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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1998
REGISTRATION NO. 333-
811-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2 /X/
EQUITRUST LIFE VARIABLE 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)
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STEPHEN M. MORAIN, ESQUIRE
5400 University Avenue
West Des Moines, Iowa 50266
(Name and Address of Agent for Service of Process)
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COPY TO:
STEPHEN E. ROTH, ESQUIRE
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
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Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
Securities being offered: Flexible Premium Variable Life Insurance Policies.
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
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Item No. of
Form N-8B-2 Caption in Prospectus
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1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution Policies
5. EquiTrust Life Insurance Company; The Variable Account
6. The Variable Account
7. Not Required
8. Not Required
9. Legal Proceedings
10. Summary; The Variable Account; Investment Options; Charges and Deductions; Policy Benefits; Voting
Rights; General Provisions
11. Summary; Investment Options
12. Summary; Investment Options
13. Summary; Charges and Deductions; Investment Options
14. Summary; Premiums
15. Premiums
16. Premiums; Investment Options
17. Summary; Charges and Deductions; Policy Benefits; Investment Options
18. Investment Options; Premiums
19. General Provisions; Voting Rights
20. Not Applicable
21. Policy Benefits; General Provisions
22. Not Applicable
23. Safekeeping of the Variable Account's Assets
24. General Provisions
25. EquiTrust Life Insurance Company
26. Not Applicable
27. EquiTrust Life Insurance Company
28. Executive Officers and Directors of EquiTrust Life Insurance Company
29. EquiTrust Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Distribution of the Policies
36. Not Required
37. Not Applicable
38. Summary; Distribution of the Policies
39. Summary; Distribution of the Policies
40. Not Applicable
</TABLE>
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<TABLE>
<CAPTION>
Item No. of
Form N-8B-2 Caption in Prospectus
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41. EquiTrust Life Insurance Company; Distribution of the Policies
42. Not Applicable
43. Not Applicable
44. Premiums
45. Not Applicable
46. Policy Benefits
47. Investment Options
48. Not Applicable
49. Not Applicable
50. The Variable Account
51. Cover Page; Summary; Charges and Deductions; Policy Benefits; Premiums
52. Investment Options
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. Not Required
</TABLE>
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PROSPECTUS
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EQUITRUST LIFE VARIABLE ACCOUNT II
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
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This Prospectus describes a flexible premium variable life insurance policy (the
"Policy") issued by EquiTrust Life Insurance Company (the "Company"). This type
of life insurance is also commonly called variable universal life. The Policy is
designed to provide lifetime insurance protection to age 115. The Policy permits
the policyowner to vary premium payments and adjust the death proceeds payable
under the Policy. The Policy has been designed for maximum flexibility in
meeting changing insurance needs.
The minimum specified amount for which a Policy will be issued is normally
$50,000. The Policy provides for the payment of the death proceeds upon the
death of the insured and for a net surrender value or net accumulated value that
can be obtained upon surrender or partial withdrawal of the Policy. Death
proceeds may, and accumulated value will, vary with the investment experience of
EquiTrust Life Variable Account II (the "Variable Account"). THE POLICYOWNER
BEARS THE ENTIRE INVESTMENT RISK; THERE IS NO GUARANTEED MINIMUM ACCUMULATED
VALUE. The Policy also provides for loans using the Policy as collateral. The
Policy will remain in force so long as net accumulated value or net surrender
value is sufficient to pay certain monthly charges imposed in connection with
the Policy.
A policyowner may allocate net premiums under a Policy to one or more of the
subaccounts of the Variable Account. Each Subaccount invests exclusively in
shares of the corresponding Investment Options of EquiTrust Variable Insurance
Series Fund: Value Growth Portfolio, High Grade Bond Portfolio, High Yield Bond
Portfolio, Money Market Portfolio and Blue Chip Portfolio; T. Rowe Price Equity
Series, Inc.: Equity Income Portfolio, Mid-Cap Growth Portfolio, New America
Growth Portfolio and Personal Strategy Balanced Portfolio; T. Rowe Price
International Series, Inc.: International Stock Portfolio or Dreyfus Variable
Investment Fund: Capital Appreciation Portfolio, Dreyfus Variable Investment
Fund: Disciplined Stock Portfolio, Dreyfus Variable Investment Fund: Growth and
Income Portfolio, Dreyfus Variable Investment Fund: International Equity
Portfolio and Dreyfus Variable Investment Fund: Small Cap Portfolio. The
accompanying prospectus for each Fund describes the investment objectives and
attendant risks of each Investment Option.
A policyowner may also allocate net premiums to the Declared Interest Option.
The Declared Interest Option is supported by the Company's General Account.
Accumulated value allocated to the Declared Interest Option is credited with
interest at a declared annual rate guaranteed to be at least 4.0%.
This Prospectus generally describes only the portion of the Policy involving the
Variable Account. For a brief summary of the Declared Interest Option, see "THE
DECLARED INTEREST OPTION."
A Policy may be treated as a modified endowment contract depending upon the
amount of premiums paid in relation to the death benefit provided under such
Policy. If a Policy is a modified endowment contract, any loan, partial
withdrawal, surrender and/or assignment of the Policy could result in adverse
tax consequences and/or penalties. (See "FEDERAL TAX MATTERS.")
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns another flexible premium variable life insurance
policy.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR EACH
FUND'S INVESTMENT OPTIONS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
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Issued By
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
1-888-349-4656
THE DATE OF THIS PROSPECTUS IS , 1998.
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TABLE OF CONTENTS
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PAGE
DEFINITIONS............................................................... 3
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SUMMARY OF THE POLICY..................................................... 5
The Policy...................................................... 5
The Variable Account............................................ 5
The Declared Interest Option.................................... 5
Premiums........................................................ 5
Policy Benefits................................................. 6
Charges......................................................... 7
Distribution of the Policies.................................... 9
Other Policies.................................................. 9
Tax Treatment................................................... 9
Cancellation Privilege.......................................... 9
Illustrations................................................... 9
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EQUITRUST LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT................. 9
EquiTrust Life Insurance Company................................ 9
The Variable Account............................................ 10
Investment Options.............................................. 10
Addition, Deletion or Substitution of Investments............... 13
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THE POLICY................................................................ 13
Purpose of the Policy........................................... 13
Purchasing the Policy........................................... 14
Premiums........................................................ 14
Policy Lapse and Reinstatement.................................. 16
Examination of Policy (Cancellation Privilege).................. 16
Special Transfer Privilege...................................... 17
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POLICY BENEFITS........................................................... 17
Accumulated Value Benefits...................................... 17
Transfers....................................................... 19
Loan Benefits................................................... 20
Death Proceeds.................................................. 22
Accelerated Payments of Death Proceeds.......................... 24
Benefits at Maturity............................................ 25
Payment Options................................................. 25
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CHARGES AND DEDUCTIONS.................................................... 26
Premium Expense Charge.......................................... 26
Monthly Deduction............................................... 27
Transfer Charge................................................. 29
Partial Withdrawal Fee.......................................... 29
Surrender Charge................................................ 29
Variable Account Charges........................................ 29
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THE DECLARED INTEREST OPTION.............................................. 30
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GENERAL PROVISIONS........................................................ 31
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DISTRIBUTION OF THE POLICIES.............................................. 33
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FEDERAL TAX MATTERS....................................................... 33
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ADDITIONAL INFORMATION.................................................... 38
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FINANCIAL STATEMENTS...................................................... 43
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APPENDIX A................................................................ A-1
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APPENDIX B................................................................ B-1
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APPENDIX C................................................................ C-1
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The Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE
TO AN INVESTMENT IN A MUTUAL FUND.
2
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DEFINITIONS
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ACCUMULATED VALUE............ The total amount invested under the Policy. It is the sum of the values of
the Policy in each subaccount of the Variable Account, the value of the
Policy in the Declared Interest Option and any outstanding Policy Debt.
ATTAINED AGE................. The Insured's age on his or her last birthday on the Policy Date plus the
number of Policy Years since the Policy Date.
BENEFICIARY.................. The person or entity named by the Policyowner in the application or by
later designation to receive the death proceeds upon the death of the
Insured.
BUSINESS DAY................. Each day that the New York Stock Exchange is open for trading, except the
day after Thanksgiving, the day before Christmas (in 1998) and any day on
which the Home Office is closed because of a weather-related or comparable
type of emergency and is unable to segregate orders and redemption requests
received on that day.
COMPANY...................... EquiTrust Life Insurance Company.
DECLARED INTEREST OPTION..... A part of the Company's General Account Net Premiums may be allocated, and
Accumulated Value may be transferred, to the Declared Interest Option.
Accumulated Value in the Declared Interest Option is credited with interest
at a declared annual rate guaranteed to be at least 4.0%.
DELIVERY DATE................ The date which the Policy is issued and mailed to the Policyowner.
DUE PROOF OF DEATH........... Proof of death that is satisfactory to the Company. Such proof may consist
of the following if acceptable to the Company:
(a) A certified copy of the death certificate;
(b) A certified copy of a court decree reciting a finding of death;
or
(c) Any other proof satisfactory to the Company.
FUND......................... An open-end diversified management investment company in which the Variable
Account invests.
GENERAL ACCOUNT.............. The assets of the Company other than those allocated to the Variable
Account or any other separate account.
GRACE PERIOD................. The 61-day period beginning on the date the Company sends notice to the
Policyowner that Net Accumulated Value or Net Surrender Value is
insufficient to cover the monthly deduction.
HOME OFFICE.................. The principal offices of the Company at 5400 University Avenue, West Des
Moines, Iowa 50266.
INSURED...................... The person upon whose life the Policy is issued.
INVESTMENT OPTION............ A separate investment portfolio of a Fund.
MATURITY DATE................ The Insured's Attained Age 115. It is the date on which the Policy
terminates and the Policy's Accumulated Value less Policy Debt becomes
payable to the Policyowner or the Policyowner's estate.
MONTHLY DEDUCTION DAY........ The same date in each month as the Policy Date. The monthly deduction is
made on the Business Day coinciding with or immediately following the
Monthly Deduction Day. (See "CHARGES AND DEDUCTIONS--Monthly Deduction.")
NET ASSET VALUE.............. The total current value of each Subaccount's securities, cash, receivables
and other assets less liabilities.
NET ACCUMULATED VALUE........ The Accumulated Value of the Policy reduced by any outstanding Policy Debt
and increased by any unearned loan interest.
NET PREMIUM.................. The amount of premium remaining after the premium expense charge (see
"CHARGES AND DEDUCTIONS--Premium Expense Charge") has been deducted. This
amount will be allocated, according to the Policyowner's instructions,
among the Subaccounts of the Variable Account and the Declared Interest
Option.
NET SURRENDER VALUE.......... The Surrender Value minus any Policy Debt plus any unearned loan interest.
</TABLE>
3
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<TABLE>
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PARTIAL WITHDRAWAL FEE....... A fee assessed at the time of any partial withdrawal, equal to the lesser
of $25 or 2% of the amount withdrawn.
POLICY....................... The flexible premium variable life insurance policy offered by the Company
and described in this Prospectus, which term includes the Policy described
in this Prospectus, the Policy application, any supplemental applications
and any endorsements.
POLICY ANNIVERSARY........... The same date in each year as the Policy Date.
POLICY DATE.................. The date set forth on the Policy data page which is used to determine
Policy Years, Policy Months and Policy Anniversaries. The Policy Date may,
but will not always, coincide with the effective date of insurance coverage
under the Policy. (See "THE POLICY--Purchasing the Policy.")
POLICY DEBT.................. The sum of all outstanding Policy Loans and any due and unpaid Policy Loan
interest.
POLICY LOAN.................. An amount borrowed by the Policyowner from the Company for which the Policy
serves as the sole security. Interest on Policy Loans is payable in advance
(for the remainder of the Policy Year) upon taking a Policy Loan and upon
each Policy Anniversary thereafter (for the following Policy Year) until
the Policy Loan is repaid.
POLICY MONTH................. A one-month period beginning on a Monthly Deduction Day and ending on the
day immediately preceding the next Monthly Deduction Day.
POLICYOWNER.................. The person who owns a Policy. The original Policyowner is named in the
application.
POLICY YEAR.................. A twelve-month period that starts on the Policy Date or on a Policy
Anniversary.
SPECIFIED AMOUNT............. The minimum death benefit payable under a Policy so long as the Policy
remains in force. The Specified Amount as of the Policy Date is set forth
on the data page in each Policy.
SUBACCOUNT................... A subdivision of the Variable Account which invests exclusively in shares
of a designated Investment Option of a Fund.
SURRENDER CHARGE............. A charge assessed at the time of any surrender during the first six Policy
Years and for six years following an increase in Specified Amount.
SURRENDER VALUE.............. The Accumulated Value minus the Surrender Charge.
TARGET PREMIUM............... A premium amount specified by the Company. It is used to calculate the
premium expense charge during time periods when the Company has declared a
premium expense charge less than the 7.0% guaranteed premium expense
charge. The Company may declare a lower percentage of premium expense
charge on premiums paid in excess of the Target Premium during a Policy
Year. It is also used to calculate compensation to registered
representatives.
UNIT VALUE................... The value determined by dividing each Subaccount's Net Asset Value by the
number of units outstanding at the time of calculation.
VALUATION PERIOD............. The period between the close of business (3:00 p.m. central time) on a
Business Day and the close of business on the next Business Day.
VARIABLE ACCOUNT............. EquiTrust Life Variable Account II, a separate investment account
established by the Company to receive and invest the Net Premiums paid
under the Policies.
</TABLE>
4
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SUMMARY OF THE POLICY
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THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION SHOULD
BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE DESCRIPTION OF THE POLICY CONTAINED IN
THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN FORCE AND
THAT THERE IS NO OUTSTANDING POLICY DEBT.
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THE POLICY Under the Policy, subject to certain limitations, the
Policyowner has flexibility in determining the frequency
and amount of premiums. (See "THE POLICY-- Premiums.")
The amount and/or duration of the life insurance coverage
and the Accumulated Value of the Policy is not guaranteed
and may increase or decrease, depending upon the
investment experience of the assets supporting the
Policy. Accordingly, the Policyowner bears the investment
risk of any depreciation of, but reaps the benefit of any
appreciation in, the value of the underlying assets. As
long as the Policy remains in force, the Policy will
provide for death proceeds payable to the Beneficiary
upon the Insured's death, the accumulation of Accumulated
Value, withdrawal and surrender options and policy loan
privileges. The minimum Specified Amount for which a
Policy will be issued is normally $50,000, although the
Company may in its discretion issue Policies with
Specified Amounts of less than $50,000.
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THE VARIABLE ACCOUNT Net Premiums will be allocated to the Declared Interest
Option if they are received either before the date the
Company obtains a signed notice from the Policyowner that
the Policy has been received, or before the end of
25-days after the Delivery Date. Upon the earlier of (i)
the date the Company obtains a signed notice from the
Policyowner that the Policy has been received, or (ii) 25
days after the Delivery Date, the Accumulated Value in
the Declared Interest Option automatically will be
allocated, without charge, among the Subaccounts and
Declared Interest Option in accordance with the
Policyowner's allocation instructions. Net Premiums
received on or after (i) or (ii) above are allocated in
accordance with the instructions of the Policyowner, to
the Variable Account, the Declared Interest Option, or
both. (See "THE POLICY--Premiums--ALLOCATION OF NET
PREMIUMS.") The Variable Account consists of fifteen
Subaccounts: the Value Growth Subaccount, the High Grade
Bond Subaccount, the High Yield Bond Subaccount, the
Money Market Subaccount, the Blue Chip Subaccount, the
Equity Income Subaccount, the Mid-Cap Growth Subaccount,
the New America Growth Subaccount, the Personal Strategy
Balanced Subaccount, the International Stock Subaccount,
the Capital Appreciation Subaccount, the Disciplined
Stock Subaccount, the Growth and Income Subaccount, the
International Equity Subaccount and the Small Cap
Subaccount. Each Subaccount invests exclusively in shares
of the corresponding Investment Option.
Accumulated Value will, and death proceeds may, vary with
the investment experience of the Subaccounts, as well as
with the frequency and amount of premium payments, any
partial withdrawals and any charges imposed in connection
with the Policy. (See "POLICY BENEFITS--Accumulated Value
Benefits.")
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THE DECLARED INTEREST OPTION
As an alternative to the Variable Account, the
Policyowner may allocate or transfer all or a portion of
the Accumulated Value to the Declared Interest Option,
which guarantees a specified minimum rate of return. (See
"THE DECLARED INTEREST OPTION.")
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PREMIUMS The Company may require the Policyowner to pay an initial
premium that, when reduced by the premium expense charge
(see "CHARGES AND DEDUCTIONS-- Premium Expense Charge"),
will be sufficient to pay the monthly deduction for the
first Policy Month. Each Policyowner will determine a
planned periodic premium schedule. The Policyowner is not
required to pay premiums in accordance with the planned
periodic premium schedule. (See "THE
POLICY--Premiums--PLANNED PERIODIC PREMIUMS.") The
schedule will provide for a premium payment of a level
amount at a fixed interval over a specified period of
time. Failure to pay premiums in accordance with the
schedule will not itself cause the Policy to lapse. (See
"THE
5
<PAGE>
POLICY--Policy Lapse and Reinstatement--LAPSE.") Subject
to certain restrictions, unscheduled premium payments may
also be made. (See "THE POLICY-- Premiums--UNSCHEDULED
PREMIUMS.")
