<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 2000
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. 3
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4
---------------------
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):
/ / 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;
/X/ ON MAY 1, 2000 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, 2000
EquiTrust Life Insurance Company (the "Company") is offering the individual
flexible premium deferred variable annuity contract (the "Contract") described
in this prospectus. It provides for growth of Accumulated Value and annuity
payments on a fixed and variable basis. The Company sells the Contract to
retirement plans, including those that qualify for special federal tax treatment
under the Internal Revenue Code.
The Owner of a Contract ("you" or "your") may allocate premiums and Accumulated
Value to 1) the Declared Interest Option, an account that provides a specified
rate of interest, and/or 2) Subaccounts of EquiTrust Life Annuity Account II,
each of which invests in one of the following Investment Options:
<TABLE>
<S> <C>
Value Growth Portfolio High Grade Bond Portfolio
High Yield Bond Portfolio Money Market Portfolio
Blue Chip Portfolio Equity Income Portfolio
Mid-Cap Growth Portfolio New America Growth Portfolio
Personal Strategy Balanced Portfolio International Stock Portfolio
Capital Appreciation Portfolio Disciplined Stock Portfolio
Growth and Income Portfolio International Equity Portfolio
Small Cap Portfolio
</TABLE>
The accompanying prospectus for each Investment Option describes the investment
objectives and attendant risks of each Investment Option. If you allocate
premiums to the Subaccounts, the amount of the Contract's Accumulated Value
prior to the retirement date will vary to reflect the investment performance of
the Investment Options you select.
Please note that the Contracts and Investment Options are not bank deposits, are
not federally insured, are not guaranteed to achieve their goals and are subject
to risks, including loss of the amount invested.
You may find additional information about your Contract and the Account in the
Statement of Additional Information, dated the same as this prospectus. To
obtain a copy of this document, please contact us at the address or phone number
shown on the cover of this prospectus. The Statement of Additional Information
(SAI) has been filed the Securities and Exchange Commission and is incorporated
herein by reference. The SEC maintains a website (http://www.sec.gov) that
contains the SAI, material incorporated by reference into this prospectus, and
other information filed electronically with the SEC.
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
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Issued By
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
<PAGE>
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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.................................... 13
Addition, Deletion or Substitution of Investments..... 16
DESCRIPTION OF ANNUITY CONTRACT............................. 16
Issuance of a Contract................................ 16
Premiums.............................................. 17
Free-Look Period...................................... 17
Allocation of Premiums................................ 17
Variable Accumulated Value............................ 18
Transfer Privilege.................................... 19
Partial Withdrawals and Surrenders.................... 19
Special Transfer and Withdrawal Options............... 20
Death Benefit Before the Retirement Date.............. 21
Death Benefit After the Retirement Date............... 22
Proceeds on the Retirement Date....................... 23
Payments.............................................. 23
Modification.......................................... 23
Reports to Owners..................................... 24
Inquiries............................................. 24
THE DECLARED INTEREST OPTION................................ 24
Minimum Guaranteed and Current Interest Rates......... 24
Transfers From Declared Interest Option............... 25
Payment Deferral...................................... 25
CHARGES AND DEDUCTIONS...................................... 25
Surrender Charge (Contingent Deferred Sales Charge)... 25
Annual Administrative Charge.......................... 26
Transfer Processing Fee............................... 26
Mortality and Expense Risk Charge..................... 26
Investment Option Expenses............................ 27
Premium Taxes......................................... 27
Other Taxes........................................... 27
PAYMENT OPTIONS............................................. 27
Election of Payment Options and Annuity Payments...... 28
Description of Payment Options........................ 30
YIELDS AND TOTAL RETURNS.................................... 31
FEDERAL TAX MATTERS......................................... 32
Introduction.......................................... 32
Tax Status of the Contract............................ 33
Taxation of Annuities................................. 34
Transfers, Assignments or Exchanges of a Contract..... 36
Withholding........................................... 36
Multiple Contracts.................................... 36
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Taxation of Qualified Plans........................... 37
Possible Charge for the Company's Taxes............... 39
Other Tax Consequences................................ 39
DISTRIBUTION OF THE CONTRACTS............................... 39
LEGAL PROCEEDINGS........................................... 39
VOTING RIGHTS............................................... 40
FINANCIAL STATEMENTS........................................ 40
CALCULATING VARIABLE ANNUITY PAYMENTS....................... Appendix A
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS....... SAI-TOC
</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
- --------------------------------------------------------------------------------
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 Tuesday after Christmas (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, any supplemental
applications and any endorsements or additional benefit riders or agreements.
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
- --------------------------------------------------------------------------------
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>
* You may annually withdraw a maximum of 10% of the Accumulated Value
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
Annual Account Expenses (as a percentage of average net
assets)
Mortality and Expense Risk Charge 1.40%
Other Account Expenses None
Total Account Expenses 1.40%
</TABLE>
5
<PAGE>
ANNUAL INVESTMENT OPTION EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
ADVISORY OTHER TOTAL
INVESTMENT OPTION FEE EXPENSES EXPENSES
<S> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth 0.45% 0% 0%
High Grade Bond 0.30% 0% 0%
High Yield Bond 0.45% 0% 0%
Money Market 0.25% 0% 0%
Blue Chip 0.20% 0% 0%
T. Rowe Price Equity Series, Inc.
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)
T. Rowe Price International Series, Inc.
International Stock 1.05% 0.00% 1.05%(1)
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio 0.75% 0% 0%
Disciplined Stock Portfolio 0.75% 0% 0%
Growth and Income Portfolio 0.75% 0% 0%
International Equity Portfolio 0.75% 0% 0%
Small Cap Portfolio 0.75% 0% 0%
</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 1999 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.
[Updated figures to be filed by amendment.]
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>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
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
T. Rowe Price Equity Series, Inc.
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
T. Rowe Price International Series, Inc.
International Stock 116 209 302 574
Dreyfus Variable Investment Fund
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
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
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
T. Rowe Price Equity Series, Inc.
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
T. Rowe Price International Series, Inc.
International Stock 55 166 280 574
Dreyfus Variable Investment Fund
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 not a representation
of past or future annual returns, which may be greater or less than this assumed
rate.
[Updated figures to be filed by amendment.]
8
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF THE CONTRACT
- --------------------------------------------------------------------------------
ISSUANCE OF A CONTRACT. The Contract is an individual flexible premium
deferred variable annuity contract with no maximum age required of owners on
the Contract Date (see "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 any other
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 from the Contract Date.
- 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 or Declared Interest Option, 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>
You may annually withdraw a maximum of 10% of the Accumulated Value without
incurring 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 deduct 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.
We may terminate this waiver at any time.
