (CONTINUED)
The carrying value and estimated market value of the Company's portfolio of debt
securities at December 31, 1998, by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING MARKET
VALUE VALUE
----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 28,486 $ 28,518
Due after one year through five years 5,404 5,449
Due after five years through ten years 4,347 4,443
Due after ten years 4,536 4,562
----------------------
42,773 42,972
Mortgage and asset-backed securities 29,913 30,082
----------------------
$ 72,686 $ 73,054
----------------------
----------------------
</TABLE>
Proceeds from sales of investments (excluding maturity proceeds) in debt
securities were $1.1 million and $5.8 million for the years ended December 31,
1998 and 1997, respectively. Gross gains of $7,000 and $0.1 million were
realized in 1998 and 1997, respectively. Gross losses of $21,000 were realized
on those sales in 1998.
As described in Note 1, on January 1, 1997, bonds with an admitted asset value
of $295.7 million were transferred to TMG Life as part of the assumption
reinsurance agreement. No gain or loss was realized on the transfer.
During 1998, Farm Bureau Life Insurance Company transferred 28 securities with a
fair market value of $15.0 million to the Company in the form of a capital
contribution.
There were no investments which have been non-income producing for the twelve
months preceding December 31, 1998.
At December 31, 1998, affidavits of deposits covering bonds with a carrying
value of $30.6 million (1997-- $5.6 million), and short-term investments with a
carrying value of $22.9 million (1997--$2.5 million) were on deposit with state
agencies to meet regulatory requirements.
3.FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure of fair value information about financial instruments, whether or not
recognized in the statutory-basis balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 also excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements
and allows companies to forego the disclosures when those estimates can only be
made at excessive cost. Accordingly, the aggregate fair value amounts presented
herein are limited by each of these factors and do not purport to represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
11
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3.FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
BONDS: Fair values for bonds are based on quoted market prices, where
available. For bonds not actively traded, fair values are estimated using a
matrix calculation assuming a spread (based on interest rates and a risk
assessment of the bonds) over U. S. Treasury bonds.
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheets for these instruments approximate their fair
values.
ASSETS AND LIABILITIES OF SEPARATE ACCOUNTS: Separate account assets and
liabilities are reported at estimated fair value in the Company's
statutory-basis balance sheets.
LIFE AND ANNUITY POLICY RESERVES: Fair values of the Company's liabilities
under contracts not involving significant mortality or morbidity risks
(principally deferred annuities), are stated at the cost the Company would
incur to extinguish the liability, i.e., the cash surrender value. The
Company is not required to estimate the fair value of its liabilities under
other contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of SFAS No. 107:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------
1998 1997
---------------------- ------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds (NOTE 2) $ 49,705 $ 50,073 $ 5,515 $ 5,555
Cash and short-term investments 22,963 22,963 2,593 2,593
Assets held in separate accounts 503 503 -- --
LIABILITIES
Life and annuity policy reserves (NOTE 4) 21,663 21,654 -- --
Liabilities related to separate accounts 503 503 -- --
</TABLE>
4.POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products that are not
subject to significant mortality or morbidity risk; however, there may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The carrying value and related cash surrender value (which the
Company has established as fair value) on these products by withdrawal
characteristics, are summarized as follows at December 31, 1998:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal at book value less
surrender charge of 5% or more $ 382 $ 373
Subject to discretionary withdrawal at book value without adjustment
[minimal (less than 5%) or no charge or adjustment] 29,584 29,584
----------------------
29,966 29,957
Reinsurance ceded (7,921) (7,921)
----------------------
Total net annuity reserves and deposit fund liabilities $ 22,045 $ 22,036
----------------------
----------------------
</TABLE>
12
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4.POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
The above amounts include separate account liabilities related to the Company's
variable annuity product aggregating $0.4 million at December 31, 1998. There
were no annuity reserves or deposit fund liabilities as of December 31, 1997.