A Policy will lapse during the first three Policy Years
when Net Accumulated Value is insufficient on a Monthly
Deduction Day to cover the monthly deduction, or after
three Policy Years when Net Surrender Value is
insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "CHARGES AND DEDUCTIONS--Monthly
Deduction"), and a Grace Period expires without a
sufficient payment (see "THE POLICY--Policy Lapse and
Reinstatement--LAPSE"). With respect to premiums,
therefore, the Policy differs in two important ways from
a conventional life insurance policy. First, the failure
to pay a planned periodic premium will not in itself
automatically cause the Policy to lapse. Second, a Policy
can lapse even if planned periodic premiums or premiums
in other amounts have been paid.
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POLICY BENEFITS ACCUMULATED VALUE BENEFITS. The Policy provides for an
Accumulated Value. The Accumulated Value will reflect the
amount and frequency of premium payments, the investment
experience of the chosen subaccounts of the Variable
Account, the interest earned on the Accumulated Value in
the Declared Interest Option, any Policy Loans, any
partial withdrawals and the charges imposed in connection
with the Policy. The entire investment risk for amounts
allocated to the Variable Account is borne by the
Policyowner; the Company does not guarantee a minimum
Accumulated Value. (See "POLICY BENEFITS--Accumulated
Value Benefits--CALCULATION OF ACCUMULATED VALUE.")
The Policyowner may, at any time, surrender a Policy and
receive the Net Surrender Value. Subject to certain
limitations, the Policyowner may also obtain a partial
withdrawal of Net Accumulated Value (minimum $500) at any
time prior to the Maturity Date. Partial withdrawals will
reduce both the Accumulated Value and death proceeds
payable under the Policy. (See "POLICY
BENEFITS--Accumulated Value Benefits--SURRENDER AND
WITHDRAWAL PRIVILEGES.") A charge will be assessed upon
surrender or partial withdrawal. (See "CHARGES AND
DEDUCTIONS--Partial Withdrawal Fee, and --Surrender
Charge.")
TRANSFERS. A Policyowner may transfer amounts (minimum
$100) among the subaccounts of the Variable Account an
unlimited number of times in a Policy Year; however, only
one transfer per Policy Year may be made between the
Declared Interest Option and the Variable Account. The
first transfer in a Policy Year is free; subsequent
transfers in that Policy Year will be assessed a charge
of $25. The transfer charge, unless paid in cash, will be
deducted from the amount transferred. (See "POLICY
BENEFITS--Transfers.") A transfer from the Variable
Account to the Declared Interest Option requested in
connection with the exercise of the special transfer
privilege under the Policy (see "THE POLICY--Special
Transfer Privilege") will not be considered a transfer
for purposes of the one-transfer limit or the $25 charge.
A transfer made in connection with the initial allocation
of Net Premiums (See "THE POLICY--Premiums--ALLOCATION OF
NET PREMIUMS") will not be considered a transfer for
purposes of the one-transfer limit or the $25 charge.
POLICY LOANS. So long as a Policy is in force and has a
positive Net Surrender Value, the Policyowner may borrow
up to 90% of the Policy's Net Surrender Value as of the
end of the Valuation Period during which the request for
the Policy Loan is received at the Home Office, less any
previously outstanding Policy Debt. (See "POLICY
BENEFITS-- Loan Benefits.") A loan taken from, or secured
by, a Policy may have federal income tax consequences.
(See "FEDERAL TAX MATTERS--Policy Proceeds.")
DEATH PROCEEDS. The Policies provide for the payment of
death proceeds following receipt by the Company (at its
Home Office) of Due Proof of Death of the Insured. The
Policy contains two death benefit options. Under Option
A, the death benefit is the greater of the sum of the
Specified Amount and the Policy's Accumulated Value, or
the Accumulated Value multiplied by the specified amount
factor for the Insured's Attained Age, as set forth in
the Policy. Under Option B, the death benefit is the
greater
6
<PAGE>
of the Specified Amount, or the Accumulated Value
multiplied by the specified amount factor for the
Insured's Attained Age, as set forth in the Policy. For
this purpose, all calculations are made as of the end of
the Business Day coinciding with or immediately following
the date of death.
Under either death benefit option, so long as the Policy
remains in force, the death benefit will not be less than
the Specified Amount of the Policy on the date of death.
The death benefit may, however, exceed the Specified
Amount. The amount by which the death benefit exceeds the
Specified Amount depends upon the death benefit option
chosen and the Accumulated Value of the Policy. (See
"POLICY BENEFITS-- Death Proceeds.") To determine the
death proceeds, the death benefit will be reduced by any
outstanding Policy Debt and increased by any unearned
loan interest and any premiums paid after the date of
death. The proceeds may be paid in a lump sum or in
accordance with a payment option. (See "POLICY
BENEFITS--Payment Options.")
Anytime after the first Policy Year, the Policyowner may,
subject to certain restrictions, adjust the death benefit
payable under the Policy by increasing or decreasing the
Specified Amount. (See "POLICY BENEFITS--Death
Proceeds--CHANGE IN EXISTING COVERAGE.") In addition, the
Policyowner may, at any time, change the death benefit
option in effect. (See "POLICY BENEFITS--Death
Proceeds--CHANGE IN DEATH BENEFIT OPTION.")
BENEFITS AT MATURITY. If the Insured is alive and the
Policy is in force on the Maturity Date, the Policyowner
will be paid the Accumulated Value of the Policy as of
the end of the Business Day coinciding with or
immediately following the Maturity Date, reduced by any
outstanding Policy Debt.
- --------------------------------------------------------------------------------
CHARGES PREMIUM EXPENSE CHARGE. The Net Premium equals the
premium paid less a premium expense charge. The premium
expense charge is equal to a maximum charge of 7% of each
premium up to the Target Premium, and 2% of each premium
in excess of the Target Premium. The premium expense
charge is used to compensate the Company for expenses
incurred in connection with the distribution of the
Policies and for premium taxes imposed by various states
and subdivisions thereof. (See "CHARGES AND
DEDUCTIONS--Premium Expense Charge.")
ACCUMULATED VALUE CHARGES. Accumulated Value will be
reduced each Policy Month on the Monthly Deduction Day by
a monthly deduction equal to the sum of a cost of
insurance charge, the cost of any additional insurance
benefits added by rider and a policy expense charge of
$5.00 per month (guaranteed not to exceed $7.00 per
month). In addition, during the first twelve Policy
Months and during the twelve Policy Months immediately
following an increase in Specified Amount, the monthly
deduction will include a first year monthly
administrative charge. This charge is $0.05 per $1,000 of
Specified Amount or increase in Specified Amount, and is
guaranteed not to exceed $0.07 per $1,000 of Specified
Amount. Also, during the first twelve Policy Months, the
monthly deduction will include a first year monthly
expense charge of $5.00 per month (guaranteed not to
exceed $7.00 per month). The monthly deduction will vary
in amount from month to month. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.")
Upon partial withdrawal of a Policy, a fee of the lesser
of $25 or 2% of the amount withdrawn will be assessed. At
the time of surrender, a charge will apply during the
first six Policy Years, as well as during the first six
Policy Years following an increase in Specified Amount.
The surrender charge is an amount per $1,000 of Specified
Amount which varies by age, sex, underwriting category
and Policy Year. The surrender charge applicable to each
Policyowner will be listed in the Policy. (See "CHARGES
AND DEDUCTIONS--Partial Withdrawal Fee, and --Surrender
Charge.") During a Policy Year, a $25 charge may be
assessed for the second and subsequent transfers of
assets among the Subaccounts and between the Variable
Account and the Declared Interest Option. (See "CHARGES
AND DEDUCTIONS--Transfer Charge.")
CHARGES AGAINST THE VARIABLE ACCOUNT. A daily charge at
the rate of .0024548% of the average daily net assets of
each Subaccount will be imposed to compensate the Company
for certain mortality and expense risks incurred in
connection with the Policies. (See "CHARGES AND
DEDUCTIONS--Variable Account Charges.") This
7
<PAGE>
corresponds to an effective annual rate of 0.90%. (This
charge is guaranteed not to exceed .0028618% of the
average daily net assets of each Subaccount, which
corresponds to an effective annual rate of 1.05%.)
Currently, no charge is made to the Variable Account for
federal income taxes that may be attributable to the
Variable Account. The Company may, however, make such a
charge in the future.
INVESTMENT OPTION EXPENSES. In addition, because the
Variable Account purchases shares of the selected
Investment Options, the value of the net assets of the
Variable Account will reflect the investment advisory fee
and other expenses incurred by each Investment Option.
The fees and expenses for 1997 were as indicated in the
table below. (See "CHARGES AND DEDUCTIONS--Variable
Account Charges--INVESTMENT OPTION EXPENSES.")
<TABLE>
<CAPTION>
OTHER TOTAL
EXPENSES EXPENSES
ADVISORY (AFTER WAIVER OR (AFTER WAIVER OR
INVESTMENT OPTION FEE REIMBURSEMENT) REIMBURSEMENT)
--------------------------- -------- --------------------- ---------------------
<S> <C> <C> <C>
EquiTrust Variable
Insurance
Series Fund*
Value Growth 0.45% 0.10% 0.55%(1)
High Grade Bond 0.30% 0.22% 0.52%
High Yield Bond 0.45% 0.12% 0.57%(1)
Money Market 0.25% 0.33% 0.48%(1)
Blue Chip 0.20% 0.13% 0.33%
T. Rowe Price Equity
Series, Inc.
Equity Income 0.85% 0.00% 0.85%(2)
Mid-Cap Growth 0.85% 0.00% 0.85%(2)
New America Growth 0.85% 0.00% 0.85%(2)
Personal Strategy
Balanced 0.90% 0.00% 0.90%(2)
T. Rowe Price International
Series, Inc.
International Stock 1.05% 0.00% 1.05%(2)
Dreyfus Variable Investment
Fund
Capital Appreciation
Portfolio 0.75%(3) 0.05% 0.80%(4)
Disciplined Stock
Portfolio 0.75% 0.27% 1.02%(4)
Growth and Income
Portfolio 0.75% 0.05% 0.80%(4)
International Equity
Portfolio 0.75% 0.31% 1.06%(4)
Small Cap Portfolio 0.75% 0.03% 0.78%(4)
</TABLE>
* The annual investment option expenses for each
Investment Option of the Fund are net of certain
reimbursements by the Fund's investment adviser.
Operating expenses (including the investment
advisory fee but excluding brokerage, interest,
taxes and extraordinary expenses) of an
Investment Option that exceed 1.50% of the
Investment Option's average daily net assets for
any fiscal year are reimbursed by the Fund's
investment adviser up to the amount of the
advisory fee. In addition, the investment
adviser has voluntarily agreed to reimburse each
Portfolio for expenses that exceed 0.65%. Absent
the reimbursements, the total expenses for the
Investment Options for the 1997 fiscal year
would have been: Value Growth 0.58%, High Grade
Bond 0.57%, High Yield Bond 0.65% and Money
Market 0.55%.
(1) Total annual investment option expenses have
been restated for the reduction in management
fees from 0.50% to 0.45% for the Value Growth
and High Yield Bond Investment Options and 0.30%
to 0.25% for the Money Market Investment Option,
effective May 1, 1997.
(2) Total annual investment option expenses are an
all-inclusive fee and pay for investment
management services and other operating costs.
(3) The advisory fee is a combined investment
advisory and sub-investment advisory fee.
(4) Total expenses were not reduced for the 1997
fiscal year by any waiver or reimbursement.
8
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
The Policies will be distributed by registered
representatives of EquiTrust Marketing Services, Inc.,
("EquiTrust Marketing") a broker-dealer having a selling
agreement with EquiTrust Marketing or a broker-dealer
having a selling agreement with such broker-dealer.
EquiTrust Marketing (formerly FBL Marketing Services,
Inc.), a wholly-owned indirect subsidiary of FBL
Financial Group, Inc., is registered as a broker-dealer
with the Securities and Exchange Commission and is a
member of the National Association of Securities Dealers,
Inc.
- --------------------------------------------------------------------------------
OTHER POLICIES The Company offers other variable life insurance policies
that invest in the same Investment Options of the Funds.
These policies may have different charges that could
affect Subaccount performance, and may offer different
benefits more suitable to a person's needs. To obtain
more information about these policies, contact the
Company.
- --------------------------------------------------------------------------------
TAX TREATMENT If a Policy is issued on the basis of a standard premium
class, while there is some uncertainty, the Company
believes that the Policy should qualify as a life
insurance contract for federal income tax purposes. If a
Policy is issued on a substandard basis, it is not clear
whether or not the Policy would qualify as a life
insurance contract for federal income tax purposes.
Assuming that a Policy qualifies as a life insurance
contract for federal income tax purposes, the Accumulated
Value under a Policy should be subject to the same
federal income tax treatment as accumulated value under a
conventional fixed-benefit Policy. Under existing tax
law, the Policyowner is not deemed to be in constructive
receipt of Accumulated Values under a Policy until there
is a distribution from the Policy. Like death benefits
payable under conventional life insurance policies, death
proceeds payable under a Policy should be completely
excludable from the gross income of the Beneficiary. As a
result, the Beneficiary generally will not be taxed on
these proceeds. (See "FEDERAL TAX MATTERS.")
- --------------------------------------------------------------------------------
CANCELLATION PRIVILEGE The Policyowner is granted a 20-day period following
receipt of the Policy in which to examine and return the
Policy. The Policyowner will receive the greater of
premiums paid or the Policy's Accumulated Value plus an
amount equal to any charges which have been deducted from
premiums, Accumulated Value and the Variable Account.
(See "THE POLICY--Examination of Policy (Cancellation
Privilege).")
- --------------------------------------------------------------------------------
ILLUSTRATIONS Sample projections of hypothetical Policy values are
included starting at page A-1 of this Prospectus. These
projections of hypothetical values may be helpful in
understanding the long-term effects of different levels
of investment performance, charges and deductions,
electing one or the other death benefit option and
generally in comparing this Policy to other life
insurance policies. NONETHELESS, THE ILLUSTRATIONS ARE
BASED ON HYPOTHETICAL INVESTMENT RATES OF RETURN AND ARE
NOT A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
Actual rates of return may be more or less than those
reflected in the illustrations and, therefore, actual
values will be different from those illustrated.
This Prospectus describes only those aspects of the
Policy that relate to the Variable Account, except where
Declared Interest Option matters are specifically
mentioned. For a brief summary of the aspects of the
Policy relating to the Declared Interest Option, see "THE
DECLARED INTEREST OPTION."
- --------------------------------------------------------------------------------
EQUITRUST LIFE INSURANCE COMPANY
AND THE VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
EQUITRUST LIFE INSURANCE COMPANY
The Company is a stock life insurance company which was
incorporated in the State of Iowa on June 3, 1966. The
Company is principally engaged in the offering of life
insurance policies and annuity contracts and is admitted
to do business in 38 states-- Alabama, Alaska, Arizona,
Arkansas, California, Colorado, Delaware, Florida,
Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas,
Louisiana, Michigan, Minnesota, Mississippi, Missouri,
Montana, Nebraska, Nevada, New Mexico, North Carolina,
North Dakota, Ohio, Oklahoma, Oregon, South Carolina,
South Dakota, Tennessee, Texas, Utah, Virginia,
Washington, Wisconsin and Wyoming. The principal offices
of the Company are at 5400 University Avenue, West Des
Moines, Iowa 50266.
9
<PAGE>
- --------------------------------------------------------------------------------
THE VARIABLE ACCOUNT The Variable Account was established by the Company as a
separate account on January 6, 1998. The Variable Account
will receive and invest the Net Premiums paid under the
Policies. In addition, the Variable Account may receive
and invest net premiums for any other variable life
insurance policies issued in the future by the Company.
Although the assets in the Variable Account are the
property of the Company, the assets in the Variable
Account attributable to the Policies generally are not
chargeable with liabilities arising out of any other
business which the Company may conduct. The assets of the
Variable Account are available to cover the general
liabilities of the Company only to the extent that the
Variable Account's assets exceed its liabilities arising
under the Policies and any other policies supported by
the Variable Account. The Company has the right to
transfer to the General Account any assets of the
Variable Account which are in excess of such reserves and
other Policy liabilities.
The Variable Account currently is divided into fifteen
Subaccounts but may, in the future, include additional
subaccounts. Each Subaccount invests exclusively in
shares of a single corresponding Investment Option.
Income and realized and unrealized gains or losses from
the assets of each Subaccount are credited to or charged
against, that Subaccount without regard to income, gains
or losses from any other Subaccount.
The Variable Account has been registered as a unit
investment trust under the Investment Company Act of 1940
and meets the definition of a separate account under the
federal securities laws. Registration with the Securities
and Exchange Commission does not involve supervision of
the management or investment practices or policies of the
Variable Account or the Company by the Commission. The
Variable Account is also subject to the laws of the State
of Iowa which regulate the operations of insurance
companies domiciled in Iowa.