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, 1999.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS AT
SUBACCOUNT BEGINNING OF YEAR END OF YEAR END OF YEAR
<S> <C> <C> <C>
Value Growth
1998 $10.000000 $10.137670 18.014000
1999 10.137670 9.355808 21,916.506039
High Grade Bond
1998 $10.000000 $10.000000 0.000000
1999 10.000000 9.811321 39,060.113882
High Yield Bond
1998 $10.000000 $10.000000 0.000000
1999 10.000000 9.838194 19,166.958767
Money Market
1998 $10.000000 $10.010155 2,675.156157
1999 10.010155 10.323106 30,705.110011
Blue Chip
1998 $10.000000 $10.000000 0.000000
1999 10.000000 11.493125 168,478.748352
Capital Appreciation
1998 $10.000000 $10.037471 24.018000
1999 10.037471 11.023159 173,421.184779
Disciplined Stock
1998 $10.000000 $10.000000 0.000000
1999 10.000000 11.551333 133,874.541424
Growth & Income
1998 $10.000000 $10.000000 10.000000
1999 10.000000 11.583531 41,962.890993
International Equity
1998 $10.000000 $10.000000 0.000000
1999 10.000000 15.535331 5,370.943878
Small Cap
1998 $10.000000 $10.417346 30.023000
1999 10.417346 12.409304 37,187.790687
Equity Income
1998 $10.000000 $10.000000 0.000000
1999 10.000000 10.390415 41,021.894274
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNIT VALUE AT UNIT VALUE AT NUMBER OF UNITS AT
SUBACCOUNT BEGINNING OF YEAR END OF YEAR END OF YEAR
<S> <C> <C> <C>
Mid-Cap Growth
1998 $10.000000 $10.444654 18.014000
1999 10.444654 12.591091 67,235.432249
New America Growth
1998 $10.000000 $10.420677 30.023000
1999 10.420677 11.525440 64,623.697111
Personal Strategy Balanced
1998 $10.000000 $10.000000 0.000000
1999 10.000000 10.603854 53,568.419363
International Stock
1998 $10.000000 $10.000000 0.000000
1999 10.000000 13.100697 12,483.719064
</TABLE>
- --------------------------------------------------------------------------------
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 41 states and the District of Columbia: Alabama, Alaska,
Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii,
Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan,
Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico,
North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South
Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West
Virginia, 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.
12
<PAGE>
- --------------------------------------------------------------------------------
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.
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.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
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 Standard & Poor's,
or in unrated securities of comparable quality. AN
INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK. (See the Fund Prospectus "HIGHER
RISK SECURITIES AND INVESTMENT STRATEGIES--Lower Rated
Debt Securities.")
Money Market Portfolio - This Portfolio seeks maximum current income consistent
with liquidity and stability of principal. The Portfolio
will pursue this objective by investing in high quality
short-term money market instruments. AN INVESTMENT IN THE
MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED
BY THE F.D.I.C. OR ANY GOVERNMENT AGENCY. 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>
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 to provide long-term capital
appreciation by investing primarily in mid-cap stocks
with the potential for above-average earnings growth. The
investment adviser defines mid-cap companies as those
whose market capitalization falls within the range of
companies in the Standard & Poor's Mid-Cap 400 Index.
New America Growth Portfolio - This Portfolio seeks long-term capital growth by
investing primarily in common stocks of U.S. growth
companies operating in service industries.
Personal Strategy Balanced Portfolio - This Portfolio seeks the highest total return over time
consistent with an emphasis on both capital appreciation
and income.
</TABLE>
14
<PAGE>
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 Fund: - This Portfolio primarily seeks long-term capital growth,
Capital Appreciation Portfolio consistent with the preservation of capital; current
income is a secondary investment objective. This
Portfolio invests primarily in the common stocks of
domestic and foreign issuers.
Dreyfus Variable Investment Fund: - This Portfolio seeks to provide investment results that
Disciplined Stock Portfolio are greater than the total return performance of
publicly-traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock
Price Index. The Portfolio will use quantitative
statistical modeling techniques to construct a portfolio
in an attempt to achieve its investment objective,
without assuming undue risk relative to the broad stock
market.
Dreyfus Variable Investment Fund: - This Portfolio seeks to provide long-term capital growth,
Growth and Income Portfolio current income and growth of income, consistent with
reasonable investment risk by investing primarily in
equity securities, debt securities and money market
instruments of domestic and foreign issuers.
Dreyfus Variable Investment Fund: - This Portfolio seeks to maximize capital growth through
International Equity Portfolio investments in equity securities of foreign issuers
located throughout the world.
Dreyfus Variable Investment Fund: - This Portfolio seeks maximum capital appreciation by
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.)
15
<PAGE>
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,
- 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.
16
<PAGE>
- --------------------------------------------------------------------------------
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. (Certain
states may provide for a 30 day free-look period in a replacement
situation.) 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 any other
charges deducted from the Account.
- --------------------------------------------------------------------------------
ALLOCATION OF PREMIUMS
Upon receipt at our Home Office of your properly completed Contract
application and initial premium payment, we will allocate the initial
premium to the Money Market Subaccount within two business days. If your
application is not properly completed, we reserve the right to retain your
initial premium for up to five business days while we attempt to complete
the application. At the end of this 5-day period, if the application is not
complete, we will inform you of the reason for the delay and we will return
the initial premium immediately, unless you specifically provide us your
consent to retain the premium until the application is complete.
You can allocate premiums paid to one or more Subaccounts, the Declared
Interest Option, or both. Each allocation must be in whole percentages for a
minimum of 10% of your premium payment.
- We will allocate the initial premium to the Money Market Subaccount
for 10 days from the Contract Date.
- 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.
- You may change your allocation schedule at any time by sending
written notice to the Home Office. If you change your allocation
percentages, we will allocate subsequent premium payments in
accordance with the allocation schedule in effect. Changing your
allocation schedule will not alter the allocation of your existing
Accumulated Values among the Subaccounts or the Declared Interest
Option.
- You may, however, direct individual payments to a specific
Subaccount, the Declared Interest Option, or any combination
thereof, without changing the existing allocation schedule.
Because the Accumulated Values in each Subaccount will vary with that
Subaccount's investment experience, you bear the entire investment risk for
amounts allocated to the Subaccount. You should
17
<PAGE>
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 or the Declared
Interest Option.
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 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 operation or maintenance of 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.
18
<PAGE>
- --------------------------------------------------------------------------------
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 based on the net asset value
next determined after we receive your written request at the Home Office.
- The minimum amount of each transfer is $100 or the entire amount in
that Subaccount or Declared Interest Option, 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.
- 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 may be treated as a full surrender of the
Contract.
We will process your partial withdrawal based on the net asset value next
determined after we receive your written request at the Home Office. You may
annually withdraw a maximum of 10% of the Accumulated Value without
incurring a Surrender Charge. 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 or the Declared Interest Option
based on the proportion that these values bear 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 based on
the net asset value next determined after
19
<PAGE>
we receive your written request and your Contract at the Home Office. 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 each year to return
your Accumulated Value to your most recent premium allocation percentages.
- 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.
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.
20
<PAGE>
- 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 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, we will determine the death benefit as of the date we receive due
proof of death and the death benefit will equal the greatest of:
- the sum of the premiums paid, less the sum of all partial withdrawal
reductions (including applicable surrender charges);
- the Accumulated Value; or
- the Performance Enhanced Death Benefit (PEDB) amount.
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<PAGE>
The PEDB amount is equal to zero on the Contract Date. The PEDB amount
increases by the amount of each premium payment (including the initial
premium), and decreases by the amount of any partial withdrawal reduction.
We will calculate the PEDB amount: (1) on each Contract Anniversary; (2) at
the time you make any premium payment or partial withdrawal; and (3) on the
annuitant's date of death. The PEDB amount on each calculation date is equal
to the greater of (a) the previous PEDB amount or (b) the Accumulated Value.
We will continue to recalculate the PEDB amount until the Contract
Anniversary immediately prior to the oldest annuitant's 91st birthday. All
subsequent PEDB amounts will be recalculated for additional premium payments
or partial withdrawals only.
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.
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.
22
<PAGE>
- --------------------------------------------------------------------------------
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
You may modify your Contract only if one of our officers agrees in writing
to such 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;
- 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;
23
<PAGE>
- 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.
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MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Declared Interest Option accumulated value is guaranteed to accumulate
at a minimum effective annual interest rate of 3%. While we intend to credit
the Declared Interest Option accumulated value with current rates in excess
of the minimum guarantee, we are not obligated to do so. These current
interest rates are influenced by, but do not necessarily correspond to,
prevailing general market interest rates, and any interest credited on your
amounts in the Declared Interest Option in excess of the minimum guaranteed
rate will be determined in the sole discretion of the Company. You,
therefore, assume the risk that interest credited may not exceed the
guaranteed rate.