A reconciliation of the amounts transferred to and from the separate accounts
during the year ended December 31, 1998 is as follows (dollars in thousands):
<TABLE>
<S> <C>
Transfers as reported in the summary of operations of the separate
accounts statement:
Transfers to separate accounts $ 473
Transfers from separate accounts 49
-----
Net transfers to separate accounts 424
Reconciling adjustments:
Fees associated with charges for investment management,
administration
and contract guarantees (1)
-----
Transfers as reported in the statement of operations herein $ 423
-----
-----
</TABLE>
As of December 31, 1998, the Company had no insurance in force for which the
gross premiums are less than the net premiums according to the standard
valuation law of the State of Iowa.
The Company monitors the level of its contract liabilities, the level of
interest rates credited to its interest sensitive products and the assumed rate
of return provided within the pricing structure of its other products. These
amounts are taken into consideration in the Company's overall management of
interest rate risk, which minimizes exposure to changing interest rates.
5.REINSURANCE
As discussed in Note 1, certain business reinsured to TMG Life during 1997 has
not received appropriate policyholder and/or regulatory approval to novate the
risk under assumption reinsurance. As a result, this business has been treated
as being reinsured under indemnity reinsurance arrangements for the year ended
December 31, 1998.
In that regard, policy reserves, premiums and expenses are stated net of amounts
related to reinsurance agreements. Life and annuity policy reserves have been
reduced by $18.2 million at December 31, 1998 for reinsurance ceded to TMG Life.
To the extent that TMG Life is later unable to meet its obligations under
reinsurance agreements, the Company would be liable. Life and annuity premiums
have likewise been reduced (1998--$4.7 million) for amounts paid under the
cession agreement. In addition, during the year ended December 31, 1998,
insurance benefits paid or provided have been reduced by $3.9 million, for
amounts received under the cession agreement.
Reinsurance coverages for life insurance vary according to the age of the
insured and risk classification with retention limits ranging up to $.1 million
of coverage per individual life. At December 31, 1998, life insurance in force
ceded to TMG Life amounted to $599.2 million or approximately 99.32% of total
life insurance in force.
6.FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return with FBL Financial
Group, Inc. and a majority of its subsidiaries. FBL Financial Group, Inc. and
its direct and indirect subsidiaries included in the consolidated return each
report current income tax expense as allocated under a consolidated tax
allocation agreement. Generally, this allocation results in profitable companies
recognizing a tax provision
13
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6.FEDERAL INCOME TAXES (CONTINUED)
as if the individual company filed a separate return and loss companies
recognizing benefits to the extent their losses contribute to reduce
consolidated taxes.
The effective tax rate on net gain from operations before federal income taxes
and net realized capital gains is different from the prevailing federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1998 1997
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Income tax at federal statutory rate (35%) $ 217 $ 167
Tax effect (decrease) of:
External expenditures related to strategic alliances 95 --
Goodwill amortization (36) --
Deferred policy acquisition costs 62 --
Other, net 3 (19)
--------------------
Federal income taxes $ 341 $ 148
--------------------
--------------------
</TABLE>
7.RETIREMENT AND COMPENSATION PLANS
The Company participates with several affiliates in various defined benefit
plans sponsored by the Iowa Farm Bureau Federation. The plans are
noncontributory and cover substantially all employees. Benefits are based on
years of service and the employee's average compensation during the 36
consecutive month period for which the highest average compensation was paid.
The funding policy is to make at least the minimum annual contribution required
by applicable regulations, including amortization of unfunded prior service
cost. The affiliated group's accumulated benefit obligations as of December 31,
1998 based on a 6.75% discount rate totaled $146.1 million. The vested benefit
obligation and fair value of plan assets as of December 31, 1998 totaled $110.6
million and $115.7 million, respectively.
The Company is charged for its allocable share of expense for the
above-mentioned plans generally based on each employee's time allocated to the
Company. Pension expense for these defined benefit plans recorded by the Company
in its statements of operations for the year ended December 31, 1998 was $5,000.