- --------------------------------------------------------------------------------
INVESTMENT OPTIONS The Variable Account invests in shares of the Investment
Options. The Investment Options currently include the
Value Growth Portfolio, High Grade Bond Portfolio, High
Yield Bond Portfolio, Money Market Portfolio and Blue
Chip Portfolio of EquiTrust Variable Insurance Series
Fund; the Equity Income Portfolio, Mid-Cap Growth
Portfolio, New America Portfolio and Personal Strategy
Balanced Portfolio of T. Rowe Price Equity Series, Inc.
and International Stock Portfolio of T. Rowe Price
International Series, Inc.; and the Dreyfus Variable
Investment Fund: Capital Appreciation Portfolio, Dreyfus
Variable Investment Fund: Disciplined Stock Portfolio,
Dreyfus Variable Investment Fund: Growth and Income
Portfolio, Dreyfus Variable Investment Fund:
International Equity Portfolio and Dreyfus Variable
Investment Fund: Small Cap Portfolio. The Variable
Account may, in the future, provide for additional
investment options. Each Investment Option has its own
investment objectives and the income and losses for each
Investment Option will be determined separately.
Each of these Investment Options was formed as an
investment vehicle for insurance company separate
accounts. The investment objectives and policies of
certain Investment Options are similar to the investment
objectives and policies of other portfolios that may be
managed by the same investment adviser, sub-investment
adviser or manager. The investment results of the
Investment Options, however, may be higher or lower than
the results of such other portfolios. There can be no
assurance, and no representation is made, that the
investment results of any of the Investment Options will
be comparable to the investment results of any other
portfolio, even if the other portfolio has the same
investment adviser, sub-investment adviser or manager.
The investment objectives and policies of each Investment
Option are summarized below. There is no assurance that
any Investment Option will achieve its stated objectives.
More detailed information, including a description of
risks, may be found in the prospectus for each Investment
Option, which must accompany or precede this Prospectus
and which should be read carefully and retained for
future reference.
10
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
EquiTrust Investment Management Services, Inc. is the
investment adviser to the Fund. The Fund is comprised of
six portfolios, the following five of which are available
under the Contract:
VALUE GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation. The Portfolio pursues
its objective by investing primarily in equity
securities of companies that the investment adviser
believes have a potential to earn a high return on
equity 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
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 Corporation and/or Aaa, Aa or A by
Moody's Investors Service, Inc., and in securities
issued or guaranteed by the United States government
or its agencies or instrumentalities.
HIGH YIELD BOND PORTFOLIO. This Portfolio seeks, as a
primary objective, as high a level of current income
as is consistent with investment in a portfolio of
fixed-income securities rated in the lower categories
of established rating services. As a secondary
objective, the Portfolio seeks capital appreciation
when consistent with its primary objective. The
Portfolio pursues these objectives by investing
primarily in fixed-income securities rated Baa or
lower by Moody's Investors Service, Inc. and/or BBB
or lower by Standard & Poor's Corporation, or in
unrated securities of comparable quality. AN
INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK. (See the Fund Prospectus
"PRINCIPAL RISK FACTORS--Special Considerations--High
Yield Bonds.")
MONEY MARKET PORTFOLIO. This Portfolio seeks maximum
current income consistent with liquidity and
stability of principal. The Portfolio will pursue
this objective by investing in high quality
short-term money market instruments. AN INVESTMENT IN
THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
BLUE CHIP PORTFOLIO. This Portfolio seeks growth of
capital and income. The Portfolio pursues this
objective by investing primarily in common stocks of
well-capitalized, established companies. Because this
Portfolio may be invested heavily in particular
stocks or industries, an investment in this Portfolio
may entail relatively greater risk of loss.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Associates, Inc. is the investment adviser
to the Fund.
EQUITY INCOME PORTFOLIO. This Portfolio seeks to
provide substantial dividend income and long-term
capital appreciation by investing primarily in
established companies considered by the adviser to
have favorable prospects for both increasing
dividends and capital appreciation.
MID-CAP GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation by investing primarily
in common stocks of medium-sized (mid-cap) growth
companies which offer the potential for above-average
earnings growth.
NEW AMERICA GROWTH PORTFOLIO. This Portfolio seeks
long-term capital growth by investing primarily in
common stocks of U.S. growth companies operating in
service industries.
PERSONAL STRATEGY BALANCED PORTFOLIO. This Portfolio
seeks the highest total return over time consistent
with an emphasis on both capital appreciation and
income.
11
<PAGE>
T. ROWE PRICE INTERNATIONAL SERIES, INC.
Rowe Price-Fleming International, Inc. is the investment
adviser to the Fund.
INTERNATIONAL STOCK PORTFOLIO. This Portfolio seeks
to provide capital appreciation through investments
primarily in established companies based outside the
United States.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Corporation serves as the investment adviser
to the Fund. Fayez Sarofim and Co. serves as the
sub-investment adviser to the Dreyfus Variable Investment
Fund: Capital Appreciation Portfolio. The following Fund
portfolios are available under the Contract.
DREYFUS VARIABLE INVESTMENT FUND: CAPITAL
APPRECIATION PORTFOLIO. This Portfolio primarily
seeks long-term capital growth, consistent with the
preservation of capital; current income is a
secondary investment objective. This Portfolio
invests primarily in the common stocks of domestic
and foreign issuers.
DREYFUS VARIABLE INVESTMENT FUND: DISCIPLINED STOCK
PORTFOLIO. This Portfolio seeks to provide investment
results that are greater than the total return
performance of publicly-traded common stocks in the
aggregate, as represented by the Standard & Poor's
500 Composite Stock Price Index. The Portfolio will
use quantitative statistical modeling techniques to
construct a portfolio in an attempt to achieve its
investment objective, without assuming undue risk
relative to the broad stock market.
DREYFUS VARIABLE INVESTMENT FUND: GROWTH AND INCOME
PORTFOLIO. This Portfolio seeks to provide long-term
capital growth, current income and growth of income,
consistent with reasonable investment risk by
investing primarily in equity securities, debt
securities and money market instruments of domestic
and foreign issuers.
DREYFUS VARIABLE INVESTMENT FUND: INTERNATIONAL
EQUITY PORTFOLIO. This Portfolio seeks to maximize
capital growth through investments in equity
securities of foreign issuers located throughout the
world.
DREYFUS VARIABLE INVESTMENT FUND: SMALL CAP
PORTFOLIO. This Portfolio seeks maximum capital
appreciation by investing primarily in common stocks
of domestic and foreign issuers. The Portfolio will
be particularly alert to companies considered by the
adviser to be emerging smaller-sized companies which
are believed to be characterized by new or innovative
products, services or processes which should enhance
prospects for growth in future earnings.
The Funds currently sell shares: (a) to the Variable
Account as well as to separate accounts of insurance
companies that may or may not be affiliated with the
Company or each other; and (b) to separate accounts to
serve as the underlying investment for both variable
insurance policies and variable annuity contracts. The
Company currently does not foresee any disadvantages to
Policyowners arising from the sale of shares to support
variable annuity contracts and variable life insurance
policies, or from shares being sold to separate accounts
of insurance companies that may or may not be affiliated
with the Company. However, the Company intends to monitor
events in order to identify any material irreconcilable
conflicts that might possibly arise. In that event, it
would determine what action, if any, should be taken in
response to those events or conflicts. In addition, if
the Company believes that a Fund's response to any of
those events or conflicts insufficiently protects
Policyowners, it will take appropriate action on its own,
including withdrawing the Variable Account's investment
in that Fund. (See the Fund prospectuses for more
detail.)
The Company may receive compensation from an affiliate(s)
of one or more of the Funds based upon an annual
percentage of the average assets held in the Investment
Options by the Company. These amounts are intended to
compensate the Company for administrative and other
services provided by the Company to the Funds and/or
affiliate(s).
12
<PAGE>
Each Fund is registered with the Securities and Exchange
Commission 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 Securities and Exchange
Commission.
- --------------------------------------------------------------------------------
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to compliance
with applicable law, to make additions to, deletions from
or substitutions for the shares of the Investment Options
that are held by the Variable Account or that the
Variable Account may purchase. If the shares of an
Investment Option are no longer available for investment
or if, in its judgment, further investment in any
Investment Option should become inappropriate in view of
the purposes of the Variable Account, the Company
reserves the right to dispose of the shares of any
Investment Option and to substitute shares of another
Investment Option. The Company will not substitute any
shares attributable to a Policyowner's Accumulated Value
in the Variable Account without notice to and prior
approval of the Securities and Exchange Commission, to
the extent required by the Investment Company Act of 1940
or other applicable law. Nothing contained in this
Prospectus shall prevent the Variable Account from
purchasing other securities for other series or classes
of policies, or from permitting a conversion between
series or classes of policies on the basis of requests
made by Policyowners.
The Company also reserves the right to establish
additional subaccounts of the Variable Account, each of
which would invest in shares of a new Investment Option
with a specified investment objective. New subaccounts
may be established when, in the sole discretion of the
Company, marketing, tax or investment conditions warrant,
and any new subaccounts may be made available to existing
Policyowners on a basis to be determined by the Company.
Subject to obtaining any approvals or consents required
by applicable law, the assets of one or more Subaccounts
may be transferred to any other Subaccount(s), or one or
more Subaccounts may be eliminated or combined with any
other Subaccount(s) if, in the sole discretion of the
Company, marketing, tax or investment conditions warrant.
In the event of any such substitution or change, the
Company may, by appropriate endorsement, make such
changes in these and other policies as may be necessary
or appropriate to reflect such substitution or change. If
deemed by the Company to be in the best interests of
persons having voting rights under the Policies, the
Variable Account may be operated as a management company
under the Investment Company Act of 1940, may be
deregistered under that Act in the event such
registration is no longer required, or, subject to
obtaining any approvals or consents required by
applicable law, may be combined with other Company
separate accounts. To the extent permitted by applicable
law, the Company may also transfer the assets of the
Variable Account associated with the Policies to another
separate account. In addition, the Company may, when
permitted by law, restrict or eliminate any voting rights
of Policyowners or other persons who have voting rights
as to the Variable Account. (See "ADDITIONAL
INFORMATION--Voting Rights.")
- --------------------------------------------------------------------------------
THE POLICY
- --------------------------------------------------------------------------------
PURPOSE OF THE POLICY The Policy is designed to provide the Policyowner with
both lifetime insurance protection and significant
flexibility in connection with the amount and frequency
of premium payments and the level of death proceeds
payable under a Policy. Unlike conventional life
insurance, the Policyowner is not required to pay
scheduled premiums to keep a Policy in force, but may,
subject to certain limitations, vary the frequency and
amount of premium payments. Moreover, the Policy allows a
Policyowner to adjust the level of death proceeds payable
under a Policy, without having to purchase a new policy,
by increasing or decreasing the Specified Amount. Thus,
as insurance needs or financial conditions change, the
Policyowner has the flexibility to adjust death proceeds
and vary premium payments.
The Policy varies from conventional fixed-benefit life
insurance in a number of additional respects. Because the
death proceeds may, and the Accumulated Value will, vary
with the investment experience of the chosen Subaccounts,
the Policyowner bears the investment risk of any
depreciation of, but reaps the benefit of any
13
<PAGE>
appreciation in, the value of the underlying assets. As a
result, whether or not a Policy continues in force may
depend in part upon the investment experience of the
chosen Subaccounts. The failure to pay a planned periodic
premium will not necessarily cause the Policy to lapse,
but the Policy could lapse even if planned periodic
premiums have been paid, depending upon the investment
experience of the Variable Account.
Life Insurance is not a short-term investment.
Prospective policyowners should consider their need for
insurance coverage and the Policy's long-term investment
potential. A prospective policyowner who already has life
insurance coverage should consider whether or not
changing or adding to existing coverage would be
advantageous. Generally, it is not advisable to purchase
another policy to replace an existing policy.
- --------------------------------------------------------------------------------
PURCHASING THE POLICY Before it will issue a Policy, the Company must receive a
completed application, including payment of the initial
premium, at its Home Office. A Policy ordinarily will be
issued only for Insureds who are 0 to 80 years of age at
their last birthday and who supply satisfactory evidence
of insurability to the Company. Acceptance is subject to
the Company's underwriting rules and the Company may, in
its sole discretion, reject any application or premium
for any reason. The minimum Specified Amount for which a
Policy will be issued is normally $50,000, although the
Company may, in its discretion, issue Policies with
Specified Amounts of less than $50,000.
The Policy Date will be the later of (i) the date of the
initial application, or (ii) if additional medical or
other information is required pursuant to the Company's
underwriting rules, the date all such additional
information is received by the Company at its Home
Office. The Policy Date may also be any other date
mutually agreed to by the Company and the Policyowner. If
the later of (i) and (ii) above is the 29th, 30th or 31st
of any month, the Policy Date will be the 28th of such
month. The Policy Date is the date used to determine
Policy Years, Policy Months and Policy Anniversaries. The
Policy Date may, but will not always, coincide with the
effective date of insurance coverage under the Policy.
The effective date of insurance coverage under the Policy
will be the later of (i) the Policy Date, (ii) if an
amendment to the initial application is required pursuant
to the Company's underwriting rules, the date the Insured
signs the last such amendment, or (iii) the date on which
the full initial premium is received by the Company at
its Home Office.
- --------------------------------------------------------------------------------
PREMIUMS Subject to certain limitations, a Policyowner has
flexibility in determining the frequency and amount of
premiums.
PREMIUM FLEXIBILITY. Unlike conventional insurance
policies, the Policy frees the Policyowner from the
requirement that premiums be paid in accordance with a
rigid and inflexible premium schedule. The Company may
require the Policyowner to pay an initial premium that,
when reduced by the premium expense charge (see "CHARGES
AND DEDUCTIONS--Premium Expense Charge"), will be
sufficient to pay the monthly deduction for the first
Policy Month. Thereafter, subject to the minimum and
maximum premium limitations described below, a
Policyowner may also make unscheduled premium payments at
any time prior to the Maturity Date.
PLANNED PERIODIC PREMIUMS. Each Policyowner will
determine a planned periodic premium schedule that
provides for the payment of a level premium over a
specified period of time on a quarterly, semi-annual or
annual basis. The Company may, at its discretion, permit
planned periodic payments to be made on a monthly basis.
Periodic reminder notices ordinarily will be sent to the
Policyowner for each planned periodic premium. Depending
on the duration of the planned periodic premium schedule,
the timing of planned payments could affect the tax
status of the Policy. (See "FEDERAL TAX MATTERS.")
The Policyowner is not required to pay premiums in
accordance with the planned periodic premium schedule.
Furthermore, the Policyowner has considerable flexibility
to alter the amount, frequency and the time period over
which planned
14
<PAGE>
periodic premiums are paid; however, no planned periodic
payment may be less than $100 without the Company's
consent. Changes in the planned premium schedule may have
federal income tax consequences. (See "FEDERAL TAX
MATTERS.")
The payment of a planned periodic premium will not
guarantee that the Policy remains in force. Instead, the
duration of the Policy depends upon the Policy's
Accumulated Value. Thus, even if planned periodic
premiums are paid by the Policyowner, the Policy will
nevertheless lapse if, during the first three Policy
Years, Net Accumulated Value or, after three Policy
Years, Net Surrender Value is insufficient on a Monthly
Deduction Day to cover the monthly deduction (see
"CHARGES AND DEDUCTIONS--Monthly Deduction") and a Grace
Period expires without a sufficient payment (see "THE
POLICY--Policy Lapse and Reinstatement--LAPSE").
UNSCHEDULED PREMIUMS. Each unscheduled premium payment
must be at least $100; however, the Company may, in its
discretion, waive this minimum requirement. The Company
reserves the right to limit the number and amount of
unscheduled premium payments. An unscheduled premium
payment may have federal income tax consequences. (See
"FEDERAL TAX MATTERS.")
PREMIUM LIMITATIONS. In no event may the total of all
premiums paid, both planned periodic and unscheduled,
exceed the applicable maximum premium limitation imposed
by federal tax laws. Because the maximum premium
limitation is in part dependent upon the Specified Amount
for each Policy, changes in the Specified Amount may
affect this limitation. If at any time a premium is paid
which would result in total premiums exceeding the
applicable maximum premium limitation, the Company will
accept only that portion of the premium which will make
total premiums equal the maximum. Any part of the premium
in excess of that amount will be returned and no further
premiums will be accepted until allowed by the applicable
maximum premium limitation.
PAYMENT OF PREMIUMS. Payments made by the Policyowner
will be treated first as payment of any outstanding
Policy Debt unless the Policyowner indicates that the
payment should be treated otherwise. Where no indication
is made, any portion of a payment that exceeds the amount
of any outstanding Policy Debt will be treated as a
premium payment.
NET PREMIUMS. The Net Premium is the amount available for
investment. The Net Premium equals the premium paid less
the premium expense charge. (See "CHARGES AND
DEDUCTIONS--Premium Expense Charge.")