Occasionally, we establish new current interest rates for the Declared
Interest Option. The rate applicable to your Contract is the rate in effect
on your most recent Contract Anniversary. This rate
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<PAGE>
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.
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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.
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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.
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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 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.
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<PAGE>
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. You may annually withdraw a maximum
of 10% of the Accumulated Value without incurring 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.
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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.
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MORTALITY AND EXPENSE RISK CHARGE
We apply a daily mortality and expense risk charge at an annual rate of
1.40% (daily rate of 0.0038091%) (approximately 1.01% for mortality risk and
0.39% for expense risk). This charge is used to compensate the Company for
assuming mortality and expense risks.
The mortality risk we assume is that annuitants may live for a longer period
of time than estimated when the guarantees in the Contract were established.
Through these guarantees, each payee is assured that longevity will not have
an adverse effect on the annuity payments received. The mortality risk also
includes a guarantee to pay a death benefit if the owner/annuitant dies
before the retirement
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<PAGE>
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 you select (see "DESCRIPTION OF
ANNUITY CONTRACT--Proceeds on Retirement Date"). At that time, your proceeds
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. The proceeds are the amount you apply to
a payment option. The amount of proceeds will equal either: (1) the Net
Accumulated Value if you are surrendering the Contract; or (2) the death
benefit if the annuitant dies; or (3) the amount of any partial withdrawal
you apply to a payment option.
Prior to the retirement date, you may elect to have your proceeds 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 agreement to be issued for
the payment option.
You can choose whether to apply any portion of your proceeds to provide
either fixed annuity payments (available under all payment options),
variable annuity payments (available under options 3 and 7 only), or a
combination of both. If you elect to receive variable annuity payments, then
you also must select the Subaccounts to which we will apply your proceeds.
The annuity payment date is the date you select as of which we compute
annuity payments. If you elect to receive variable annuity payments, the
annuity payment date may not be the 29th, 30th or 31st day of any month. We
compute the first annuity payment as of the initial annuity payment date you
select. All subsequent annuity payments are computed as of annuity payment
dates. These dates will be the same day of the month as the initial annuity
payment date.
Monthly annuity payments will be computed as of the same day each month as
the initial annuity payment date. Quarterly annuity payments will be
computed as of the same day in the 3rd, 6th, 9th, and 12th month following
the initial annuity payment date and on the same days of such months in each
successive year. Semi-annual annuity payment dates will be computed as of
the same day in the
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<PAGE>
6th and 12th month following the initial annuity payment date and on the
same days of such months in each successive year. Annual annuity payments
will be computed as of the same day in each year as the initial annuity
payment date. If you do not select a payment frequency, we will make monthly
payments.
- --------------------------------------------------------------------------------
ELECTION OF PAYMENT OPTIONS AND ANNUITY PAYMENTS
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 have provided a description of the available payment options below. The
term "effective date" means the date as of which the proceeds are applied to
a payment option. The term "payee" means a person who is entitled to receive
payment under a payment option.
FIXED ANNUITY PAYMENTS. Fixed annuity payments are periodic payments we make
to the designated payee. The dollar amount of each payment does not change.
We calculate the amount of each fixed annuity payment based on:
- the form and duration of the payment option chosen;
- the annuitant's age and sex;
- the amount of proceeds applied to purchase the fixed annuity
payments, and
- the applicable annuity purchase rates.
We use a minimum annual interest rate of 3% to compute fixed annuity
payments. We may, in our sole discretion, make fixed annuity payments based
on a higher annual interest rate.
The payee may elect to receive fixed annuity payments under each of the
payment options described below. Under Option 1 (Interest Income), the
proceeds earn a set interest rate and the payee may elect to receive some or
all of the interest in equal periodic payments. Under Option 4 (Income for
Fixed Amount), proceeds are paid in amounts and at intervals specified by
the payee. For each other payment option, we determine the dollar amount of
the first fixed annuity payment by multiplying the dollar amount of proceeds
being applied to purchase fixed annuity payments by the annuity purchase
rate for the selected payment option. Subsequent fixed annuity payments are
of the same dollar amount unless we make payments based on an interest rate
different from the interest rate we use to compute the first payment. We
reserve the right to refuse the election of a payment option, and to make a
lump sum payment to the payee if:
(1) the total payments would be less than $2,000;
(2) the amount of each payment would be less than $20; or
(3) the payee is an assignee, estate, trustee, partnership,
corporation, or association.
VARIABLE ANNUITY PAYMENTS. Variable annuity payments are periodic payments
we make to the designated payee, the amount of which varies from one annuity
payment date to the next as a function of the investment performance of the
Subaccounts selected to support such payments. The payee may elect to
receive variable annuity payments only under Option 3 (Life Income Option
with Term Certain) and Option 7 (Joint and 100% to Survivor Monthly Life
Income Option). We determine the dollar amount of the first variable annuity
payment by multiplying the dollar amount of proceeds being applied to
purchase variable annuity payments on the effective date by the annuity
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<PAGE>
purchase rate for the selected payment option. Therefore, the dollar amount
of the first variable annuity payment will depend on:
- the dollar amount of proceeds being applied to a payment option;
- the payment option selected;
- the age and sex of the annuitant; and
- the assumed interest rate ("AIR") used in the variable payment
option tables (5% per year).
We calculate the dollar amount of the initial variable annuity payment
attributable to each Subaccount by multiplying the dollar amount of proceeds
to be allocated to that Subaccount on the effective date by the annuity
purchase rate for the selected payment option. The dollar value of the total
initial variable annuity payment is equal to the sum of the payments
attributable to each Subaccount.
An "annuity unit" is a measuring unit we use to monitor the value of the
variable annuity payments. We determine the number of annuity units
attributable to a Subaccount by dividing the initial variable annuity
payment attributable to that Subaccount by the annuity unit value (described
below) for that Subaccount for the Valuation Period ending on the effective
date or during which the effective date falls if the Valuation Period does
not end on such date. The number of annuity units attributable to each
Subaccount remains constant unless there is an exchange of annuity units
(see "EXCHANGING ANNUITY UNITS" below).
We calculate the dollar amount of each subsequent variable annuity payment
attributable to each Subaccount by multiplying the number of annuity units
of that Subaccount by the annuity unit value for that Subaccount for the
Valuation Period ending as of the annuity payment date. The dollar value of
each subsequent variable annuity payment is equal to the sum of the payments
attributable to each Subaccount.
The annuity unit value for each Valuation Period is equal to (a) multiplied
by (b) multiplied by (c) where:
(a) is the annuity unit value for the immediately preceding Valuation
Period;
(b) is the net investment factor for that Valuation Period (described
below); and
(c) is the daily assumed interest factor for each day in that
Valuation Period. The AIR we use for variable annuity payment
options is 5% per year. The daily assumed interest factor derived
from an AIR of 5% per year is 0.9998663.
We calculate the net investment factor for each Subaccount for each
Valuation Period by dividing (x) by (y) and subtracting (z) from the result
where:
(x) is the net result of:
1. the value of the net assets in the Subaccount as of the end
of the current Valuation Period; PLUS
2. the amount of investment income and capital gains, realized
or unrealized, credited to the net assets of the Subaccount during
the current Valuation Period; MINUS
3. the amount of capital losses, realized or unrealized, charged
against the net assets of the Subaccount during the current Valuation
Period; PLUS or MINUS
4. any amount charged against or credited to the Subaccount for
taxes, or any amount set aside during the Valuation Period as a
provision for taxes attributable to the operation or maintenance of
the Subaccount.
(y) is the net asset value of the Subaccount for the immediately
preceding Valuation Period
(z) is the daily amount charged for mortality and expense risks for
each day of the current Valuation Period.