The Company incurred no expense related to these plans during 1997.
The Company participates with several affiliates in a 401(k) defined
contribution plan which covers substantially all employees. Beginning in 1998,
the Company contributes FBL Financial Group, Inc. stock in amounts equal to 50
percent of employee contributions up to four percent of the annual salary
contributed by the employees. Costs are allocated among the affiliates on a
basis of time incurred by the respective employees for each employer. Related
expense totaled $1,000 for 1998.
In addition to benefits offered under the aforementioned benefit plans, the
Company and several other affiliates sponsor a plan that provides group term
life insurance benefits to retired full-time employees who have worked ten years
and attained age 55 while in service with the Company. Postretirement benefit
expense is allocated in a manner consistent with pension expense discussed
above. Such allocations are reviewed annually. For 1998 and 1997, no costs were
recognized by the Company related to these benefits.
8.MANAGEMENT AND SERVICES AGREEMENTS
The Company shares certain office facilities and services with the Iowa Farm
Bureau Federation and its affiliated companies. These expenses are allocated by
the Company on the basis of cost and time studies that are updated annually and
consist primarily of salaries and related expenses, travel, and occupancy costs.
14
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8.MANAGEMENT AND SERVICES AGREEMENTS (CONTINUED)
Beginning in 1998, the Company participates in a management agreement with FBL
Financial Group, Inc., under which FBL Financial Group, Inc. provides general
business, administration and management services to the Company. In addition,
Farm Bureau Management Corporation, a wholly-owned subsidiary of the Iowa Farm
Bureau Federation, provides certain management services to the Company under a
separate arrangement. During 1998, the Company incurred related expenses
totaling $7,000.
EquiTrust Investment Management Services, Inc., a wholly-owned subsidiary of FBL
Financial Group, Inc., provides investment advisory services to the Company. The
related fees are based in increments upon the level of assets under management,
plus certain out-of-pocket expenses. The Company incurred expenses totaling
$19,000 during 1998 related to this agreement. Prior to 1998, similar services
were provided by TMG (U. S.). During 1997, the Company paid $4,000 with respect
to these services.
9.COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company may be involved in litigation for
which amounts are alleged that are substantially in excess of contractual policy
benefits or certain other agreements. At December 31, 1998, management is not
aware of any claims for which a material loss is reasonably possible. TMG Life,
as a part of the sale agreement, has assumed all accrued, absolute and
contingent liabilities that may arise out of or related to the business of the
Company prior to December 30, 1997.
Assessments are, from time to time, levied on the Company by life and health
guaranty associations in most states in which the Company is licensed to cover
losses of policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. The Company's policy is to accrue for such assessments only when
notice of such assessment is received from a state guaranty fund; accordingly,
no amounts have been provided for in the accompanying financial statements for
estimated future assessments. Assessments paid by the Company amounted to
$10,000 in 1998.
10. IMPACT OF YEAR 2000 (UNAUDITED)
The Company relies on Farm Bureau Life Insurance Company (Farm Bureau) to
provide computer services necessary to conduct day-to-day operations. Many of
Farm Bureau's computer programs were originally written using two digits rather
than four to define a particular year. As a result, these computer programs have
time-sensitive software that may recognize a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or miscalculations
causing disruptions to operations, including, but not limited to, a temporary
inability to process transactions, send premium notices and calculate policy
reserves and accruals. To a lesser extent, the Company is dependent on various
non-information technology systems, such as telephone switches. The Year 2000
could also cause these systems to fail or malfunction.
During 1997, Farm Bureau completed a comprehensive assessment of the Year 2000
issue and developed a plan to address the issue in a timely manner. The plan
consists of the following four phases: (1) identification of all information
technology and non-information technology systems that have time-sensitive
software; (2) modification or replacement of the software/systems; (3) testing
the modified or new software/systems; and (4) development of a contingency plan
to address any critical system that may malfunction. In addition, Farm Bureau
has ongoing formal communications with all of its significant vendors to keep
abreast of the extent to which Farm Bureau's interface systems are vulnerable to
those third parties' failure to remediate their own Year 2000 issues.