ALLOCATION OF NET PREMIUMS. In the application for a
Policy, the Policyowner can allocate Net Premiums or
portions thereof to the Subaccounts, to the Declared
Interest Option, or both. Net Premiums will be allocated
to the Declared Interest Option if they are received
either before the date the Company obtains a signed
notice from the Policyowner that the Policy has been
received, or before the end of 25-days after the Delivery
Date. Upon the earlier of (i) the date the Company
obtains a signed notice from the Policyowner that the
Policy has been received, or (ii) 25 days after the
Delivery Date, the Accumulated Value in the Declared
Interest Option automatically will be allocated, without
charge, among the Subaccounts and Declared Interest
Option in accordance with the Policyowner's allocation
instructions. Net Premiums received on or after (i) or
(ii) above are allocated in accordance with the
instructions of the Policyowner, to the Variable Account,
the Declared Interest Option, or both. The Policyowner
does not waive his cancellation privilege by sending the
signed notice of receipt of the Policy to the Company
(see "THE POLICY-- Examination of Policy (Cancellation
Privilege)").
The minimum percentage of each premium that may be
allocated to any subaccount of the Variable Account or to
the Declared Interest Option is 10%; no fractional
percentages will be permitted. The allocation for future
Net Premiums may be changed without charge, at any time
while the Policy is in force, by providing the Company
with written notice on a form acceptable to the Company
signed by the Policyowner. The change will take effect on
the date the written notice is received at the Home
Office and will have no effect on prior cash values.
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<PAGE>
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POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the
failure to make a planned periodic premium payment will
not itself cause a Policy to lapse. Lapse will only occur
during the first three Policy Years when Net Accumulated
Value is insufficient on a Monthly Deduction Day to cover
the monthly deduction, or after three Policy Years when
Net Surrender Value is insufficient on a Monthly
Deduction Day to cover the monthly deduction (see
"CHARGES AND DEDUCTIONS--Monthly Deduction"), and a Grace
Period expires without a sufficient payment. Insurance
coverage will continue during the Grace Period, but the
Policy will be deemed to have no Accumulated Value for
purposes of Policy Loans and surrenders during such Grace
Period. The death proceeds payable during the Grace
Period will equal the amount of the death proceeds
payable immediately prior to the commencement of the
Grace Period, reduced by any due and unpaid monthly
deductions.
To avoid lapse and termination of the Policy without
value, the Company must receive from the Policyowner
during the Grace Period a premium payment that, when
reduced by the premium expense charge (see "CHARGES AND
DEDUCTIONS-- Premium Expense Charge"), will be at least
equal to three times the monthly deduction due on the
Monthly Deduction Day immediately preceding the Grace
Period (see "CHARGES AND DEDUCTIONS--Monthly Deduction").
A Grace Period of 61 days will commence on the date the
Company sends a notice of any insufficiency to the
Policyowner.
REINSTATEMENT. Prior to the Maturity Date, a lapsed
Policy may be reinstated at any time within five years of
the Monthly Deduction Day immediately preceding the Grace
Period which expired without payment of the required
premium. Reinstatement is effected by submitting the
following items to the Company:
1. A written application for reinstatement signed
by the Policyowner and the Insured;
2. Evidence of insurability satisfactory to the
Company;
3. A premium that, after the deduction of the
premium expense charge, is at least sufficient
to keep the Policy in force for three months;
and
4. An amount equal to the monthly cost of insurance
for the two Policy Months prior to lapse.
(State law may limit the premium to be paid on
reinstatement to an amount less than that described.) To
the extent that the first year monthly administrative
charge was not deducted for a total of twelve Policy
Months prior to lapse, such charge will continue to be
deducted following reinstatement of the Policy until such
charge has been assessed, both before and after the
lapse, for a total of 12 Policy Months. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.") The Company will not
reinstate a Policy surrendered for its Net Surrender
Value. The lapse of a Policy with loans outstanding may
have adverse tax consequences (see "FEDERAL TAX
MATTERS--Policy Proceeds").
The effective date of the reinstated Policy will be the
Monthly Deduction Day coinciding with or next following
the date the Company approves the application for
reinstatement.
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EXAMINATION OF POLICY (CANCELLATION PRIVILEGE)
The Policyowner may cancel the Policy by delivering or
mailing written notice or sending a telegram to the
Company at its Home Office, and returning the Policy to
the Company at its Home Office before midnight of the
twentieth day after the Policyowner receives the Policy.
Notice given by mail and return of the Policy by mail are
effective on being postmarked, properly addressed and
postage prepaid.
With respect to all Policies, the Company will refund,
within seven days after receipt of satisfactory notice of
cancellation and the returned Policy at its Home Office,
the greater of premiums paid or the Policy's Accumulated
Value plus an amount equal to any charges which have been
deducted from premiums, Accumulated Value and the
Variable Account.
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SPECIAL TRANSFER PRIVILEGE
A Policyowner may, at any time prior to the Maturity Date
while the Policy is in force, convert the Policy to a
flexible premium fixed-benefit life insurance policy by
requesting that all of the Accumulated Value in the
Variable Account be transferred to the Declared Interest
Option. The Policyowner may exercise this special
transfer privilege once each Policy Year. Once a
Policyowner exercises the special transfer privilege, all
future premium payments automatically will be credited to
the Declared Interest Option, until such time as the
Policyowner requests a change in allocation. No charge
will be imposed for any transfers resulting from the
exercise of the special transfer privilege.
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POLICY BENEFITS
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While a Policy is in force, it provides for certain
benefits prior to the Maturity Date. Subject to certain
limitations, the Policyowner may at any time obtain all
or a portion of the Net Accumulated Value by surrendering
or taking a partial withdrawal from the Policy. (See
"POLICY BENEFITS--Accumulated Value Benefits--SURRENDER
AND WITHDRAWAL PRIVILEGES.") In addition, the Policyowner
has certain policy loan privileges under the Policies.
(See "POLICY BENEFITS--Loan Benefits--POLICY LOANS.") The
Policy also provides for the payment of death proceeds
upon the death of the Insured under one of two death
benefit options selected by the Policyowner (see "POLICY
BENEFITS--Death Proceeds--DEATH BENEFIT OPTIONS"), and
benefits upon the maturity of a Policy (see "POLICY
BENEFITS--Benefits at Maturity").
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ACCUMULATED VALUE BENEFITS
SURRENDER AND WITHDRAWAL PRIVILEGES. At any time prior to
the Maturity Date while the Policy is in force, a
Policyowner may surrender the Policy or make a partial
withdrawal by sending a written request to the Company at
its Home Office. A surrender charge will apply to any
surrender during the first six Policy Years, as well as
during the first six years following an increase in
Specified Amount. A Partial Withdrawal Fee equal to the
lesser of $25 or 2% of the amount withdrawn will be
payable upon each partial withdrawal to cover the cost of
processing a partial withdrawal. (See "CHARGES AND
DEDUCTIONS--Partial Withdrawal Fee, and --Surrender
Charge.") Surrender and withdrawal proceeds ordinarily
will be mailed to the Policyowner within seven days after
the Company receives a signed request for a surrender at
its Home Office, although payments may be postponed under
certain circumstances. (See "GENERAL
PROVISIONS--Postponement of Payments.")
SURRENDERS. The amount payable upon surrender of the
Policy is the Net Surrender Value at the end of the
Valuation Period during which the request is received.
This amount may be paid in a lump sum or under one of the
payment options specified in the Policy, as requested by
the Policyowner. (See "POLICY BENEFITS--Payment
Options.") Upon surrender, all insurance in force will
terminate. For a discussion of the tax consequences
associated with Surrenders, see "FEDERAL TAX MATTERS."
PARTIAL WITHDRAWALS. A Policyowner may obtain a portion
of the Policy's Net Surrender Value. The amount requested
for partial withdrawal must be at least $500 and cannot
exceed the lesser of (1) the Net Surrender Value less
$500, or (2) 90% of the Net Surrender Value. The Partial
Withdrawal Fee will be deducted from the remaining
Accumulated Value. The Policyowner may request that the
proceeds of a partial withdrawal be paid in a lump sum or
under one of the payment options specified in the Policy.
(See "POLICY BENEFITS--Payment Options.")
A partial withdrawal (together with the Partial
Withdrawal Fee) will be allocated among the Subaccounts
and the Declared Interest Option in accordance with the
written instructions of the Policyowner. If no such
instructions are received with the request for partial
withdrawal, the partial withdrawal will be allocated
among the Subaccounts and the Declared Interest Option in
the same proportion that the Accumulated Value in each of
the Subaccounts and the Accumulated Value in the Declared
Interest Option, reduced by any outstanding Policy Debt,
bear to the total Accumulated Value on the date the
request is received at the Home Office.
Partial withdrawals will affect both the Policy's
Accumulated Value and the death proceeds payable under
the Policy. The Policy's Accumulated Value will be
reduced by
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<PAGE>
the amount of the partial withdrawal. If the death
benefit payable under either death benefit option both
before and after the partial withdrawal is equal to the
Accumulated Value multiplied by the specified amount
factor set forth in the Policy, a partial withdrawal will
result in a reduction in death proceeds equal to the
amount of the partial withdrawal, multiplied by the
specified amount factor then in effect. If the death
benefit is not so affected by the specified amount
factor, the reduction in death proceeds will be equal to
the partial withdrawal. (See "POLICY BENEFITS--Death
Proceeds.")
Partial withdrawals will reduce the Policy's Specified
Amount by the amount of Accumulated Value withdrawn if
Option B is in effect at the time of the withdrawal. If
Option A is in effect at the time of the withdrawal,
there will be no effect on Specified Amount. (See "POLICY
BENEFITS--Death Proceeds--DEATH BENEFIT OPTIONS.") The
Specified Amount remaining in force after a partial
withdrawal may not be less than the minimum Specified
Amount for the Policy in effect on the date of the
partial withdrawal, as published by the Company. As a
result, the Company will not process any partial
withdrawal that would reduce the Specified Amount below
this minimum. If increases in the Specified Amount
previously have occurred, a partial withdrawal will first
reduce the Specified Amount of the most recent increase,
then the next most recent increases successively, then
the coverage under the original application. Thus, a
partial withdrawal may either increase or decrease the
amount of the cost of insurance charge, depending upon
the particular circumstances. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction--COST OF INSURANCE.") For a
discussion of the tax consequences associated with
partial withdrawals, see "FEDERAL TAX MATTERS."
NET ACCUMULATED VALUE. Net Accumulated Value equals the
Policy's Accumulated Value reduced by any outstanding
Policy Debt and increased by any unearned loan interest.
CALCULATION OF ACCUMULATED VALUE. The Policy provides for
the accumulation of Accumulated Value. Accumulated Value
will be determined on each Business Day. A Policy's
Accumulated Value will reflect a number of factors,
including Net Premiums paid, partial withdrawals, Policy
Loans, charges assessed in connection with the Policy,
the interest earned on the Accumulated Value in the
Declared Interest Option and the investment performance
of the Subaccounts to which the Accumulated Value is
allocated. There is no guaranteed minimum Accumulated
Value. The Accumulated Value of the Policy is equal to
the sum of the Accumulated Values in each Subaccount,
plus the Accumulated Value in the Declared Interest
Option, including amounts transferred to the Declared
Interest Option to secure outstanding Policy Debt.
As of the Policy Date, the Policy's Accumulated Value
equals the initial Net Premium less the monthly deduction
made on the Policy Date.
On the Business Day coinciding with or immediately
following the date the Company receives notice that the
Policy has been received by the Policyowner, but no later
than 25 days after the Delivery Date, the Policy's
Accumulated Value (all of which is in the Declared
Interest Option) will be transferred automatically among
the Subaccounts and the Declared Interest Option in
accordance with such percentage allocation instructions.
At the end of each Valuation Period thereafter, the
Accumulated Value in a Subaccount will equal:
(1) The total Subaccount units represented by
the Accumulated Value at the end of the
preceding Valuation Period, multiplied by
the Subaccount's unit value for the current
Valuation Period; PLUS
(2) Any Net Premiums received during the current
Valuation Period which are allocated to the
Subaccount; PLUS
(3) All Accumulated Values transferred to the
Subaccount from the Declared Interest Option
or from another Subaccount during the
current Valuation Period; MINUS
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<PAGE>
(4) All Accumulated Values transferred from the
Subaccount to another Subaccount or to the
Declared Interest Option during the current
Valuation Period, including amounts
transferred to the Declared Interest Option
to secure Policy Debt; MINUS
(5) All partial withdrawals (and any portion of
the Partial Withdrawal Fee) deducted from
the Subaccount during the current Valuation
Period; MINUS
(6) The portion of any monthly deduction charged
to the Subaccount during the current
Valuation Period to cover the Policy Month
following the Monthly Deduction Day.
The Policy's total Accumulated Value in the Variable
Account equals the sum of the Policy's Accumulated Value
in each Subaccount.
UNIT VALUE. Each Subaccount has a Unit Value. When Net
Premiums are allocated to, or other amounts are
transferred into, a Subaccount, a number of units are
purchased based on the Unit Value of the Subaccount as of
the end of the Valuation Period during which the transfer
is made. Likewise, when amounts are transferred out of a
Subaccount, units are redeemed on the same basis. On any
day, a Policy's Accumulated Value in a Subaccount is
equal to the number of units held in such Subaccount,
multiplied by the Unit Value of such Subaccount on that
date.
For each Subaccount, the Unit Value was initially set at
$10 when the Subaccount first purchased shares of the
designated Investment Option. The Unit Value for each
subsequent valuation period is calculated by dividing (a)
by (b) where:
(a) is (1) the Net Asset Value of the Subaccount
at the end of the preceding Valuation
Period, plus (2) the investment income and
capital gains, realized or unrealized,
credited to the net assets of that
Subaccount during the Valuation Period for
which the Unit Value is being determined,
minus (3) the capital losses, realized or
unrealized, charged against those assets
during the Valuation Period, minus (4) any
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 that Subaccount;
and minus (5) a charge equal to .0024548% of
the average daily net assets of the
Subaccount for each day in the Valuation
Period. This corresponds to an effective
annual rate of 0.90% of the average daily
net assets of the Subaccount for mortality
and expense risks incurred in connection
with the Policies. (This charge is
guaranteed not to exceed .0028618% of the
average daily net assets on each Subaccount,
which corresponds to an effective annual
rate of 1.05%.)
(b) is the number of units outstanding at the
end of the preceding Valuation Period.
The Unit Value for a Valuation Period applies for each
day in the period. The assets in the Variable Account
will be valued at their fair market value in accordance
with accepted accounting practices and applicable laws
and regulations.
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TRANSFERS Policyowners may transfer amounts among the Subaccounts
an unlimited number of times in a Policy Year; however,
only one transfer per Policy Year may be made between the
Declared Interest Option and the Variable Account.
Transfers are made by written request to the Home Office
or, if the Policyowner has elected the "Telephone
Transfer Authorization" on the supplemental application,
by calling the Home Office toll-free at (888) 349-4656.
The amount of the transfer must be at least $100 or the
total Accumulated Value in the Subaccount or in the
Declared Interest Option (reduced, in the case of the
Declared Interest Option, by any outstanding Policy
Debt), if less than $100. The Company may, at its
discretion, waive the $100 minimum requirement. The
transfer will be effective as of the end of the Valuation
Period during which the request is received at the Home
Office.
The first transfer in each Policy Year will be made
without charge; each time amounts are subsequently
transferred in that Policy Year, a transfer charge of $25
may be
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<PAGE>
assessed. The transfer charge, unless paid in cash, will
be deducted from the amount transferred. Once a Policy is
issued, the amount of the transfer charge is guaranteed
for the life of the Policy. (See "CHARGES AND
DEDUCTIONS--Transfer Charge.")
For purposes of these limitations and charges, all
transfers effected on the same day will be considered a
single transfer.
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LOAN BENEFITS POLICY LOANS. So long as the Policy remains in force and
has a positive Net Surrender Value, a Policyowner may
borrow money from the Company at any time using the
Policy as the sole security for the Policy Loan. A loan
taken from, or secured by, a Policy may have federal
income tax consequences. (See "FEDERAL TAX MATTERS.")
The maximum amount that may be borrowed at any time is
90% of the Net Surrender Value as of the end of the
Valuation Period during which the request for the Policy
Loan is received at the Home Office. The Company's claim
for repayment of Policy Debt has priority over the claims
of any assignee or other person.
During any time that there is outstanding Policy Debt,
payments made by the Policyowner will be treated first as
payment of outstanding Policy Debt, unless the
Policyowner indicates that the payment should be treated
otherwise. Where no indication is made, any portion of a
payment that exceeds the amount of any outstanding Policy
Debt will be treated as a premium payment.
ALLOCATION OF POLICY LOAN. When a Policy Loan is made, an
amount equal to the Policy Loan will be segregated within
the Declared Interest Option as security for the Policy
Loan. If, immediately prior to the Policy Loan, the
Accumulated Value in the Declared Interest Option less
Policy Debt outstanding is less than the amount of such
Policy Loan, the difference will be transferred from the
subaccounts of the Variable Account, which have
Accumulated Value, in the same proportions that the
Policy's Accumulated Value in each Subaccount bears to
the Policy's total Accumulated Value in the Variable
Account. Accumulated Values will be determined as of the
end of the Valuation Period during which the request for
the Policy Loan is received at the Home Office.