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<PAGE>
If the annualized net investment return of a Subaccount for an annuity
payment period is equal to the AIR, then the variable annuity payment
attributable to that Subaccount for that period will equal the payment for
the prior period. If the annualized net investment return of a Subaccount
for an annuity payment period exceeds the AIR, then the variable annuity
payment attributable to that Subaccount for that period will be greater than
the payment for the prior period. To the extent that such annualized net
investment return is less than the AIR, the payment for that period will be
less than the payment for the prior period.
For variable annuity payments, we reserve the right to:
(1) refuse the election of a payment option if total payments would
be less than $5,000;
(2) refuse to make payments of less than $50 each; or
(3) make payments at less frequent intervals if payments will be less
than $50 each.
EXCHANGING ANNUITY UNITS. By making a written or telephone request to us at
any time after the effective date, the payee may exchange the dollar value
of a designated number of annuity units of a particular Subaccount for an
equivalent dollar amount of annuity units of another Subaccount. The
exchange request will take effect as of the end of the Valuation Period when
we receive the request. On the date of the exchange, the dollar amount of a
variable annuity payment generated from the annuity units of either
Subaccount would be the same. The payee may exchange annuity units of one
Subaccount for annuity units of another Subaccount an unlimited number of
times. We only permit exchanges of annuity units between the Subaccounts.
SURRENDERS. By written request, a payee may make a full surrender of the
payments remaining in a payment option and receive the surrender value. We
do not allow any partial withdrawals of the dollar amounts allocated to a
payment option. The surrender value is equal to:
(a) the commuted value of remaining payments in a payment option;
MINUS
(b) a commutation fee that varies by year since the retirement date.
The commuted value is the present value of the remaining stream of payments
in a payment option, computed using the AIR and the annuity unit value(s)
calculated as of the date we receive your surrender request. We assume that
each payment under a variable payment option would be equal to the sum of
the number of annuity units in each Subaccount multiplied by the applicable
annuity unit value for each Subaccount.
We will deduct a commutation fee (surrender charge) on any full surrenders
requested during the first six years of a payment option. We assess the
commutation fee as a percentage of the original proceeds. The commutation
fee begins at 6% during the first year of a payment option and declines by
1% in each of the next five years. Full surrenders requested after the sixth
year of a payment option are not subject to a commutation fee.
Please refer to APPENDIX A for more information on variable annuity
payments.
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DESCRIPTION OF PAYMENT 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.
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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.
OPTION 6--JOINT AND ONE-HALF TO SURVIVING SPOUSE. The proceeds are paid in
equal monthly installments while two payees live. When the principal payee
dies, the payment to the surviving spouse is reduced by 50%. If the spouse
of the principal payee dies first, the payment to the principal payee is not
reduced.
OPTION 7--JOINT AND 100% TO SURVIVOR MONTHLY LIFE INCOME OPTION. The
proceeds are paid in monthly installments while two joint payees live. When
one payee dies, future proceeds will be made to the survivor for their
lifetime.
ALTERNATE PAYMENT OPTION. The Company may make available alternative payment
options.
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YIELDS AND TOTAL RETURNS
- --------------------------------------------------------------------------------
We may advertise, or include in sales literature, yields, effective yields
and total returns for the Subaccounts. THESE FIGURES ARE BASED ON HISTORICAL
EARNINGS AND DO NOT INDICATE OR PROJECT FUTURE PERFORMANCE. Each Subaccount
may also advertise, or include in sales literature, performance relative to
certain performance rankings and indices compiled by independent rating
organizations. You may refer to the Statement of Additional Information for
more detailed information relating to performance.
The effective yield and total return calculated for each Subaccount is based
on the investment performance of the corresponding Investment Option, which
includes the Investment Option's total operating expenses. (See the
accompanying Investment Option prospectuses.)
The yield of a Subaccount (except the Money Market Subaccount) refers to the
annualized income generated by an investment in the Subaccount over a
specified 30-day or one-month period. This yield is calculated by assuming
that the income generated during that 30-day or one-month period is
generated each period over 12-months and is shown as a percentage of the
investment.
The yield of the Money Market Subaccount refers to the annualized income
generated by an investment in the Subaccount over a specified seven-day
period. This yield is calculated by assuming that the income generated for
that seven-day period is generated each period for 52-weeks and is shown as
a percentage of the investment. The effective yield is calculated similarly
but, when annualized, the income earned by an investment in the Subaccount
is assumed to be reinvested. The effective yield will be slightly higher
than the yield because of the compounding effect of this assumed
reinvestment.
The total return of a Subaccount refers to return quotations of an
investment in a Subaccount for various periods of time. Total return figures
are provided for each Subaccount for one, five and ten year periods,
respectively. For periods prior to the date the Account commenced
operations, performance information is calculated based on the performance
of the Investment Options and the assumption that the Subaccounts were in
existence for those same periods, with the level of Contract charges which
were in effect at inception of the Subaccounts.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
to the redemption value of that investment as of the last day of each of the
periods for which total return quotations are provided. Average annual total
return information shows the average percentage change in the value of an
investment in the Subaccount from the beginning date of the measuring period
to the end of that period. This
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<PAGE>
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.
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
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<PAGE>
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.
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TAX STATUS OF THE CONTRACT
The Company believes that the Contract will be subject to tax as an annuity
contract under the Code, which generally means that any increase in
Accumulated Value will not be taxable until monies are received from the
Contract, either in the form of annuity payments or in some other form. The
following Code requirement must be met in order to be subject to annuity
contract treatment for tax purposes:
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code provides that
separate account investments must be "adequately diversified" in accordance
with Treasury regulations in order for the Contract to qualify as an annuity
contract for federal tax purposes. The Account, through each Investment
Option, intends to comply with the diversification requirements prescribed
in regulations under Section 817(h) of the Code, which affect how the assets
in each Subaccount may be invested. Although the investment adviser of
EquiTrust Variable Insurance Series Fund is an affiliate of the Company, we
do not have control over the Fund or its investments. Nonetheless, the
Company believes that each Investment Option in which the Account owns
shares will meet the diversification requirements.
OWNER CONTROL. In certain circumstances, owners of variable annuity
contracts may be considered the owners, for federal income tax purposes, of
the assets of the separate account used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includable in the variable annuity contract owner's gross income. The IRS
has stated in published rulings that a variable annuity contract owner will
be considered the owner of separate account assets if the contract owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. The Treasury Department also
announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of
a segregated asset account may cause the investor (i.e., the contract
owner), rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular subaccounts without
being treated as owners of the underlying assets."
The ownership rights under the Contracts are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets.
For example, the contract owner has additional flexibility in allocating
premium payments and Accumulated Values. These differences could result in a
contract owner being treated as the owner of a pro rata potion of the assets
of the Account. In addition, the Company does not know what standards will
be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company therefore reserves
the right to
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<PAGE>
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 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
34
<PAGE>
- 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
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;
35
<PAGE>
- 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.
- --------------------------------------------------------------------------------
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.
36
<PAGE>
- --------------------------------------------------------------------------------
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 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-
37
<PAGE>
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.
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.
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<PAGE>
- --------------------------------------------------------------------------------
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 the Company 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
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.
39
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited statutory-basis balance sheets of the Company as of
December 31, 1999 and 1998, 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, 1999 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.
[Financial statements to be filed by amendment.]
40
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- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
CALCULATING VARIABLE ANNUITY PAYMENTS
The following chart has been prepared to show how investment performance
could affect variable annuity payments over time. It illustrates the
variable annuity payments under a supplemental agreement issued in
consideration of proceeds from a non-qualified Contract. The chart
illustrates certain variable annuity payments under five hypothetical rate
of return scenarios. Of course, the illustrations merely represent what such
payments might be under a HYPOTHETICAL supplemental agreement issued for
proceeds from a HYPOTHETICAL Contract.