Farm Bureau has and will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. With
only a few exceptions, the Year 2000 modifications and
15
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
testing have been completed. The exceptions are limited to a few third-party
software packages for which the Year 2000 compliant version will become
available in the first quarter of 1999. It is anticipated that Farm Bureau will
complete its system modifications and testing prior to any material impact on
its operating systems. Non-information technology systems that are not Year 2000
compliant have been replaced or have been identified and will be replaced by
December 31, 1999.
Despite Farm Bureau's extensive efforts to modify or replace computer programs
and information systems that are time-sensitive, Farm Bureau could experience a
disruption to its operations as a result of the Year 2000. Farm Bureau has a
detailed contingency plan to address any critical system that may malfunction
despite the testing being performed. The contingency plan provides for the
availability of staff, defines and prioritizes tasks and outlines procedures to
fix any systems that are malfunctioning.
16
<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.
(10) *(a) Consent of Sutherland Asbill & Brennan LLP.
*(b) Consent of Ernst & Young LLP.
*(c) Opinion and Consent of Christopher G. Daniels, FSA, MSAA, Life
Product Development and Pricing Vice President.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Powers of Attorney.(1)
</TABLE>
- ------------------------
* Attached as exhibit.
(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. 333-62221) for certain variable life insurance contracts
issued by the Company and filed with the Commission on April 30, 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
01/01/98
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
FBL Financial
Group, Inc.
/
/
- --------------------------------------------------------------
/ / / /
/ / / /
FBL Financial Farm Bureau Western FBL
Group Capital Life Insurance Farm Bureau Financial
Trust Company Life Insurance Services, Inc.
/ Company /
/ /
/ /
- ---------------------------------------------- /
/ / / /
/ / / /
EquiTrust FBL Universal /
Life Insurance Real Estate Assurors /
Company Ventures, Ltd. Life Ins Co /
----------------------------------------------------------------------------------------------
/ / / / / /
/ / / / / /
Western AG FBL FBL EquiTrust EquiTrust EquiTrust
Insurance Leasing Insurance Investment Market Assigned
Agency, Inc. Services, Inc. Brokerage, Management Services, LLC Benefit
Inc. Services, Inc. Company
.
.
.
.
.
..............................................
. . .
. . .
. . .
EquiTrust EquiTrust EquiTrust
Series Fund, Money Market Variable Ins
Inc. Fund Series Fund
</TABLE>
- ------------------------
.... Management Agreement
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 1, 1999, there were 259 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 Managers 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, General Federation; General Counsel, Secretary and Director, Farm Bureau
Counsel and Manager Management Corporation; Senior Vice President, General Counsel and
Director, FBL Financial Group, Inc.
William J. Oddy Chief Operating Officer, FBL Financial Group, Inc.
Chief Operating Officer and
Manager
Dennis M. Marker Investment Vice President, Administration, FBL Financial Group, Inc.
Investment Vice President,
Administration, Secretary and
Manager
Thomas R. Gibson Chief Executive Officer and Director, FBL Financial Group, Inc.
Chief Executive Officer and
Manager
Timothy J. Hoffman Chief Property/Casualty Officer, FBL Financial Group, Inc.
Vice President and Manager
James W. Noyce Chief Financial Officer, FBL Financial Group, Inc.
Chief Financial Officer,
Treasurer and Manager
Thomas E. Burlingame Vice President--Associate General Counsel, FBL Financial Group, Inc.
Manager
F. Walter Tomenga Vice President--Corporate Affairs and Marketing Services, FBL
Manager Financial Group, Inc.
Lynn E. Wilson Vice President--Life Sales, FBL Financial Group, Inc.
President and Manager
</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.