Loan proceeds will normally be mailed to the Policyowner
within seven days after receipt of a written request.
Postponement of a Policy Loan may take place under
certain circumstances. (See "GENERAL
PROVISIONS--Postponement of Payments.")
Amounts segregated within the Declared Interest Option as
security for Policy Debt will bear interest at an
effective annual rate set by the Company. (See "POLICY
BENEFITS--Loan Benefits--EFFECT ON INVESTMENT
PERFORMANCE.")
LOAN INTEREST CHARGED. The interest rate charged on
Policy Loans is not fixed. The maximum annual loan
interest rate will be the higher of the "Published
Monthly Average of the Composite Yield on Seasoned
Corporate Bonds" as published by Moody's Investors
Service, Inc. or any successor thereto, for the calendar
month ending two months before the date on which the rate
is determined; or 5.5%. The Company may at any time elect
to change the interest rate. The Company will send notice
of any change in rate to the Policyowner. The new rate
will take effect on the Policy Anniversary coinciding
with or next following the date the rate is changed.
Interest is payable in advance at the time any Policy
Loan is made (for the remainder of the Policy Year) and
on each Policy Anniversary thereafter (for the entire
Policy Year) so long as there is Policy Debt outstanding.
Interest payable at the time a Policy Loan is made will
be subtracted from the loan proceeds. Thereafter,
interest not paid when due will be added to the existing
Policy Debt and bear interest at the same rate charged
for Policy Loans. The amount equal to unpaid interest
will be segregated within the Declared Interest Option in
the same manner that amounts for Policy Loans are
segregated within the Declared Interest Option. (See
"POLICY BENEFITS-- Loan Benefits--ALLOCATION OF POLICY
LOAN.")
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<PAGE>
Because interest is charged in advance, any interest that
has not been earned will be added to the death benefit
payable at the Insured's death and to the Accumulated
Value upon complete surrender, and will be credited to
the Accumulated Value in the Declared Interest Option
upon repayment of Policy Debt.
EFFECT ON INVESTMENT PERFORMANCE. Amounts transferred
from the Variable Account as security for Policy Debt
will no longer participate in the investment performance
of the Variable Account. All amounts held in the Declared
Interest Option as security for Policy Debt will be
credited with interest on each Monthly Deduction Day at
an effective annual rate equal to the greater of 4.0% or
the current effective loan interest rate minus no more
than 3.0%, as determined and declared by the Company. No
additional interest will be credited to these amounts.
The interest credited will remain in the Declared
Interest Option unless and until transferred by the
Policyowner to the Variable Account, but will not be
segregated within the Declared Interest Option as
security for Policy Debt.
From time to time, the Company may allow, by Company
practice, a loan spread of 0% on the gain in a Policy in
effect a minimum of ten years.
Even though Policy Debt may be repaid in whole or in part
at any time prior to the Maturity Date if the Policy is
still in force, Policy Loans will affect the Accumulated
Value of a Policy and may affect the death proceeds
payable. The effect could be favorable or unfavorable
depending upon whether the investment performance of the
Subaccount(s) from which the Accumulated Value was
transferred is less than or greater than the interest
rates actually credited to the Accumulated Value
segregated within the Declared Interest Option as
security for Policy Debt while Policy Debt is
outstanding. In comparison to a Policy under which no
Policy Loan was made, Accumulated Value will be lower
where such interest rates credited were less than the
investment performance of the Subaccount(s), but will be
greater where such interest rates were greater than the
performance of the Subaccount(s). In addition, death
proceeds will reflect a reduction of the death benefit by
any outstanding Policy Debt.
POLICY DEBT. Policy Debt equals the sum of all unpaid
Policy Loans and any due and unpaid policy loan interest.
Policy Debt is not included in Net Accumulated Value,
which is equal to Accumulated Value less Policy Debt. If,
during the first three Policy Years, Net Accumulated
Value or, after three Policy Years, Net Surrender Value
is insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "Charges and Deductions--Monthly
Deduction"), the Company will notify the Policyowner. To
avoid lapse and termination of the Policy without value
(see "THE POLICY--Policy Lapse and
Reinstatement--LAPSE"), the Policyowner must, during the
Grace Period, make a premium payment that, when reduced
by the premium expense charge (see "CHARGES AND
DEDUCTIONS--Premium Expense Charge"), will be at least
equal to three times the monthly deduction due on the
Monthly Deduction Day immediately preceding the Grace
Period (see "CHARGES AND DEDUCTIONS--Monthly Deduction").
Therefore the greater the Policy Debt under a Policy, the
more likely it would be to lapse.
REPAYMENT OF POLICY DEBT. Policy Debt may be repaid in
whole or in part any time during the Insured's life and
before the Maturity Date so long as the Policy is in
force. Any Policy Debt not repaid is subtracted from the
death benefit payable at the Insured's death, from
Surrender Value upon surrender or from the maturity
benefit. Any payments made by a Policyowner will be
treated first as the repayment of any outstanding Policy
Debt, unless the Policyowner indicates otherwise. Upon
repayment of Policy Debt, the portion of the Accumulated
Value in the Declared Interest Option securing the repaid
portion of the Policy Debt will no longer be segregated
within the Declared Interest Option as security for
Policy Debt, but will remain in the Declared Interest
Option unless and until transferred to the Variable
Account by the Policyowner.
For a discussion of the tax consequences associated with
Policy Loans and lapses, see "FEDERAL TAX MATTERS."
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<PAGE>
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DEATH PROCEEDS So long as the Policy remains in force, the Policy
provides for the payment of death proceeds upon the death
of the Insured. Proceeds will be paid to the primary
Beneficiary or a contingent Beneficiary. One or more
primary Beneficiaries or contingent Beneficiaries may be
named. If no Beneficiary survives the Insured, the death
proceeds will be paid to the Policyowner or his estate.
Death proceeds may be paid in a lump sum or under a
payment option. (See "POLICY BENEFITS--Payment Options.")
To determine the death proceeds, the death benefit will
be reduced by any outstanding Policy Debt and increased
by any unearned loan interest and any premiums paid after
the date of death. Proceeds will ordinarily be mailed
within seven days after receipt by the Company of Due
Proof of Death. Payment may, however, be postponed under
certain circumstances. (See "GENERAL PROVISIONS--
Postponement of Payments.") The Company pays interest on
those proceeds, at an annual rate of no less than 3.0% or
any rate required by law, from the date of death to the
date payment is made.
DEATH BENEFIT OPTIONS. Policyowners designate in the
initial application one of two death benefit options
offered under the Policy. The amount of the death benefit
payable under a Policy will depend upon the option in
effect at the time of the Insured's death. Under Option
A, the death benefit will be equal to the greater of (i)
the sum of the current Specified Amount and the
Accumulated Value, or (ii) the Accumulated Value
multiplied by the specified amount factor. Accumulated
Value will be determined as of the end of the Business
Day coinciding with or immediately following the date of
death. The specified amount factor is 2.50 for an Insured
Attained Age 40 or below on the date of death. For
Insureds with an Attained Age over 40 on the date of
death, the factor declines with age as shown in the
Specified Amount Factor Table in Appendix B. Accordingly,
under Option A, the death proceeds will always vary as
the Accumulated Value varies (but will never be less than
the Specified Amount). Policyowners who prefer to have
favorable investment performance and additional premiums
reflected in increased death benefits generally should
select Option A.
Under Option B, the death benefit will be equal to the
greater of the current Specified Amount or the
Accumulated Value (determined as of the end of the
Business Day coinciding with or immediately following the
date of death) multiplied by the specified amount factor.
The specified amount factor is the same as under Option
A. Accordingly, under Option B the death benefit will
remain level at the Specified Amount unless the
Accumulated Value multiplied by the specified amount
factor exceeds the current Specified Amount, in which
case the amount of the death benefit will vary as the
Accumulated Value varies. Policyowners who are satisfied
with the amount of their insurance coverage under the
Policy and who prefer to have favorable investment
performance and additional premiums reflected in higher
Accumulated Value, rather than increased death benefits,
generally should select Option B.
Examples illustrating Option A and Option B can be found
in Appendix B.
CHANGE IN DEATH BENEFIT OPTION. The death benefit option
in effect may be changed at any time by sending a written
request for the change to the Company at its Home Office.
The effective date of such a change will be the Monthly
Deduction Day coinciding with or immediately following
the date the change is approved by the Company. A change
in death benefit options may have federal income tax
consequences. (See "FEDERAL TAX MATTERS.")
If the death benefit option is changed from Option A to
Option B, the current Specified Amount will not change.
If the benefit option is changed from Option B to Option
A, the current Specified Amount will be reduced by an
amount equal to the Accumulated Value on the effective
date of the change. A change in the death benefit option
may not be made if it would result in a Specified Amount
which is less than the minimum Specified Amount in effect
on the effective date of the change or if after the
change the Policy would no longer qualify as life
insurance under federal tax law.
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<PAGE>
No charges will be imposed in connection with a change in
death benefit option; however, a change in death benefit
option will affect the cost of insurance charges. (See
"CHARGES AND DEDUCTIONS--Monthly Deduction--COST OF
INSURANCE.")
CHANGE IN EXISTING COVERAGE. After a Policy has been in
force for one Policy Year, a Policyowner may adjust the
existing insurance coverage by increasing or decreasing
the Specified Amount. To make a change, the Policyowner
must send a written request to the Company at its Home
Office. Any change in the Specified Amount may affect the
cost of insurance rate and the net amount at risk, both
of which will affect a Policyowner's cost of insurance
charge. (See "CHARGES AND DEDUCTIONS-- Monthly
Deduction--COST OF INSURANCE RATE, and --NET AMOUNT AT
RISK.") If decreases in the Specified Amount cause the
premiums paid to exceed the maximum premium limitations
imposed by federal tax law (see "THE POLICY--Premiums--
PREMIUM LIMITATIONS"), the decrease will be limited to
the extent necessary to meet these requirements. A change
in existing coverage may have federal income tax
consequences. (See "FEDERAL TAX MATTERS--Tax Treatment of
Policy Benefits.")
Any decrease in the Specified Amount will become
effective on the Monthly Deduction Day coinciding with or
immediately following the date the request is approved by
the Company. The decrease will first reduce the Specified
Amount provided by the most recent increase, then the
next most recent increases successively, then the
Specified Amount under the original application. The
Specified Amount following a decrease can never be less
than the minimum Specified Amount for the Policy in
effect on the date of the decrease. A Specified Amount
decrease will not reduce the Surrender Charge.
To apply for an increase, evidence of insurability
satisfactory to the Company must be provided. Any
approved increase will become effective on the Monthly
Deduction Day coinciding with or immediately following
the date the request is approved by the Company. An
increase will not become effective, however, if the
Policy's Accumulated Value on the effective date would
not be sufficient to cover the deduction for the
increased cost of the insurance for the next Policy
Month. A Specified Amount increase is subject to its own
Surrender Charge.
CHANGES IN INSURANCE PROTECTION. A Policyowner may
increase or decrease the pure insurance protection
provided by a Policy--the difference between the death
benefit and the Accumulated Value--in one of several ways
as insurance needs change. These ways include increasing
or decreasing the Specified Amount of insurance, changing
the level of premium payments and, to a lesser extent,
partially withdrawing Accumulated Value. Although the
consequences of each of these methods will depend upon
the individual circumstances, they may be summarized as
follows:
(a) A decrease in the Specified Amount will,
subject to the applicable specified amount
factor limitations (see "POLICY
BENEFITS--Death Proceeds-- DEATH BENEFIT
OPTIONS"), decrease the pure insurance
protection and the cost of insurance charges
under the Policy without generally reducing
the Accumulated Value.
(b) An increase in the Specified Amount may
increase the amount of pure insurance
protection, depending on the amount of
Accumulated Value and the resultant
applicable specified amount factor. If the
insurance protection is increased, the cost
of insurance charge generally will increase
as well.
(c) If Option B is elected, an increased level
of premium payments will increase the
Accumulated Value and reduce the pure
insurance protection, until the Accumulated
Value multiplied by the applicable specified
amount factor exceeds the Specified Amount.
Increased premiums should also increase the
amount of funds available to keep the Policy
in force.
23
<PAGE>
(d) If Option B is elected, a reduced level of
premium payments generally will increase the
amount of pure insurance protection,
depending on the applicable specified amount
factor. It also will result in a reduced
amount of Accumulated Value and will
increase the possibility that the Policy
will lapse.
(e) A partial withdrawal will reduce the death
benefit. (See "POLICY BENEFITS--Accumulated
Value Benefits--SURRENDER AND WITHDRAWAL
PRIVILEGES.") However, it only affects the
amount of pure insurance protection if the
death benefit payable is based on the
specified amount factor, because otherwise
the decrease in the benefit is offset by the
amount of Accumulated Value withdrawn. The
primary use of a partial withdrawal is to
withdraw cash and reduce Accumulated Value.
In comparison, an increase in the death benefit due to
the operation of the specified amount factor occurs
automatically and is intended to help assure that the
Policy remains qualified as life insurance under federal
tax law. The calculation of the death benefit based upon
the specified amount factor occurs only when the
Accumulated Value of a Policy reaches a certain
proportion of the Specified Amount (which may or may not
occur). Additional premium payments, favorable investment
performance and large initial premiums tend to increase
the likelihood of the specified amount factor becoming
operational after the first few Policy Years. Such
increases will be temporary, however, if the investment
performance becomes unfavorable and/or premium payments
are stopped or decreased.
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ACCELERATED PAYMENTS OF DEATH PROCEEDS
In the event that the Insured becomes terminally ill (as
defined below), the Policyowner (if residing in a state
that has approved such an endorsement) may, by written
request and subject to the conditions stated below, have
the Company pay all or a portion of the accelerated death
benefit immediately to the Policyowner. If not attached
to the Policy beforehand, the Company will issue an
accelerated death benefit endorsement (the "Endorsement")
providing for this right.
For this purpose, an Insured is terminally ill when a
physician (as defined by the Endorsement) certifies that
he or she has a life expectancy of 12 months or less.
The accelerated death benefit is equal to the Policy's
death benefit as described on page 6, up to a maximum of
$250,000 (the $250,000 maximum applies in aggregate to
all policies issued by the Company on the Insured), less
an amount representing a discount for 12 months at the
interest rate charged for loans under the Policy. The
accelerated death benefit does not include the amount of
any death benefit payable under a rider that covers the
life of someone other than the Insured.
In the event that there is a loan outstanding under the
Policy on the date that the Policyowner requests a
payment under the Endorsement, the accelerated death
benefit is reduced by a portion of the outstanding loan
in the same proportion that the requested payment under
the Endorsement bears to the total death benefit under
the Policy. If the amount requested by the Policyowner to
be paid under the Endorsement is less than the total
death benefit under the Policy and the Specified Amount
of the Policy is equal to or greater than the minimum
Specified Amount, the Policy will remain in force with
all values and benefits under the Policy being reduced in
the same proportion that the new Policy benefit bears to
the Policy benefit before exercise of the Endorsement.
There are several other restrictions associated with the
Endorsement. These are: (1) the Endorsement is not valid
if the Policy is within five years of being matured, (2)
the consent of any irrevocable beneficiary or assignee is
required to exercise the Endorsement, (3) the Company
reserves the right, in its sole discretion, to require
the consent of the Insured or of any beneficiary,
assignee, spouse or other party of interest before
permitting the exercise of the Endorsement, (4) the
Company reserves the right to obtain the concurrence of a
second medical opinion as to whether any Insured is
terminally ill and (5) the Endorsement is not effective
where (a) the Insured or the Policyowner would be
otherwise required by law to use the
24
<PAGE>
Endorsement to meet the claims of creditors, or (b) the
Insured would be otherwise required by any government
agency to exercise the Endorsement in order to apply for,
obtain or keep a government benefit or entitlement.
The Endorsement will terminate at the earlier of the end
of the grace period for which any premium is unpaid, upon
receipt in the Home Office of a written request from the
Policyowner to cancel the Endorsement or upon termination
of the Policy.
Pursuant to the recently enacted Health Insurance
Portability and Accountability Act of 1996, the Company
believes that for federal income tax purposes, an
accelerated death benefit payment received under an
accelerated death benefit endorsement should be fully
excludable from the gross income of the beneficiary, as
long as the beneficiary is the insured under the Policy.
However, the Policyowner should consult a qualified tax
adviser about the consequences of adding this Endorsement
to a Policy or requesting an accelerated death benefit
payment under this Endorsement.
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BENEFITS AT MATURITY If the Insured is alive and the Policy is in force on the
Maturity Date, the Company will pay to the Policyowner
the Policy's Accumulated Value as of the end of the
Business Day coinciding with or immediately following the
Maturity Date, reduced by any outstanding Policy Debt.
(See "POLICY BENEFITS--Loan Benefits--REPAYMENT OF POLICY
DEBT.") Benefits at maturity may be paid in a lump sum or
under a payment option. The Maturity Date is Attained Age
115.
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PAYMENT OPTIONS Death proceeds and Accumulated Value paid at maturity, or
upon surrender or partial withdrawal of a Policy, may be
paid in whole or in part under a payment option. There
are currently five payment options available. Payments
may also be made under any new payment option available
at the time proceeds become payable. In addition,
proceeds may be paid in any other manner acceptable to
the Company.