WHAT THE CHART ILLUSTRATES. The chart illustrates the first monthly payment
in each of 25 years under a hypothetical variable payment supplemental
agreement issued in consideration of proceeds from a hypothetical
non-qualified Contract assuming a different hypothetical rate of return for
a single Subaccount supporting the agreement. The chart assumes that the
first monthly payment in the initial year shown is $1,000.
HYPOTHETICAL RATES OF RETURN. The variable annuity payments reflect five
different assumptions for a constant investment return before fees and
expenses: 0.00%, 3.45%, 6.90%, 9.45%, and 12.00%. Net of all expenses,
these constant returns are: -1.90%, 1.55%, 5.00%, 7.55%, and 10.1%. The
first variable annuity payment for each year reflects the 5% AIR net of all
expenses for the Subaccount (and the underlying Funds) pro-rated for the
month shown. Fund management fees and operating expenses are assumed to be
at an annual rate of 0.65% of their average daily net assets. This is the
weighted average of Fund expenses shown in the Annual Investment Option
Expenses table on page 6. The mortality and expense risk charge is assumed
to be at an annual rate of 1.25% of the illustrated Subaccount's average
daily net assets.
THE FIRST MONTHLY VARIABLE ANNUITY PAYMENTS DEPICTED IN THE CHART ARE BASED
ON HYPOTHETICAL SUPPLEMENTAL AGREEMENTS AND HYPOTHETICAL INVESTMENT RESULTS
AND ARE NOT PROJECTIONS OR INDICATIONS OF FUTURE RESULTS. THE COMPANY DOES
NOT GUARANTEE OR EVEN SUGGEST THAT ANY SUBACCOUNT, CONTRACT OR AGREEMENT
ISSUED BY IT WOULD GENERATE THESE OR SIMILAR MONTHLY PAYMENTS FOR ANY PERIOD
OF TIME. THE CHART IS FOR ILLUSTRATION PURPOSES ONLY AND DOES NOT REPRESENT
FUTURE VARIABLE ANNUITY PAYMENTS OR FUTURE INVESTMENT RETURNS. The first
variable annuity payment in each year under an actual agreement issued in
connection with an actual Contract may be more or less than those shown if
the actual returns of the Subaccount(s) selected by an owner are different
from the hypothetical returns. Because it is likely that a Subaccount's
investment return will fluctuate over time, variable annuity payments
actually received by a payee may be more or less than those shown in this
illustration. Also, in an actual case, the total amount of variable annuity
payments ultimately received will depend upon the payment option selected,
and, for the life contingent options, upon the life of the payee. See the
prospectus section titled "PAYMENT OPTIONS--Election of Payment Options and
Annuity Payments."
ASSUMPTIONS ON WHICH THE HYPOTHETICAL AGREEMENT AND CONTRACT ARE BASED. The
chart reflects a hypothetical supplemental agreement and Contract. These,
in turn, are based on the following assumptions:
- The hypothetical Contract is a Non-Qualified Contract
- The supplemental agreement is issued in consideration of proceeds
from the hypothetical Contract
- The proceeds applied under the agreement represents the entire Net
Accumulated Value of the Contract and is allocated to a single
Subaccount
A-1
<PAGE>
- The single Subaccount has annual constant rates of return before
fees and expenses of 0.00%, 3.45%, 6.90%, 9.45%, and 12.00%
- AIR is 5% per year
- The payee elects to receive monthly variable annuity payments
- The proceeds applied to the purchase of annuity units as of the
effective date of the agreement under the annuity payment option
selected results in an initial variable annuity payment of $1,000
For a discussion of how a Contract Owner or payee may elect to receive
monthly, quarterly, semi-annual or annual variable annuity payments, see
"PAYMENT OPTIONS."
ASSUMED INTEREST RATE. Among the most important factors that determines the
amount of each variable annuity payment is the AIR. Under supplemental
agreements available as of the date of this prospectus, the AIR is 5%.
Variable annuity payments will increase in size from one annuity payment
date to the next if the annualized net rate of return during that time is
greater than the AIR, and will decrease if the annualized net rate of
return over the same period is less than the AIR. (The AIR is an important
component of the net investment factor.) For a detailed discussion of the
AIR and net investment factor, see "PAYMENT OPTIONS."
THE $1,000 INITIAL MONTHLY VARIABLE ANNUITY PAYMENT. The hypothetical
supplemental agreement has an initial monthly variable annuity payment of
$1,000. The dollar amount of the first variable annuity payment under an
actual agreement will depend upon:
- the amount of proceeds applied
- the annuity payment option selected
- the annuity purchase rates in the agreement on the effective date
- the AIR under the agreement on the effective date
- the age of the annuitant
- in most cases, the sex of the annuitant
For each column in the chart, the entire proceeds is allocated to a
Subaccount having a constant rate of return as shown at the top of the
column. However, under an actual agreement, proceeds are often allocated
among several Subaccounts. The dollar amount of the first variable annuity
payment attributable to each Subaccount is determined under an actual
agreement by dividing the dollar value of the proceeds applied to that
Subaccount as of the effective date by $1,000, and multiplying the result by
the annuity purchase rate in the agreement for the payment option selected.
The amount of the first variable annuity payment is the sum of the first
payments attributable to each Subaccount to which proceeds were allocated.
For a detailed discussion of how the first variable annuity payment is
determined, see "PAYMENT OPTIONS."
A-2
<PAGE>
INITIAL MONTHLY PAYMENTS FOR EACH YEAR SHOWN,
ASSUMING A CONSTANT RATE OF RETURN
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
0.00% 3.45% 6.90% 9.45% 12.00%
CONTRACT GROSS GROSS GROSS GROSS GROSS
YEAR -1.90% NET 1.55% NET 5.00% NET 7.55% NET 10.10% NET
<CAPTION>
<S> <C> <C> <C> <C> <C>
1 $1,000 $1,000 $1,000 $1,000 $1,000
2 934 967 1,000 1,024 1,049
3 873 935 1,000 1,049 1,100
4 816 905 1,000 1,075 1,153
5 762 875 1,000 1,101 1,209
6 712 846 1,000 1,127 1,268
7 665 818 1,000 1,155 1,329
8 621 791 1,000 1,183 1,394
9 581 765 1,000 1,212 1,461
10 542 740 1,000 1,241 1,532
11 507 716 1,000 1,271 1,607
12 473 692 1,000 1,302 1,685
13 442 670 1,000 1,334 1,767
14 413 648 1,000 1,366 1,853
15 386 626 1,000 1,399 1,943
16 361 606 1,000 1,433 2,037
17 337 586 1,000 1,468 2,136
18 315 567 1,000 1,504 2,240
19 294 548 1,000 1,540 2,348
20 275 530 1,000 1,578 2,462
21 257 513 1,000 1,616 2,582
22 240 496 1,000 1,655 2,707
23 224 480 1,000 1,695 2,839
24 209 464 1,000 1,737 2,977
25 196 449 1,000 1,779 3,121
</TABLE>
A-3
<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>
SAI-TOC
<PAGE>
If you would like a copy of the Statement of Additional Information, please
complete the information below and detach and mail this card to the Company at
the address shown on the cover of this prospectus.
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
- -------------------------------------------------------------------------------
TEAR AT PERFORATION
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
EQUITRUST LIFE INSURANCE COMPANY
5400 University Avenue
West Des Moines, Iowa 50266
1-888-349-4656
EQUITRUST LIFE ANNUITY ACCOUNT 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, 2000
<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, 1999, Iowa Farm Bureau Federation
owned 56.47% 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 or 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)(1/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 12/31/99 12/31/99 12/31/99 TO 12/31/99
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance
Series Fund
Value Growth(1) % % % %
High Grade Bond(1)
High Yield Bond(1)
Money Market(2) --
Blue Chip(3) --
T. Rowe Price Equity Series, Inc.
Equity Income(4) -- --
Mid-Cap Growth(5) -- --
New America Growth(4) -- --
Personal Strategy Balanced(6) -- --
T. Rowe Price International
Series, Inc.