Assistant Treasurer and
Manager
Robert A. Simons Senior Counsel--Investments, FBL Financial Group, Inc.
Senior Counsel--Investments
James P. Brannen Controller and Vice President, FBL Financial Group, Inc.
Controller and 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 Manager Investment Management Services, Inc.; Assistant Secretary,
and Assistant Secretary EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and
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.
Investment Management Vice
President
Robert Rummelhart Fixed Income Vice President, FBL Financial Group, Inc.
Fixed Income Vice President
Charles T. Happel Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
Laura Kellen Beebe Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
Larry J. Patterson Director, Financial Planning, United Farm Family.
Vice President
</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 certifies that it meets
the requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and 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 22nd day of April, 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 April 22, 1999
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ------------------------------ [Principal Financial April 22, 1999
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ------------------------------ [Principal Accounting April 22, 1999
James W. Noyce Officer]
*
- ------------------------------ Vice President and April 22, 1999
Thomas R. Gibson Director
*
- ------------------------------ Director April 22, 1999
Timothy J. Hoffman
*
- ------------------------------ Director April 22, 1999
Stephen M. Morain
*
- ------------------------------ Director April 22, 1999
William J. Oddy
</TABLE>
<TABLE>
<S> <C>
*By: /s/ STEPHEN M. MORAIN
---------------------------------
Stephen M. Morain
ATTORNEY-IN-FACT
Pursuant to Power of Attorney
</TABLE>
<PAGE>
EquiTrust letterhead
April 28, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statement on Form N-4 filed by EquiTrust Life
Insurance Company ("Company") and its EquiTrust Life Annuity Account II with the
Securities and Exchange Commission covering certain variable annuity contracts,
I have examined such documents and such law as I considered necessary and
appropriate, and on the basis of such examinations, it is my opinion that:
(1) Company is duly organized and validly existing under the laws of the State
of Iowa.
(2) The variable annuity contracts, when issued as contemplated by the said
Form N-4 Registration Statement will constitute legal, validly issued and
binding obligations of EquiTrust Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to the said Form
N-4 Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Prospectus contained in the said Registration Statement.
In giving this consent, I am not admitting that I am in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Stephen M. Morain
Stephen M. Morain
Senior Vice President
& General Counsel
<PAGE>
Sutherland, Asbill & Brennan LLP letterhead
April 26, 1999
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the statement of additional information filed as part of the
registration statement on Form N-4 for EquiTrust Life Annuity Account II
(File No. 333-61899). In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN LLP
/s/ Stephen E. Roth, Esq.
Stephen E. Roth, Esq.
<PAGE>
We consent to the reference to our firm under the captions "Financial
Statements" in the Prospectus and "Experts" in Part B and to the use of our
reports dated March 15,1999 with respect to the financial statements of
EquiTrust Life Annuity Account II and February 15, 1999 with respect to
the statutory-basis financial statements of EquiTrust Life Insurance
Company, in Post-Effective Amendment No. 2 to the Registration Statement
(Form N-4 No. 333-61899) and related Prospectus of EquiTrust Life Annuity
Account II dated May 1, 1999.
/s/ Ernst & Young LLP
Des Moines, Iowa
April 26, 1999
<PAGE>
EquiTrust letterhead
April 28, 1999
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by EquiTrust
Life Insurance Company of a flexible premium deferred variable annuity
contract ("Contract") under the Securities Act of 1933, as amended. The
prospectus included in Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4 (File No. 333-61899) describes the Contract. I have
provided actuarial advice concerning the preparation of the contract form
described in the Registration Statement, and I am familiar with the
Registration Statement and exhibits thereto.
It is my professional opinion that the fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred and the risks assumed by the insurance
company.
I hereby consent to the use of this opinion as an exhibit to Post-Effective
Amendment No. 2 to the Registration Statement.
Sincerely,
/s/ Christopher G. Daniels
Christopher G. Daniels, FSA, MAAA
Life Product Development and Pricing Vice President
EquiTrust Life Insurance Company