An option may be designated in the application or by
notifying the Company in writing at its Home Office.
During the life of the Insured, the Policyowner may
select a payment option; in addition, during that time
the Policyowner may change a previously selected option
by sending written notice to the Company requesting the
cancellation of the prior option and the designation of a
new option. If the Policyowner has not chosen an option
prior to the Insured's death, the Beneficiary may choose
an option. The Beneficiary may change a payment option by
sending a written request to the Company, provided that a
prior option chosen by the Policyowner is not in effect.
If no option is chosen, the Company will pay the proceeds
of the Policy in one sum. The Company will also pay the
proceeds in one sum if, (i) the proceeds are less than
$2,000; (ii) periodic payments would be less than $20; or
(iii) the payee is an assignee, estate, trustee,
partnership, corporation or association.
Amounts paid under a payment option are paid pursuant to
a payment contract and will not depend upon the
investment performance of the Variable Account. Proceeds
applied under a payment option earn interest at a rate
guaranteed to be no less than 3.0% compounded yearly. The
Company may be crediting higher interest rates on the
effective date of the payment contract. The Company may,
but is not obligated to, declare additional interest to
be applied to such funds.
If a payee dies, any remaining payments will be paid to a
contingent payee. At the death of the last payee, the
commuted value of any remaining payments will be paid to
the last payee's estate. A payee may not withdraw funds
under a payment option unless the Company has agreed to
such withdrawal in the payment contract. The Company
reserves the right to defer a withdrawal for up to six
months and to refuse to allow partial withdrawals of less
than $250.
25
<PAGE>
Payments under Options 2, 3, 4 or 5 will begin as of the
date of the Insured's death, on surrender or on the
Maturity Date. Payments under Option 1 will begin at the
end of the first interest period after the date proceeds
are otherwise payable.
OPTION 1--INTEREST INCOME. Periodic payments of
interest earned from the proceeds will be paid.
Payments can be annual, semi-annual, quarterly or
monthly, as selected by the payee, and will begin at
the end of the first period chosen. Proceeds left
under this plan will earn interest at a rate
determined by the Company, in no event less than 3.0%
compounded yearly. The payee may withdraw all or part
of the proceeds at any time.
OPTION 2--INCOME FOR A FIXED TERM. Periodic payments
will be made for a fixed term not longer than 30
years. Payments can be annual, semi-annual, quarterly
or monthly. Guaranteed amounts payable under the plan
will earn interest at a rate determined by the
Company, in no event less than 3.0% compounded
yearly.
OPTION 3--LIFE INCOME WITH TERM CERTAIN. Equal
periodic payments will be made for a guaranteed
minimum period elected. If the payee lives longer
than the minimum period, payments will continue for
his or her life. The minimum period can be 0, 5, 10,
15 or 20 years. Guaranteed amounts payable under this
plan will earn interest at a rate determined by the
Company, in no event less than 3.0% compounded
yearly.
OPTION 4--INCOME OF A FIXED AMOUNT. Equal periodic
payments of a definite amount will be paid. Payments
can be annual, semi-annual, quarterly or monthly. The
amount paid each period must be at least $20 for each
$1,000 of proceeds. Payments will continue until the
proceeds are exhausted. The last payment will equal
the amount of any unpaid proceeds. Unpaid proceeds
will earn interest at a rate determined by the
Company, in no event less than 3.0% compounded
yearly.
OPTION 5--JOINT AND TWO-THIRDS SURVIVOR MONTHLY LIFE
INCOME. Equal monthly payments will be made for as
long as two payees live. The guaranteed amount
payable under this plan will earn interest at a
minimum rate of 3.0% compounded yearly. When one
payee dies, payments of two-thirds of the original
monthly payment will be made to the surviving payee.
Payments will stop when the surviving payee dies.
ALTERNATE PAYMENT OPTION. In lieu of one of the above
options, the accumulated value, net surrender value
or death benefit, as applicable, may be settled under
any other payment option made available by the
Company or requested and agreed to by the Company.
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CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
Charges will be deducted in connection with the Policy to
compensate the Company for providing the insurance
benefits set forth in the Policy and any additional
benefits added by rider, for distributing and
administering the Policy, for applicable taxes and for
assuming certain risks in connection with the Policy. The
nature and amount of these charges are described more
fully below.
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PREMIUM EXPENSE CHARGE Prior to allocation of Net Premiums among the Subaccounts
and the Declared Interest Option, premiums paid will be
reduced by a premium expense charge. The premium less the
premium expense charge equals the Net Premium.
The premium expense charge is 7.0% of each premium up to
the Target Premium (or 2% for each premium over the
Target Premium) and is intended to compensate the Company
for expenses incurred in distributing the Policy,
including agent sales commissions, the cost of printing
prospectuses and sales literature, and advertising costs
and to compensate for the amount the Company considers
necessary to pay all taxes on premiums received by
insurance companies imposed by various states and
subdivisions thereof. Premium taxes charged by the
various states currently range from 1% to 3%.
26
<PAGE>
The premium expense charge in any Policy Year is not
necessarily related to actual distribution expenses in
that year. Instead, the Company expects to incur the
majority of distribution expenses in the early Policy
Years and to recover any deficiency over the life of the
Policy and from the Company's general assets, including
amounts derived from the mortality and expense risk
charge.
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MONTHLY DEDUCTION Charges will be deducted monthly from the Accumulated
Value of each Policy ("monthly deduction") to compensate
the Company for the cost of insurance coverage and any
additional benefits added by rider (See "GENERAL
PROVISIONS-- Additional Insurance Benefits"), for
underwriting and start-up expenses in connection with
issuing a Policy and for certain administrative costs.
The monthly deduction will be deducted on the Policy Date
and on each Monthly Deduction Day. (If the Monthly
Deduction Day falls on Thanksgiving, the Friday following
Thanksgiving or the weekend following Thanksgiving; or on
the 27th or 28th day of February, 1999, the monthly
deduction will be deducted on the preceding Business
Day.) It will be deducted from the Declared Interest
Option and each Subaccount in the same proportion that
the Policy's Net Accumulated Value in the Declared
Interest Option and the Policy's Accumulated Value in
each Subaccount bear to the total Net Accumulated Value
of the Policy. For purposes of making deductions from the
Declared Interest Option and the Subaccounts, Accumulated
Values will be determined as of the end of the Business
Day coinciding with or immediately following the Monthly
Deduction Day. (If the Monthly Deduction Day falls on
Thanksgiving, the Friday following Thanksgiving or the
weekend following Thanksgiving; or on the 27th or 28th
day of February, 1999, Accumulated Values will be
determined as of the end of the preceding Business Day.)
Because portions of the monthly deduction, such as the
cost of insurance, can vary from month to month, the
monthly deduction itself will vary in amount from month
to month.
The monthly deduction will be made on the Business Day
coinciding with or immediately following each Monthly
Deduction Day and will equal:
(a) the cost of insurance for the Policy; plus
(b) the cost of any optional insurance benefits
added by rider; plus
(c) the monthly policy expense charge.
During the first twelve Policy Months and during the
twelve Policy Months immediately following an increase in
Specified Amount, the monthly deduction will include a
first year monthly administrative charge.
COST OF INSURANCE. This charge is designed to compensate
the Company for the anticipated cost of paying death
proceeds to Beneficiaries of those Insureds who die prior
to the Maturity Date. The cost of insurance is determined
on a monthly basis, and is determined separately for the
initial Specified Amount and for any subsequent increases
in Specified Amount. The Company will determine the
monthly cost of insurance charge by dividing the
applicable cost of insurance rate, or rates, by 1,000 and
multiplying the result by the net amount at risk for each
Policy Month.
NET AMOUNT AT RISK. Under Option A the net amount at risk
for a Policy Month is equal to (a) divided by (b), and
under Option B the net amount at risk for a Policy Month
is equal to (a) divided by (b), minus (c), where:
(a) is the Specified Amount;
(b) is 1.0032737;(1) and
(c) is the Accumulated Value.
- --------------
(1)Dividing by 1.0032737 reduces the net amount at risk, solely for the purposes
of computing the cost of insurance, by taking into account assumed monthly
earnings at an annual rate of 4.0%.
27
<PAGE>
The Specified Amount and the Accumulated Value will be
determined as of the end of the Business Day coinciding
with or immediately following the Monthly Deduction Day.
The net amount at risk is determined separately for the
initial Specified Amount and any increases in Specified
Amount. In determining the net amount at risk for each
Specified Amount, the Accumulated Value will be first
considered a part of the initial Specified Amount. If the
Accumulated Value exceeds the initial Specified Amount,
it will be considered to be a part of any increase in the
Specified Amount in the same order as the increases
occurred.
COST OF INSURANCE RATE. The cost of insurance rate for
the initial Specified Amount will be based on the
Insured's sex, premium class and Attained Age. For any
increase in Specified Amount, the cost of insurance rate
will be based on the Insured's sex, premium class and age
at last birthday on the effective date of the increase.
Actual cost of insurance rates may change and will be
determined by the Company based on its expectations as to
future mortality experience. However, the actual cost of
insurance rates will never be greater than the guaranteed
maximum cost of insurance rates set forth in the Policy.
These guaranteed rates are based on the 1980
Commissioners' Standard Ordinary Non-Smoker and Smoker
Mortality Table. Current cost of insurance rates are
generally less than the guaranteed maximum rates. Any
change in the cost of insurance rates will apply to all
persons of the same age, sex and premium class whose
Policies have been in force the same length of time.
The cost of insurance rates generally increase as the
Insured's Attained Age increases. The premium class of an
Insured also will affect the cost of insurance rate. The
Company currently places Insureds into a standard premium
class or into premium classes involving a higher
mortality risk. In an otherwise identical Policy,
Insureds in the standard premium class will have a lower
cost of insurance rate than those in premium classes
involving higher mortality risk. The standard premium
class is also divided into two categories: tobacco and
non-tobacco. (The Company may offer preferred classes in
addition to the standard tobacco and non-tobacco
classes.) Non-tobacco-using Insureds will generally have
a lower cost of insurance rate than similarly situated
Insureds who use tobacco, and preferred Insureds will
generally have a lower cost of insurance rate than
similarly situated standard Insureds.
The cost of insurance rate is determined separately for
the initial Specified Amount and for the amount of any
increase in Specified Amount. In calculating the cost of
insurance charge, the rate for the premium class on the
Policy Date will be applied to the net amount at risk for
the initial Specified Amount; for each increase in
Specified Amount, the rate for the premium class
applicable to the increase will be used. However, if the
death benefit is calculated as the Cash Value times the
specified amount factor, the rate for the premium class
for the most recent increase that required evidence of
insurability will be used for the amount of death benefit
in excess of the total Specified Amount.
ADDITIONAL INSURANCE BENEFITS. The monthly deduction will
include charges for any additional benefits provided by
rider. (See "GENERAL PROVISIONS--Additional Insurance
Benefits.")
MONTHLY POLICY EXPENSE CHARGE. The Company has primary
responsibility for the administration of the Policy and
the Variable Account. Policy expenses include premium
billing and collection, recordkeeping, processing death
benefit claims, cash withdrawals, surrenders and Policy
changes, and reporting and overhead costs. As
reimbursement for policy expenses related to the
maintenance of each Policy and the Variable Account, the
Company assesses a monthly policy expense charge against
each Policy. This charge currently is $5.00 per Policy
Month and is guaranteed not to exceed $7 per Policy
Month.
FIRST YEAR MONTHLY ADMINISTRATIVE CHARGE. Monthly
administrative charges will be deducted from Accumulated
Value as part of the monthly deduction during the first
twelve Policy Months and during the twelve Policy Months
immediately following an
28
<PAGE>
increase in Specified Amount. The charge will compensate
the Company for first year underwriting, processing and
start-up expenses incurred in connection with the Policy
and the Variable Account. These expenses include the cost
of processing applications, conducting medical
examinations, determining insurability and the Insured's
premium class, and establishing policy records. The first
year monthly administrative charge currently is $0.05 per
$1,000 of Specified Amount, or increase in Specified
Amount and is guaranteed not to exceed $0.07 per $1,000
of Specified Amount.
FIRST YEAR MONTHLY EXPENSE CHARGE. A monthly expense
charge will be deducted from Accumulated Value as part of
the monthly deduction during the first twelve Policy
Months. This charge currently is $5 per Policy Month and
is guaranteed not to exceed $7 per Policy Month.
- --------------------------------------------------------------------------------
TRANSFER CHARGE A transfer charge of $25 may be imposed for the second
and each subsequent transfer during a Policy Year to
compensate the Company for the costs in effectuating the
transfer. The transfer charge, unless paid in cash, will
be deducted from the amount transferred. Once a Policy is
issued, the amount of this charge is guaranteed for the
life of the Policy. The transfer charge will not be
imposed on transfers that occur as a result of Policy
Loans, the exercise of the special transfer privilege or
the initial allocation of Accumulated Value among the
Subaccounts and the Declared Interest Option following
acceptance of the Policy by the Policyowner.
Currently there is no charge for changing the net premium
allocation instructions.
- --------------------------------------------------------------------------------
PARTIAL WITHDRAWAL FEE Upon partial withdrawal of a Policy, a fee equal to the
lesser of $25 or 2% of the amount withdrawn will be
assessed to compensate the Company for costs incurred in
accomplishing the withdrawal. The fee will be deducted
from Accumulated Value.
- --------------------------------------------------------------------------------
SURRENDER CHARGE At the time of surrender, a Surrender Charge will apply
during the first six Policy Years, as well as during the
first six years following an increase in Specified
Amount. The Surrender Charge is an amount per $1,000 of
Specified Amount, declining to $0 in the seventh year.
The Surrender Charge varies by age, sex, underwriting
category and Policy Year. The Surrender Charge is level
within each Policy Year. (See "Appendix C-- Maximum
Surrender Charges.") At the time of a requested decrease
in Specified Amount, the full original Surrender Charge
stays in place. The Surrender Charge may be waived after
the first Policy Year if the insured is terminally ill or
stays in a qualified nursing care center for 90 days.
At the time of a partial withdrawal, no Surrender Charge
applies.
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VARIABLE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE. The Company deducts a
daily mortality and expense risk charge from each
Subaccount at an effective annual rate of 0.90% of the
average daily net assets of the Subaccounts and is
guaranteed not to exceed 1.05% of the average daily net
assets of the Subaccounts.
The mortality risk assumed by the Company is that
Insureds may die sooner than anticipated and therefore,
the Company may pay an aggregate amount of life insurance
proceeds greater than anticipated. The expense risk
assumed is that expenses incurred in issuing and
administering the Policies will exceed the amounts
realized from the administrative charges assessed against
the Policies.
FEDERAL TAXES. Currently no charge is made to the
Variable Account for federal income taxes that may be
attributable to the Variable Account. The Company may,
however, make such a charge in the future. Charges for
other taxes, if any, attributable to the Account may also
be made. (See "FEDERAL TAX MATTERS--Taxation of the
Company.")
INVESTMENT OPTION EXPENSES. The value of net assets of
the Variable Account will reflect the investment advisory
fee and other expenses incurred by each Investment
Option. The investment advisory fee and other expenses
applicable to each Investment Option are listed in the
"SUMMARY OF THE POLICY" and described in the prospectus
for each Fund's Investment Option.
29
<PAGE>
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THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
Policyowners may allocate Net Premiums and transfer
Accumulated Value to the Declared Interest Option.
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS,
INTERESTS IN THE DECLARED INTEREST OPTION HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE
DECLARED INTEREST OPTION HAS NOT BEEN REGISTERED AS AN
INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940. ACCORDINGLY, NEITHER THE DECLARED INTEREST OPTION
NOR ANY INTERESTS THEREIN ARE SUBJECT TO THE PROVISIONS
OF THESE ACTS AND, AS A RESULT, THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE
DISCLOSURES IN THIS PROSPECTUS RELATING TO THE DECLARED
INTEREST OPTION. DISCLOSURES REGARDING THE DECLARED
INTEREST OPTION MAY, HOWEVER, BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES
LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF
STATEMENTS MADE IN PROSPECTUSES.
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION The Declared Interest Option is supported by the General
Account. The General Account consists of all assets owned
by the Company other than those in the Variable Account
and other separate accounts. Subject to applicable law,
the Company has sole discretion over the investment of
the assets of the General Account.
A Policyowner may elect to allocate Net Premiums to the
Declared Interest Option, the Variable Account, or both.
The Policyowner may also transfer Accumulated Value from
the Subaccounts to the Declared Interest Option, or from
the Declared Interest Option to the Subaccounts. The
allocation or transfer of funds to the Declared Interest
Option does not entitle a Policyowner to share in the
investment experience of the General Account. Instead,
the Company guarantees that Accumulated Value in the
Declared Interest Option will accrue interest at an
effective annual rate of at least 4.0%, independent of
the actual investment experience of the General Account.
- --------------------------------------------------------------------------------
THE POLICY This Prospectus describes a flexible premium variable
life insurance policy. This Prospectus is generally
intended to serve as a disclosure document for the
aspects of the Policy involving the Variable Account. For
complete details regarding the Declared Interest Option,
see the Policy itself.