International Stock(4) -- --
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio(7) --
Disciplined Stock Portfolio(8) -- --
Growth and Income Portfolio(9) -- --
International Equity Portfolio(9) -- --
Small Cap Portfolio(10) --
</TABLE>
[Total return information to be filed by amendment.]
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, 1999 and the
related statements of operations and changes in net assets for the period
from December 18, 1999 (date operations commenced) through December 31, 1999
and the statutory-basis balance sheets of the Company at December 31, 1999
and 1998 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.
[Financial Statements to be filed by amendment.]
6
<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) (a) Contract Form.(1)
*(b) Variable Settlement Agreement
(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
01/01/99
<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, 2000, there were contract owners.
ITEM 28. INDEMNIFICATION
Article XII of the Company's By-Laws provides for the indemnification by the
Company of any person who is a party or who is threatened to be made a party to
any threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Article XII also provides for the indemnification by the Company of any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the Company to
procure a judgment in its favor by reason of the fact that he is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or another enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, except that no indemnification will be made in
respect of any claim, issue, or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Company unless and only to the extent that the court in which such
action or suit was brought determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) EquiTrust Marketing Services, LLC is the registrant's principal underwriter
and also serves as the principal underwriter of certain variable annuity
contracts and variable life insurance policies issued by other separate accounts
of the Company or its life insurance company affiliates supporting other
variable products, or to variable annuity and variable life insurance separate
accounts of insurance companies not affiliated with the Company.
<PAGE>
(b) Officers and Managers of EquiTrust Marketing Services, LLC
<TABLE>
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
Investment Vice President, Group, Inc.
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
Manager Group, Inc.
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>
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, 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 17th day
of February, 2000.
<TABLE>
<S> <C> <C>
EQUITRUST LIFE INSURANCE COMPANY
EQUITRUST LIFE ANNUITY ACCOUNT II
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------------
Edward M. Wiederstein
PRESIDENT
EquiTrust Life Insurance Company
Attest: /s/ RICHARD D. HARRIS
-----------------------------------------
Richard D. Harris
SENIOR VICE PRESIDENT AND
SECRETARY-TREASURER
EquiTrust Life Insurance Company
</TABLE>
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the dates set
forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EDWARD M. WIEDERSTEIN President and Director
- ------------------------------ [Principal Executive February 17, 2000
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ------------------------------ [Principal Financial February 17, 2000
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ------------------------------ [Principal Accounting February 17, 2000
James W. Noyce Officer]
*
- ------------------------------ Vice President and February 17, 2000
Thomas R. Gibson Director
*
- ------------------------------ Director February 17, 2000
Timothy J. Hoffman
*
- ------------------------------ Director February 17, 2000
Stephen M. Morain
*
- ------------------------------ Director February 17, 2000
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>
- --------------------------------------------------------------------------------
VARIABLE
SETTLEMENT
AGREEMENT
EquiTrust Life Insurance Company, referred to in this agreement as "we, our,
us or the Company", will pay the benefits of this agreement subject to all of
its terms.
This agreement supplements the original policy. Unless otherwise stated, terms
used in this agreement have the same meaning as such terms when used in the
original policy.
The provisions on the following pages are a part of this agreement.
PAYMENTS MADE FROM FUNDS ALLOCATED TO THE SEPARATE ACCOUNT ARE BASED ON THE
INVESTMENT EXPERIENCE OF THAT ACCOUNT AND MAY INCREASE OR DECREASE DAILY. THESE
PAYMENTS ARE NOT GUARANTEED AS TO DOLLAR AMOUNTS.
EquiTrust
Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266-5997 [LOGO]
- --------------------------------------------------------------------------------
<PAGE>
EquiTrust
Life Insurance Company
West Des Moines, Iowa [LOGO]
<TABLE>
<S><C>
NAME OF PRIMARY PAYEE SOC. SEC. NO.: BIRTH DATE
/ / / ------------------------------- ---------------
- ---- ----- ----
JOINT PAYEE (IF APPLICABLE) SOC. SEC. NO.: BIRTH DATE
/ / / ------------------------- ---------------
- ---- ---- ----
PAYMENT DATES:
1. If from an existing Variable Annuity, enter date here _____________.
(Payments cannot be made on the 29th, 30th or 31st of the month.)
2. If from a new Variable Annuity, payments will begin 30 days from
the issue date of the Variable Annuity, unless this day is the 29th,
30th or 31st of the month, in which case payments will begin on the
first business day of the following month. If you want a date later
than indicated above you may enter a specific payment date here
_______. (Payments cannot be made on the 29th, 30th or 31st.)
SETTLEMENT ELECTION FOR POLICY NO. AS FOLLOWS:
-----------------------
/ / OPTION 3 LIFE WITH PERIOD CERTAIN - Payments are made for the lifetime of the Primary
Payee, but not less than the specified period of time chosen. Pay in ____________
(annual, semi-annual, quarterly, monthly) installments with payments for _____
years certain. The assumed interest rate is 5.00%.
/ / OPTION 7 JOINT AND 100% TO SURVIVOR - Payments are made at 100% while either payee is
living. Payments cease at the death of the last payee. Monthly is the only payment
frequency available. The assumed interest rate is 5.00%.
CONTINGENT PAYEES: (THIS AREA TO BE COMPLETED ONLY IF DIFFERENT THAN BENEFICIARIES LISTED IN
POLICY)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Final Payee shall be the executors, administrators or assigns of the last Payee to die.
ALLOCATION OF INITIAL PROCEEDS
The amount is to be allocated to the appropriate subaccount or fixed interest
option as follows:
EquiTrust - Blue Chip ____% T. Rowe Price - New America Growth ____%
EquiTrust - Value Growth ____% T. Rowe Price - Pers. Strategy Bal. ____%
EquiTrust - High Grade Bond ____% Dreyfus - Cap. Apprec. ____%
EquiTrust - High Yield Bond ____% Dreyfus - Disc. Stock ____%
EquiTrust - Money Market ____% Dreyfus - Growth & Inc. ____%
T. Rowe Price - Intl. Stock ____% Dreyfus - Int'l Equity ____%
T. Rowe Price - Mid-Cap Growth ____% Dreyfus - Small Cap ____%
T. Rowe Price - Equity Income ____% Fixed Interest Option ____%
If any portion is to be allocated to a particular subaccount or fixed interest option, that
portion must be at least 10%. All percentage allocations must be in whole numbers and not
fractions.
EquiTrust Life Insurance Company agrees to retain the proceeds, which are now payable under
the policy, and apply such proceeds in the manner described in the agreement. Payments to the
Payee(s) named herein will be subject to all the provisions of the agreement and the policy.
EXCEPT FOR ANY AMOUNTS ALLOCATED TO THE FIXED INTEREST OPTION, SUBSEQUENT PAYMENTS ARE BASED ON
THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT WHICH MAY INCREASE OR DECREASE DAILY.
SUBSEQUENT PAYMENTS ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
- -------------------------------------------------------------------------------------------------
TRANSFER BETWEEN PORTFOLIOS Yes No
I authorize transfers between the subaccounts upon instruction from / / / /
any person by telephone. If neither box is checked, the telephone
privilege will be provided.
Once payments begin, no part of the proceeds in the subaccounts may be transferred to or from
the Fixed Interest Option.
- -------------------------------------------------------------------------------------------------
FEDERAL TAX WITHHOLDING
IRS regulations may require that we withhold income taxes from your payments unless you instruct
us not to. Certain states also require that we withhold state income tax when federal income tax
is being withheld. Please select one of the following options:
<PAGE>
/ / I elect NOT to have federal income tax withheld from my payments. I understand that I am
liable for any federal income tax on these payments and that penalties for insufficient
withholding could apply.
/ / I elect that you withhold $___________, or ______ % each month.
/ / I elect to have federal income tax withheld from my payments using the number of allowances
and marital status entered below:
Number of Allowances____ Marital Status: / / Married / / Single
If this calculation indicates no withholding, please withhold the amount of $______________.
- -------------------------------------------------------------------------------------------------
PAYMENT ARRANGEMENTS--SELECT ONLY ONE OF THE FOLLOWING:
/ / Check to Owner
/ / Check to Payee, if different from owner
/ / Check to Special Payee
/ / Automatic Deposit (if this arrangement is elected, please complete authorization below)
I hereby authorize EquiTrust Life Insurance Company to make deposits to my account and for
the Financial Institution named below to accept those deposits. I also authorize EquiTrust
Life Insurance Company to make withdrawals from my account, if necessary, to correct an
incorrect deposit amount, and for the Financial Institution to accept such withdrawals.
EquiTrust will complete account Number and ABA Transit Numbers from the voided check
attached below. This authority is to remain in full force until EquiTrust has written
notification from me of its termination in such time and in such manner as to afford
EquiTrust a reasonable opportunity to act on it.
ACCOUNT INFORMATION: / / Checking / / Savings Account
Number___________________________________
Financial Institution Name:________________________________________________________________
Address________________________________________ City____________________State______________
- -------------------------------------------------------------------------------------------------
PLEASE ATTACH VOIDED CHECK HERE
ACKNOWLEDGEMENT
PLEASE REVIEW THE FOLLOWING INFORMATION AND SIGN BELOW.
I understand that I may not make partial withdrawals from the contract at any time.
I understand that the only money I will receive from the contract is the annuity income payments
or, if surrendered, any payments remaining in the term certain, subject to the terms of the
contract.
I understand that the annuity income payments will fluctuate, increasing or decreasing,
depending upon the performance of the investment options I have chosen.
A Company registered representative has asked about my financial situation, investment
objectives, risk tolerance, health and my income needs.
I (We) certify that ALL of the above are true.
- ------------------------------------ ------------------------------------ ---------------------
Primary Payee (Please Print) Signature Date
- ------------------------------------ ------------------------------------ ---------------------
Joint Payee/Spouse, if applicable (Please Print) Signature Date
Submitted by
- ------------------------------------ ----------------------- ---------------------
Other Required Signature, if applicable Agent Name Agent Number
- -------------------------------------------------------------------------------------------------
FOR HOME OFFICE USE ONLY - PLEASE DO NOT WRITE HERE
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
This agreement is a legal contract between the owner and EquiTrust Life
Insurance Company.
READ THIS CONTRACT CAREFULLY
INDEX OF MAJOR CONTRACT PROVISIONS
VARIABLE SETTLEMENT ELECTION FORM........................................Page 3
SECTION 1 - DEFINITIONS..................................................Page 5
1.1 Annuity Unit; 1.2 Effective Date; 1.3 Fixed Interest Option; 1.4
Fund; 1.5 General Account; 1.6 Owner; 1.7 Payee(s), You or Your; 1.8
Proceeds; 1.9 SEC; 1.10 Variable Account; 1.11 Our, Us, We or the
Company.
SECTION 2 - THE CONTRACT.................................................Page 5
2.1 Settlement Contract; 2.2 Modification; 2.3 Misstatement of Age or
Sex; 2.4 Assignment; 2.5 Payments During Minority; 2.6 Payments to
Trustee; 2.7 Claims of Creditors; 2.8 Non-Segregation of Funds.
SECTION 3 - SETTLEMENT AND PAYMENT OF PROCEEDS...........................Page 6
3.1 Payment Options; 3.2 Allocation; 3.3 Exchanges of Annuity Units;
3.4 Surrender; 3.5 Surrender Value; 3.6 Delay of Payment; 3.7 Amount
of Variable Payments; 3.8 Annuity Unit Value; 3.9 Net Investment
Factor; 3.10 Settlement Benefit; 3.11 Minimum Amounts.
SECTION 4 - VARIABLE ACCOUNT.............................................Page 9
<PAGE>
- -------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- -------------------------------------------------------------------------------
The following section defines certain terms used in this agreement. Please refer
to your original policy for definitions of other terms.
1.1 ANNUITY UNIT
is an accounting unit of measure used to calculate the amount of payments.
1.2 EFFECTIVE DATE
means the date as of which the proceeds are applied to a payment option.
1.3 FIXED INTEREST OPTION
means an option whereby payments made are based on a guaranteed interest rate
equal to the assumed interest rate. The fixed interest option is supported by
the general account.
1.4 FUND
means the investment options shown on page 3 of this agreement. The
corresponding funds are registered with the SEC under the Investment Company Act
of 1940 as open-end diversified management investment companies or unit
investment trusts.
1.5 GENERAL ACCOUNT
means all our assets other than those allocated to the variable account or any
other separate account. We have complete ownership and control of the general
account.
1.6 OWNER
The person (or persons) who own(s) the original policy and the agreement and who
is entitled to exercise all rights and privileges provided in the original
policy and the agreement. The original owner(s) is shown on page 3 of this
agreement.
1.7 PAYEE(S), YOU OR YOUR
means the primary payee(s), as named on page 3 of this agreement. Upon the death
of the primary payee or the last survivor in a class of payees, it means any
contingent payees who become payees under this agreement. The interest of any
payee in a class who dies before you will pass to any survivors of the class,
share and share alike, unless otherwise provided on page 3 of this agreement. If
no payee in a class survives, we will pay the proceeds to the next contingent
payee(s). If no contingent payee survives, we will pay the proceeds to the
estate of the last payee to die.
1.8 PROCEEDS
on the effective date of this agreement means the total amount you apply to a
fixed or variable payment option.
1.9 SEC
means the Securities and Exchange Commission, a U.S. government agency.
1.10 VARIABLE ACCOUNT
means the Separate Account shown on page 3 of this agreement. It is the same
variable account and is subject to the same provisions as described in the
original policy. It is a unit investment trust registered with the SEC under the
Investment Company Act of 1940.
1.11 OUR, US, WE OR THE COMPANY
means EquiTrust Life Insurance Company.
- -------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- -------------------------------------------------------------------------------
2.1 SETTLEMENT CONTRACT
This agreement, also referred to herein as the contract, the original policy and
other attached papers, if any, which by this reference are made a part of this
agreement, form the entire agreement.
5
<PAGE>
2.2 MODIFICATION
No one can change any part of this agreement except you and one of our officers.
Both must agree to a change, and it must be in writing. No agent may change this
agreement or waive any of its provisions.
2.3 MISSTATEMENT OF AGE OR SEX
We have the right to reduce future payments for misstated age or sex. The total
payments will never exceed the total of all payments which would have been paid
had your age and sex been stated correctly.
2.4 ASSIGNMENT
Neither the payee nor the owner can assign the proceeds or the payments of this
agreement to another party.
2.5 PAYMENTS DURING MINORITY
Except as provided by statute, any payments due a minor payee shall be paid to
the legal guardian of such minor. Any privilege of a minor payee to withdraw or
change this agreement may be exercised only through the legal guardian of such
minor payee.
2.6 PAYMENTS TO TRUSTEE
Any payment made to a trustee(s) will be subject to the following:
a) Evidence of qualification of the trust must be furnished to us within 90
days of the effective date such payment is due.
b) Such payment will be made to the executor or administrator of the estate of
the deceased payee if evidence of qualification is not provided within such
90 days or if such trustee(s) disclaim all right to receive such payment.