- --------------------------------------------------------------------------------
DECLARED INTEREST OPTION ACCUMULATED VALUE
Net premiums allocated to the Declared Interest Option
are credited to the Policy. The Company bears the full
investment risk for these amounts. The Company guarantees
that interest credited to each Policyowner's Accumulated
Value in the Declared Interest Option will not be less
than an effective annual rate of 4.0%. The Company may,
in its sole discretion, credit a higher rate of interest,
although it is not obligated to credit interest in excess
of 4.0% per year, and might not do so. Any interest
credited on the Policy's Accumulated Value in the
Declared Interest Option in excess of the guaranteed rate
of 4.0% per year will be determined in the sole
discretion of the Company and may be changed at any time
by the Company, in its sole discretion. The Policyowner
assumes the risk that the interest credited may not
exceed the guaranteed minimum rate of 4.0% per year. The
interest credited to the Policy's Accumulated Value in
the Declared Interest Option that equals Policy Debt may
be greater than 4.0%, but will in no event be greater
than the current effective loan interest rate minus no
more than 3.0%. From time to time, the Company may allow,
by Company practice, a loan spread of 0% on the gain in a
Policy in effect a minimum of ten years. The Accumulated
Value in the Declared Interest Option will be calculated
no less frequently than each Monthly Deduction Day.
The Company guarantees that, at any time prior to the
Maturity Date, the Accumulated Value in the Declared
Interest Option will not be less than the amount of the
Net Premiums allocated or Accumulated Value transferred
to the Declared Interest Option, plus interest at the
rate of 4.0% per year, plus any excess interest which the
Company credits, less the sum of all policy charges
allocable to the Declared Interest Option and any amounts
deducted from the Declared Interest Option in connection
with partial withdrawals or transfers to the Variable
Account.
30
<PAGE>
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TRANSFERS, PARTIAL WITHDRAWALS, SURRENDERS AND POLICY LOANS
Amounts may be transferred between the Subaccounts and
the Declared Interest Option. A transfer charge of $25
may be imposed in connection with the transfer unless
such transfer is the first transfer requested by the
Policyowner during such Policy Year. Unless paid in cash,
the transfer charge will be deducted from the amount
transferred. A Policyowner may make only one transfer
between the Variable Account and the Declared Interest
Option in each Policy Year. No more than 50% of the Net
Accumulated Value in the Declared Interest Option may be
transferred from the Declared Interest Option unless the
balance in the Declared Interest Option immediately after
the transfer will be less than $1,000. If the balance in
the Declared Interest Option after a transfer would be
less than $1,000, the full Net Accumulated Value in the
Declared Interest Option may be transferred. A
Policyowner may also make partial withdrawals, surrenders
and obtain Policy Loans from the Declared Interest Option
at any time prior to the Policy's Maturity Date.
Transfers, partial withdrawals and surrenders from, and
payments of Policy Loans allocated to, the Declared
Interest Option may be delayed for up to six months.
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GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT The Policy is issued in consideration of the statements
in the application and the payment of the initial
premium. The Policy, the application, and any
supplemental applications and endorsements make up the
entire contract. In the absence of fraud, the statements
made in an application or supplemental application will
be treated as representations and not as warranties. No
statement will void the Policy or be used in defense of a
claim unless contained in the application or any
supplemental application.
- --------------------------------------------------------------------------------
INCONTESTABILITY The Policy is incontestable, except for fraudulent
statements made in the application or supplemental
applications, after it has been in force during the
lifetime of the Insured for two years from the Policy
Date or date of reinstatement. Any increase in Specified
Amount will be incontestable only after it has been in
force during the lifetime of the Insured for two years
from the effective date of the increase.
- --------------------------------------------------------------------------------
CHANGE OF PROVISIONS The Company reserves the right to change the Policy, in
the event of future changes in the federal tax law, to
the extent required to maintain the Policy's
qualification as life insurance under federal tax law.
Except as provided in the foregoing paragraph, no one can
change any part of the Policy except the Policyowner and
the President, a Vice President, the Secretary or an
Assistant Secretary of the Company. Both must agree to
any change and such change must be in writing. No agent
may change the Policy or waive any of its provisions.
- --------------------------------------------------------------------------------
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex was misstated in the
application, each benefit and any amount to be paid under
the Policy will be adjusted to reflect the correct age
and sex.
- --------------------------------------------------------------------------------
SUICIDE EXCLUSION If the Policy is in force and the Insured commits
suicide, while sane or insane, within one year from the
Policy Date, life insurance proceeds payable under the
Policy will be limited to all premiums paid, reduced by
any outstanding Policy Debt and any partial withdrawals,
and increased by any unearned loan interest. If the
Policy is in force and the Insured commits suicide, while
sane or insane, within one year from the effective date
of any increase in Specified Amount, any increase in the
death benefit resulting from the requested increase in
specified amount will not be paid. Instead, the Company
will refund to the Policyowner an amount equal to the
total cost of insurance applied to the increase.
- --------------------------------------------------------------------------------
ANNUAL REPORT At least once each year, an annual report will be sent to
each Policyowner. The report will show the current death
benefit, the Accumulated Value in each Subaccount and in
the Declared Interest Option, outstanding Policy Debt and
premiums paid, partial withdrawals made and charges
assessed since the last report. The report will also
31
<PAGE>
include any other information required by state law or
regulation. Further, the Company will send the
Policyowner the reports required by the Investment
Company Act of 1940.
- --------------------------------------------------------------------------------
NON-PARTICIPATION The Policy does not participate in the Company's profits
or surplus earnings. No dividends are payable.
- --------------------------------------------------------------------------------
OWNERSHIP OF ASSETS The Company shall have the exclusive and absolute
ownership and control over assets, including the assets
of the Variable Account.
- --------------------------------------------------------------------------------
WRITTEN NOTICE Any written notice should be sent to the Company at its
Home Office. The notice should include the policy number
and the Insured's full name. Any notice sent by the
Company to a Policyowner will be sent to the address
shown in the application unless an appropriate address
change form has been filed with the Company.
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
The Company will usually mail the proceeds of complete
surrenders, partial withdrawals and Policy Loans within
seven days after the Policyowner's signed request is
received at the Home Office. The Company will usually
mail death proceeds within seven days after receipt of
Due Proof of Death and maturity benefits within seven
days of the Maturity Date. However, payment of any amount
upon surrender or partial withdrawal, payment of any
Policy Loan, and payment of death proceeds or benefits at
maturity may be postponed whenever:
a) the New York Stock Exchange is closed other
than customary weekend and holiday closings,
or trading on the New York Stock Exchange is
restricted as determined by the Securities
and Exchange Commission;
b) the Securities and Exchange Commission by
order permits postponement for the
protection of Policyowners; or
c) an emergency exists, as determined by the
Securities and Exchange Commission, as a
result of which disposal of the securities
is not reasonably practicable or it is not
reasonably practicable to determine the
value of the net assets of the Variable
Account.
Transfers may also be postponed under these
circumstances.
Payments under the Policy which are derived from any
amount paid to the Company by check or draft may be
postponed until such time as the Company is satisfied
that the check or draft has cleared the bank upon which
it is drawn.
- --------------------------------------------------------------------------------
CONTINUANCE OF INSURANCE
The insurance under a Policy will continue until the
earliest of:
a) the end of the Grace Period following the
Monthly Deduction Day on which the Net
Accumulated Value during the first three
Policy Years, or Net Surrender Value after
three Policy Years, is less than the monthly
deduction for the following Policy Month;
b) the date the Policyowner surrenders the
Policy for its entire Net Accumulated Value;
c) the death of the Insured; or
d) the Maturity Date.
Any rider to a Policy will terminate on the date
specified in the rider.
- --------------------------------------------------------------------------------
OWNERSHIP The Policy belongs to the Policyowner. The original
Policyowner is the person named as owner in the
application. Ownership of the Policy may change according
to the ownership option selected as part of the original
application or by a subsequent endorsement to the Policy.
During the Insured's lifetime, all rights granted by the
Policy belong to the Policyowner, except as otherwise
provided for in the Policy.
Special ownership rules may apply if the Insured is under
legal age (as defined by state law in the state in which
the Policy is delivered) on the Policy Date.
32
<PAGE>
The Policyowner may assign the Policy as collateral
security. The Company assumes no responsibility for the
validity or effect of any collateral assignment of the
Policy. No assignment will bind the Company unless in
writing and until received by the Company at its Home
Office. The assignment is subject to any payment or
action taken by the Company before it received the
assignment at the Home Office.
- --------------------------------------------------------------------------------
THE BENEFICIARY The primary Beneficiaries and contingent Beneficiaries
are designated by the Policyowner in the application. If
changed, the primary Beneficiary or contingent
Beneficiary is as shown in the latest change filed with
the Company. One or more primary or contingent
Beneficiaries may be named in the application. In such
case, the proceeds will be paid in equal shares to the
survivors in the appropriate beneficiary class, unless
requested otherwise by the Policyowner.
Unless a payment option is chosen, the proceeds payable
at the Insured's death will be paid in a lump sum to the
primary Beneficiary. If the primary Beneficiary dies
before the Insured, the proceeds will be paid to the
contingent Beneficiary. If no Beneficiary survives the
Insured, the proceeds will be paid to the Policyowner or
the Policyowner's estate.
- --------------------------------------------------------------------------------
CHANGING THE POLICYOWNER OR BENEFICIARY
During the Insured's life, the Policyowner and the
Beneficiary may be changed. To make a change, written
request must be sent to the Company at its Home Office.
The request and the change must be in a form satisfactory
to the Company and must actually be received and recorded
by the Company. The change will take effect as of the
date the request is signed by the Policyowner. The change
will be subject to any payment made before the change is
recorded by the Company. The Company may require return
of the Policy for endorsement.
- --------------------------------------------------------------------------------
ADDITIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the
following additional insurance benefits may be added to a
Policy by rider: (i) Cost of Living Increase; (ii) Waiver
of Charges; (iii) Other Adult Universal Life Insurance;
(iv) Children's Term Insurance and (v) Guaranteed
Insurability Option. The cost of any additional insurance
benefits will be deducted as part of the monthly
deduction. (See "CHARGES AND DEDUCTIONS--Monthly
Deduction.") Detailed information concerning available
riders may be obtained from the agent selling the Policy.
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
- --------------------------------------------------------------------------------
The Policies will be sold by individuals who in addition
to being licensed as life insurance agents for the
Company, are registered representatives of the principal
underwriter of the Policies, EquiTrust Marketing, a
broker-dealer having a selling agreement with EquiTrust
Marketing or a broker-dealer having a selling agreement
with such broker-dealer. EquiTrust Marketing (formerly
FBL Marketing Services, Inc.), a corporation organized on
May 7, 1970, under the laws of the State of Delaware, is
registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association
of Securities Dealers, Inc.
The maximum sales commission payable to broker-dealers
will be 115% of premiums up to the first-year Target
Premium and 3% of excess premiums in the first year and
renewal premium. These commissions (and other
distribution expenses, such as production incentive
bonuses, agent's insurance and pensions benefits, agency
management compensation and bonuses and expense
allowances) are paid by the Company. They do not result
in any additional charges against the Policy that are not
described above under "CHARGES AND DEDUCTIONS."
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
INTRODUCTION The following discussion is general and is not intended
as tax advice. Any person concerned about these tax
considerations should consult a competent tax adviser.
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
33
<PAGE>
representation is made as to the likelihood of
continuation of these current laws and interpretations,
and various changes have been proposed that would alter
these laws in ways that would have significant adverse
impacts. It should be further understood that the
following discussion is not exhaustive and does not
purport to be complete or to cover all situations and
that special rules not described in this Prospectus may
be applicable in certain situations. Moreover, no attempt
has been made to consider any applicable state or other
tax laws.
- --------------------------------------------------------------------------------
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as
amended (the "Code") includes a definition of a life
insurance contract for federal tax purposes. The
Secretary of the Treasury (the "Treasury") is authorized
to prescribe regulations interpreting and implementing
section 7702 and has issued proposed regulations on
certain aspects of section 7702. If a Policy were
determined not to be a life insurance contract for
purposes of section 7702, such Policy would not provide
most of the tax advantages normally provided by a life
insurance policy.
With respect to a Policy issued exclusively on the basis
of a standard premium class, while there is some
uncertainty due to the limited guidance on section 7702,
the Company believes that in light of the proposed
regulations such a Policy should meet the section 7702
definition of a life insurance contract. However, with
respect to a Policy issued in whole or in part on a
substandard basis (i.e., a premium class involving higher
than standard mortality risk), it is not clear whether or
not such a Policy would satisfy section 7702,
particularly if the Policyowner pays the full amount of
premiums permitted under the Policy. If it is
subsequently determined that a Policy does not satisfy
section 7702, the Company will take whatever steps are
appropriate and necessary to attempt to cause such a
Policy to comply with section 7702, including possibly
refunding any premiums paid that exceed the limitations
allowable under section 7702 (together with interest or
other earnings on any such premiums refunded as required
by law). For these reasons, the Company reserves the
right to modify the Policy as necessary to attempt to
qualify it as a life insurance contract under section
7702.
Section 817(h) of the Code authorizes the Treasury to set
standards by regulation or otherwise for the investments
of the Account to be "adequately diversified" in order
for the Policy to be treated as a life insurance contract
for federal tax purposes. The Variable Account, through
each Fund, intends to comply with the diversification
requirements prescribed in Regulations section 1.817-5,
which affect how each Fund's assets may be invested.
Although the investment adviser of EquiTrust Variable
Insurance Series Fund is an affiliate of the Company, the
Company does not have control over the Fund or its
investments. Nonetheless, the Company believes that each
Investment Option in which the Variable Account owns
shares will be operated in compliance with the
requirements prescribed by the Treasury.
In certain circumstances, owners of variable life
insurance 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
contract owner's gross income. The IRS has stated in
published rulings that a variable 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 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
Policyowner), 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."
34
<PAGE>
The ownership rights under the Policy are similar to, but
different in certain respects from, those described by
the IRS in rulings in which it was determined that policy
owners were not owners of separate account assets. For
example, a Policyowner has additional flexibility in
allocating premium payments and policy values. These
differences could result in a Policyowner being treated
as the owner of a pro rata portion of the assets of the
Variable Account. In addition, the Company does not know
what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has
stated it expects to issue. The Company therefore
reserves the right to modify the Policy as necessary to
attempt to prevent a Policyowner from being considered
the owner of a pro rata share of the assets of the
Variable Account.
The following discussion assumes that the Policy will
qualify as a life insurance contract for federal income
tax purposes.
- --------------------------------------------------------------------------------
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. The Company believes that the proceeds and
cash value increases of a Policy should be treated in a
manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the
gross income of the Beneficiary under section 101(a)(l)
of the Code.
A change in a Policy's Specified Amount, the payment of
an unscheduled premium, a Policy loan, a partial
withdrawal, a surrender, a lapse with outstanding
indebtedness, a change in death benefit options, the
exchange of a Policy for a fixed-benefit policy (see "THE
POLICY--Special Transfer Privilege") and the assignment
of a Policy or the exercise of the right to change
Policyowners (see "GENERAL PROVISIONS-- Changing the
Policyowner or Beneficiary") may have tax consequences
depending upon the circumstances. In addition, federal
estate and state and local estate, inheritance, and other
tax consequences of ownership or receipt of Policy
proceeds depend upon the circumstances of each
Policyowner or Beneficiary. A competent tax adviser
should be consulted for further information.
Pursuant to the recently enacted Health Insurance
Portability and Accountability Act of 1996, the Company
believes that for federal income tax purposes, an
accelerated death benefit payment received under an
accelerated death benefit endorsement should be fully
excludable from the gross income of the beneficiary, as
long as the beneficiary is the insured under the Policy.
However, the Policyowner should consult a qualified tax
adviser about the consequences of adding this Endorsement
to a Policy or requesting an accelerated death benefit
payment under this Endorsement.
The Company further believes that an exchange of a
fixed-benefit policy issued by the Company for a Policy
as provided under "THE POLICY--Exchange Privilege"
generally should be treated as a non-taxable exchange of
life insurance policies within the meaning of section
1035 of the Code. However, in certain circumstances, the
exchanging owner may receive a cash distribution that
might have to be recognized as income to the extent there
was gain in the fixed-benefit policy. Moreover, to the
extent a fixed-benefit policy with an outstanding loan is
exchanged for an unencumbered Policy, the exchanging
owner could recognize income at the time of the exchange
up to the amount of such loan (including any due and
unpaid interest on such loan). An exchanging owner should
consult a tax adviser as to whether an exchange of a
fixed-benefit policy for the Policy will have tax
consequences to such owner.
The Policies may be used in various arrangements,
including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary
depending on the particular facts and circumstances of
each individual arrangement. Therefore, if it is
contemplated that a Policy may be used in any arrangement
the value of which depends in part on its tax
consequences, a qualified tax adviser should be consulted
regarding the tax attributes of the particular
arrangement.
Generally, the Policyowner will not be deemed to be in
constructive receipt of the cash value, including
increments thereof, under the Policy until there is a
distribution.