It is understood and agreed that the Company is not a party to or bound by the
conditions of the trust. Payment to such trustee(s), or to the executor or
administrator, if for any reason such trustee(s) does not qualify as provided
herein, will be a complete discharge of the Company's obligations hereunder to
the extent of the payments made. The Company will be under no further obligation
to oversee administration of such payments.
2.7 CLAIMS OF CREDITORS
Payments to any payee(s) will be exempt from the claims of creditors to the
maximum extent allowed by law.
2.8 NON-SEGREGATION OF FUNDS
Any proceeds held by us in the fixed interest option of this agreement may be
mingled with the general funds of the Company. We will not be under any duty or
requirement to segregate or separately invest the proceeds of the fixed account.
- -------------------------------------------------------------------------------
SECTION 3 - SETTLEMENT AND PAYMENT OF PROCEEDS
- -------------------------------------------------------------------------------
3.1 PAYMENT OPTIONS
The payment option the owner has chosen is listed on page 3 of this agreement.
Under this option, payments may be made on a fixed dollar basis, a variable
basis, or a combination of both.
3.2 ALLOCATION
On the effective date, the owner will determine the percentage of proceeds that
will be allocated to the fixed interest option and the subaccounts. Any
allocation must be for at least 10% of the proceeds. A fractional percent may
not be chosen.
3.3 EXCHANGES OF ANNUITY UNITS
The owner may exchange annuity units of one subaccount for those of another on a
dollar equivalent basis. However, no annuity units in the subaccounts may be
exchanged for annuity units in the fixed interest option. In addition, no
annuity units in the fixed interest option may be exchanged for annuity units in
the subaccounts.
6
<PAGE>
The following rules apply to exchanges:
a) The exchange request may be by telephone or in writing on a form acceptable
to us;
b) The exchange will take effect as of the end of the valuation period during
which we receive the request at our office;
c) The owner may exchange annuity units among the subaccounts an unlimited
number of times in a contract year.
3.4 SURRENDER
The owner may make a full surrender under this agreement and receive the
surrender value, if any, subject to the following rules:
a) The owner must send a written request to us along with such information or
evidence as may be required by law or as may be needed to process the
request;
b) We have the right to defer payment of a surrender from the fixed interest
option for up to 6 months;
c) Upon surrender, the contract will terminate.
The owner may not make a partial withdrawal.
3.5 SURRENDER VALUE
The value payable at full surrender will be equal to:
a) the commuted value of remaining term certain payments;
MINUS
b) a commutation fee varying by contract year since the effective date of the
agreement:
<TABLE>
<CAPTION>
Contract Year Commutation Fee
of Payment Option (as a percent of
original proceeds)
- ---------------------------------------------
<S> <C>
1 6%
2 5
3 4
4 3
5 2
6 1
Thereafter 0
</TABLE>
The interest rate used to compute the commuted value of any unpaid payments
certain will be the assumed interest rate. Each payment under a variable payment
option will be assumed to be equal to the number of annuity units times the
applicable annuity unit value.
3.6 DELAY OF PAYMENT
Proceeds from surrenders will usually be mailed to the owner within 7 business
days after the owner's signed request is received in our home office. We have
the right to delay such payment whenever:
a) the New York Stock Exchange is closed other than on customary weekends and
any holiday closing;
b) trading on the New York Stock Exchange is restricted as determined by the
SEC;
c) the SEC, by order, permits postponement for the protection of contract
owners;
d) as a result of an emergency, as determined by the SEC, it is not reasonably
possible to dispose of securities or to determine the value of the net assets
of the variable account.
3.7 AMOUNT OF VARIABLE PAYMENTS
The amount of the first payment under a variable payment option is equal to:
a) the number of thousands of dollars of proceeds applied to the option;
7
<PAGE>
TIMES
b) the factor per $1,000 for the option, from the "Variable Payment Option"
tables.
The amount of each later payment is equal to the number of annuity units times
the applicable annuity unit value as of the end of the valuation period on the
payment date selected.
3.8 ANNUITY UNIT VALUE
The number of annuity units credited under a variable payment option is equal
to:
a) the amount of the first payment;
DIVIDED BY
b) the applicable annuity unit value as of the option's effective date.
The number of annuity units remains constant. However, if you exchange annuity
units among the subaccounts, the units are exchanged on a dollar equivalent
basis.
The annuity unit values depend on the assumed interest rate and on the net
investment factor. An annuity unit value is determined for each subaccount for
each valuation period. The annuity unit value of each subaccount for its first
valuation period was set at $1.00. Each annuity unit value for each later
valuation period is equal to:
a) the annuity unit value for the immediately preceding valuation period;
TIMES
b) the net investment factor for that valuation period;
TIMES
c) the daily assumed interest factor for each day in that valuation period.
3.9 NET INVESTMENT FACTOR
The net investment factor for each subaccount for each valuation period is
determined by dividing a) by b) and subtracting c) from the result, where:
a) is equal to the net asset value of the subaccount as of the end of the
valuation period;
PLUS
the amount of all investment income and capital gains, realized or
unrealized, credited to the net assets of the subaccount during the
valuation period;
MINUS
the amount of capital losses, realized or unrealized, charged against the net
assets during the valuation period;
MINUS
the amount charged against the subaccount for taxes, or any amount set aside
during the valuation period by the company as a provision for taxes
attributable to the operation or maintenance of the subaccount;
b) is equal to the net asset value of the subaccount for the immediately
preceding valuation period;
MINUS
the amount charged against the subaccount for taxes, or any amount set aside
during the valuation period by the company as a provision for taxes
attributable to the operation or maintenance of the subaccount;
c) is a charge no greater than 0.0034035% of the daily net assets in the
subaccount for each day in the valuation period.
The assumed interest rate in the Variable Option Tables is 5.00% per year. The
daily assumed interest factor derived from an assumed interest rate of 5.00% is
0.9998663. We may also offer other assumed interest rates and other variable
payment options from time to time, which may be available at the time you elect
your option.
3.10 SETTLEMENT BENEFIT
While you live, we will pay you an income beginning on the effective date. If
you die before all guaranteed payments have been
8
<PAGE>
made, any remaining amounts
will be paid as shown on page 3 of this agreement.
3.11 MINIMUM AMOUNTS
We reserve the right:
a) to refuse to accept or retain an amount of proceeds of less than $5,000;
b) to refuse to make payments of less than $50 each: or
c) if payments as provided in this agreement will be less than $50 each, to make
payments at less frequent intervals.
- -------------------------------------------------------------------------------
SECTION 4 - VARIABLE ACCOUNT
- -------------------------------------------------------------------------------
The variable account under this agreement is the same as the variable account
under the original policy. We own the assets of the variable account. We will
value the assets of the variable account each business day. The variable account
is divided into subaccounts. The subaccounts are listed on page 3 of this
agreement. The payee will determine the percentage of proceeds that will be
allocated to each subaccount. The fund has several investment options each of
which corresponds to one of the subaccounts of the variable account. The
investment options are listed on page 3 of this agreement. Amounts allocated to
a subaccount will automatically be invested in the fund investment option
associated with that subaccount. The payee will share only in the income, gains
or losses of the investment option(s) where shares are held.
9
<PAGE>
VARIABLE
SETTLEMENT
AGREEMENT
If you have any questions concerning this agreement or if anyone
suggests that you change or replace this agreement, please contact
your EquiTrust agent or our home office. (515-225-5400)
EquiTrust
Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266-5997 [LOGO]
- --------------------------------------------------------------------------------
<PAGE>
EquiTrust letterhead
February 14, 2000
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
February 18, 2000
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Re: Equitrust Life Annuity Account II
File Nos. 333-61899; 811-08967
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. 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>
EquiTrust letterhead
February 14, 2000
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. 3 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. 3 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