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<PAGE>
The tax consequences of distributions from, and loans
taken from or secured by, a Policy depend on whether the
Policy is classified as a "modified endowment contract."
Whether a Policy is or is not a modified endowment
contract, upon a complete surrender or lapse of a Policy,
or when benefits are paid at such Policy's maturity date,
if the amount received plus the amount of indebtedness
exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to
tax.
MODIFIED ENDOWMENT CONTRACTS. A Policy may be treated as
a modified endowment contract depending upon the amount
of premiums paid in relation to the death benefit
provided under such Policy. The premium limitation rules
for determining whether a Policy is a modified endowment
contract are extremely complex. In general, however, a
Policy will be a modified endowment contract if the
accumulated premiums paid at any time during the first
seven policy years exceeds the sum of the net level
premiums which would have been paid on or before such
time if the Policy provided for paid-up future benefits
after the payment of seven level annual premiums. In
addition, if a Policy is "materially changed," it may
cause such Policy to be treated as a modified endowment
contract. The material change rules for determining
whether a Policy is a modified endowment contract are
also extremely complex. In general, however, the
determination whether a Policy will be a modified
endowment contract after a material change generally
depends upon the relationship among the death benefit at
the time of such change, the cash value at the time of
such change and the additional premiums paid in the seven
policy years starting with the date on which the material
change occurs.
Due to the Policy's flexibility, classification of a
Policy as a modified endowment contract will depend upon
the circumstances of each Policy. Accordingly, a
prospective Policyowner should contact a competent tax
adviser before purchasing a Policy to determine the
circumstances under which the Policy would be a modified
endowment contract. In addition, a Policyowner should
contact a competent tax adviser before paying any
unscheduled premiums or changing the planned premium
schedule or making any other change to, including an
exchange of, a Policy to determine whether such premium
or change would cause the Policy (or the new Policy in
the case of an exchange) to be treated as a modified
endowment contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS. Policies classified as modified
endowment contracts are subject to the following tax
rules: First, all distributions, including distributions
upon surrender and benefits paid at maturity, from such a
Policy are treated as ordinary income subject to tax up
to the amount equal to the excess (if any) of the cash
value immediately before the distribution over the
investment in the Policy (described below) at such time.
Second, loans taken from, or secured by, such a Policy
are treated as distributions from such a Policy and taxed
accordingly. In this regard, the Internal Revenue Service
could take the position that capitalized interest on such
loans are to be treated as a taxable distribution. Third,
a 10 percent additional tax is imposed on the portion of
any distribution from, or loan taken from or secured by,
such a Policy that is included in income except where the
distribution or loan is made on or after the Policyowner
attains age 59 1/2, is attributable to the Policyowner's
becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or
life expectancy) of the Policyowner or the joint lives
(or joint life expectancies) of the Policyowner and the
Policyowner's Beneficiary.
If a Policy becomes a modified endowment contract after
it is issued, distributions made during the policy year
in which it becomes a modified endowment contract,
distributions in any subsequent policy year and
distributions within two years before the Policy becomes
a modified endowment contract will be subject to the tax
treatment described above. This means that a distribution
from a Policy that is not a modified endowment contract
could later become taxable as a distribution from a
modified endowment contract.
36
<PAGE>
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS. Distributions from a Policy that is
not classified as a modified endowment contract are
generally treated as first recovering the investment in
the policy (described below) and then, only after the
return of all such investment in the policy, as
distributing taxable income. An exception to this general
rule occurs in the case of a partial withdrawal, a
decrease in the Specified Amount, or any other change
that reduces benefits under the Policy in the first 15
years after the Policy is issued and that results in a
cash distribution to the Policyowner in order for the
Policy to continue complying with the section 7702
definitional limits. In that case, such distribution will
be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed
in section 7702.
Loans from, or secured by, a Policy that is not a
modified endowment contract are not treated as
distributions. Instead, such loans are treated as
indebtedness of the Policyowner.
Finally, neither distributions (including distributions
upon surrender or lapse) nor loans from, or secured by, a
Policy that is not a modified endowment contract are
subject to the 10 percent additional tax.
POLICY LOAN INTEREST. Interest paid on any loan under a
Policy may not be deductible. Therefore, a Policyowner
should consult a competent tax adviser before deducting
any Policy loan interest.
INVESTMENT IN THE POLICY. Investment in the policy means
(i) the aggregate amount of any premiums or other
consideration paid for a Policy, minus (ii) the aggregate
amount received under the Policy which is excluded from
the gross income of the Policyowner (except that the
amount of any loan from, or secured by, a Policy that is
a modified endowment contract, to the extent such amount
is excluded from gross income, will be disregarded), plus
(iii) the amount of any loan from, or secured by, a
Policy that is a modified endowment contract to the
extent that such amount is included in the gross income
of the Policyowner.
MULTIPLE POLICIES. All modified endowment contracts that
are issued by the Company (or its affiliates) to the same
Policyowner during any calendar year are treated as one
modified endowment contract for purposes of determining
the amount includable in gross income under section
72(e).
- --------------------------------------------------------------------------------
TAXATION OF THE COMPANY
At the present time, the Company makes no charge to the
Variable Account, or to the Policy for any Federal, state
or local taxes (other than state premium taxes) that it
incurs that may be attributable to such Account or to the
Policies. The Company, however, reserves the right in the
future to make a charge for any such tax or other
economic burden resulting from the application of the tax
laws that it determines to be properly attributable to
the Variable Account or to the Policies.
- --------------------------------------------------------------------------------
EMPLOYMENT-RELATED BENEFIT PLANS
The Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an
employer's deferred compensation plan could not, under
Title VII of the Civil Rights Act of 1964, vary between
men and women on the basis of sex. In addition,
legislative, regulatory or decisional authority of some
states may prohibit use of sex-distinct mortality tables
under certain circumstances. The Policy described in this
Prospectus contains guaranteed cost of insurance rates
and guaranteed purchase rates for certain payment options
that distinguish between men and women. Accordingly,
employers and employee organizations should consider, in
consultation with legal counsel, the impact of NORRIS,
and Title VII generally, on any employment-related
insurance or benefit program for which a Policy may be
purchased.
37
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
The Company holds the assets of the Variable Account. The
assets are kept physically segregated and held separate
and apart from the General Account. The Company maintains
records of all purchases and redemptions of shares by
each Investment Option for each corresponding Subaccount.
Additional protection for the assets of the Variable
Account is afforded by a blanket fidelity bond issued by
Chubb Insurance Group in the amount of $5,000,000
covering all the officers and employees of the Company.
- --------------------------------------------------------------------------------
VOTING RIGHTS To the extent required by law, the Company will vote the
Fund shares held in the Variable 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 Investment Company Act of 1940 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 which a Policyowner has the right to
instruct are calculated separately for each Subaccount
and are determined by dividing a Policy's Accumulated
Value in a Subaccount by the net asset value per share of
the corresponding Investment Option in which the
Subaccount invests. Fractional shares will be counted.
The number of votes of the Investment Option which the
Policyowner has the right to instruct will be determined
as of the date coincident with the date established by
that Investment Option for determining shareholders
eligible to vote at such meeting of the Fund. Voting
instructions will be solicited by written communications
prior to such meeting in accordance with procedures
established by each Fund. Each person having a voting
interest in a Subaccount will receive proxy materials,
reports and other materials relating to the appropriate
Investment Option.
The Company will vote Fund shares attributable to
Policies as to which no timely instructions are received
(as well as any Fund shares held in the Variable Account
which are not attributable to Policies) in proportion to
the voting instructions which are received with respect
to all Policies 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.
Fund shares may also be held by separate accounts of
other affiliated and unaffiliated insurance companies.
The Company expects that those shares will be voted in
accordance with instructions of the owners of insurance
policies and contracts issued by those other insurance
companies. Voting instructions given by owners of other
insurance policies will dilute the effect of voting
instructions of Policyowners.
DISREGARD OF VOTING INSTRUCTIONS. The Company may, when
required by state insurance regulatory authorities,
disregard voting instructions if the instructions require
that the shares be voted so as to cause a change in the
sub-classification or investment objective of an
Investment Option or to approve or disapprove an
investment advisory contract for an Investment Option. In
addition, the Company itself may disregard voting
instructions in favor of changes initiated by a
Policyowner in the investment policy or the investment
adviser of an Investment Option if the Company reasonably
disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities,
or the Company determined that the change would have an
adverse effect on the General Account in that the
proposed investment policy for an Investment Option may
result in overly speculative or unsound investments. In
the event the Company does disregard voting instructions,
a summary of that action and the reasons for such action
will be included in the next annual report to
Policyowners.
- --------------------------------------------------------------------------------
STATE REGULATION OF THE COMPANY
The Company, a stock life insurance company organized
under the laws of Iowa, is subject to regulation by the
Iowa Insurance Department. An annual statement is filed
with the Iowa Insurance Department on or before March lst
of each year covering the
38
<PAGE>
operations and reporting on the financial condition of
the Company as of December 31st of the preceding year.
Periodically, the Iowa Insurance Department examines the
liabilities and reserves of the Company and the Variable
Account and certifies their adequacy, and a full
examination of operations is conducted periodically by
the National Association of Insurance Commissioners.
In addition, the Company is subject to the insurance laws
and regulations of other states within which it is
licensed or may become licensed to operate. Generally,
the insurance department of any other state applies the
laws of the state of domicile in determining permissible
investments.
One hundred percent of the outstanding voting shares of
the Company are owned by Farm Bureau Life Insurance
Company which is 100% owned by FBL Financial Group, Inc.
At December 31, 1997, 66.36% of the outstanding voting
shares of FBL Financial Group, Inc. was owned by Iowa
Farm Bureau Federation.
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.
39
<PAGE>
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<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
OFFICERS AND DIRECTORS OF LAST FIVE YEARS**
WITH THE COMPANY* --------------------------------------------------
- ------------------------------
EQUITRUST LIFE INSURANCE
<S> <C>
Edward M. Wiederstein, Farmer; Chairman and Director, FBL Financial
President and COMPANY Group, Inc.; President and Director, Iowa Farm
Director Bureau Federation, FBL Insurance Brokerage, Inc.,
Farm Bureau Mutual Insurance Company, Utah Farm
Bureau Insurance Company, FBL Financial Services,
Inc., Universal Assurors Life Insurance Company
and Farm Bureau Agricultural Business Corporation;
Director, Multi-Pig Corporation, Western
Agricultural Insurance Company, Western Ag
Insurance Agency, Inc., Western Farm Bureau Life
Insurance Company and American Ag Insurance
Company
Richard D. Harris, Senior Vice Senior Vice President and Secretary- Treasurer,
President, Farm Bureau Mutual Insurance Company, FBL
Secretary-Treasurer and Insurance Brokerage, Inc., Universal Assurors Life
Director Insurance Company, Utah Farm Bureau Insurance
Company, Western Farm Bureau Life Insurance
Company, FBL Financial Services, Inc. and FBL
Financial Group, Inc.; Senior Vice President and
Assistant Secretary-Treasurer, South Dakota Farm
Bureau Mutual Insurance Company
Stephen M. Morain, Senior Vice Senior Vice President and General Counsel, FBL
President, General Counsel Financial Group, Inc.
and Director
Thomas R. Gibson, Chief Chief Executive Officer, FBL Financial Group, Inc.
Executive Officer and
Director
William J. Oddy, Executive Chief Operating Officer, FBL Financial Group, Inc.
Vice President, General
Manager and Director
Timothy J. Hoffman, Vice Vice President, Chief Property/Casualty Officer,
President and Director FBL Financial Group, Inc.
James W. Noyce, Chief Chief Financial Officer, FBL Financial Group, Inc.
Financial Officer and
Director
Barbara J. Moore, Vice Vice President-Property/Casualty Operations, FBL
President Financial Group, Inc.
JoAnn W. Rumelhart, Vice Vice President-Life Operations, FBL Financial
President-Life Operations Group, Inc.
John M. Paule, Vice President- Vice President-Corporate Administration, FBL
Corporate Administration Financial Group, Inc.
</TABLE>
- --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West
Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years.
Corporate positions may, in some instances, have changed during the period.
40
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
- ------------------------------ --------------------------------------------------
<S> <C>
Lynn E. Wilson, Vice Vice President-Life Sales, FBL Financial Group,
President- Inc.
Life Sales
F. Walter Tomenga, Vice Vice President-Corporate Affairs and Marketing
President-Corporate Affairs Services, FBL Financial Group, Inc.
and Marketing Services
Robert L. Tatge, Vice Vice President-Property/Casualty Operations, FBL
President Financial Group, Inc.
Lou Ann Sandburg, Vice Vice President-Investments and Assistant
President- Treasurer, FBL Financial Group, Inc.
Investments and Assistant
Treasurer
Thomas E. Burlingame, Vice Vice President-Associate General Counsel, FBL
President-Associate General Financial Group, Inc.
Counsel
Kathryn Coleson Horner, Accounting Vice President, FBL Financial Group,
Accounting Vice President Inc.
Dennis M. Marker, Investment Investment Vice President, Administration, FBL
Vice President, Financial Group, Inc.
Administration
Paul Grinvalds, Variable Variable Operations Vice President, Appointed
Operations Vice President Actuary, FBL Financial Group, Inc.
James P. Brannen, Tax and Tax and Investment Accounting Vice President, FBL
Investment Accounting Vice Financial Group, Inc.
President
Christopher G. Daniels, Life Life Product Development and Pricing Vice
Product Development and President, FBL Financial Group, Inc.
Pricing Vice President
James E. McCarthy, Trust Sales Trust Sales Vice President, FBL Financial Group,
Vice President Inc.
Don Seibel, GAAP Accounting GAAP Accounting Vice President, FBL Financial
Vice President Group, Inc.
Scott Shuck, Marketing Marketing Services Vice President, FBL Financial
Services Vice President Group, Inc.
Jim Streck, Traditional Traditional Operations Vice President, FBL
Operations Vice President Financial Group, Inc.
Blake D. Weber, Sales Services Sales Services Vice President, FBL Financial
Vice President Group, Inc.
</TABLE>
- --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West
Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years.
Corporate positions may, in some instances, have changed during the period.
41
<PAGE>
- --------------------------------------------------------------------------------
LEGAL MATTERS Sutherland, Asbill & Brennan LLP of Washington, D.C. has
provided advice on certain legal matters relating to
federal securities laws applicable to the issuance of the
flexible premium variable life insurance policy described
in this Prospectus. All matters of Iowa law pertaining to
the Policy, including the validity of the Policy and the
Company's right to issue the Policy under Iowa Insurance
Law, have been passed upon by Stephen M. Morain, Senior
Vice President and General Counsel of the Company.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS The Company, like other insurance companies, is involved
in lawsuits. Currently, there are no class action
lawsuits naming the Company as a defendant or involving
the Variable 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 Variable Account of the Company.
- --------------------------------------------------------------------------------
EXPERTS The statutory-basis financial statements of the Company
at December 31, 1997 and 1996 and for the years then
ended, appearing herein, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and are
included in reliance upon such report given upon the
authority of such firm as experts in accounting and
auditing.
Actuarial matters included in this Prospectus have been
examined by Christopher G. Daniels, FSA, MSAA, Life
Product Development and Pricing Vice President, as stated
in the opinion filed as an exhibit to the registration
statement.
- --------------------------------------------------------------------------------
YEAR 2000 Like other investment funds, financial and business
organizations and individuals around the world, the
Variable Account could be adversely affected if the
computer systems used by the Company and other service
providers do not properly process and calculate
date-related information and data from and after January
1, 2000. In 1997, the Company completed a comprehensive
assessment of the Year 2000 issue and developed a plan to
address the issue in a timely manner. The Company has and
will utilize both internal and external resources to
reprogram, or replace, and test the software for Year
2000 modifications. The company anticipates completing
the Year 2000 project no later than December 31, 1998,
and prior to any anticipated impact on its operating
systems.
The date on which the Company believes it will complete
the Year 2000 modifications is based on management's best
estimates, which were derived utilizing numerous
assumptions of future events. The Company also recognizes
there are outside influences and dependencies relative to
its Year 2000 effort, over which it has little or no
control. However, the Company is putting effort into
ensuring these considerations will have minimal impact.
These would include the continued availability of certain
resources, third-party modification plans and many other
factors. However, there can be no guarantee that these
estimates will be achieved and actual results could
differ from those anticipated.
- --------------------------------------------------------------------------------
OTHER INFORMATION A registration statement has been filed with the
Securities and Exchange Commission under the Securities
Act of 1933, as amended, with respect to the Policy
offered hereby. This Prospectus does not contain all the
information set forth in the registration statement and
the amendments and exhibits to the registration
statement, to all of which reference is made for further
information concerning the Variable Account, the Company
and the Policy offered hereby. Statements contained in
this Prospectus as to the contents of the Policy and
other legal instruments are summaries. For a complete
statement of the terms thereof, reference is made to such
instruments as filed.
42
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The statutory-basis balance sheets of the Company at
December 31, 1997 and 1996 and the related
statutory-basis statements of operations, changes in
capital and surplus and cash flows for the years then
ended, appearing herein, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein. The unaudited
statutory-basis balance sheet of the Company at June 30,
1998, the related unaudited statutory-basis statement of
changes in capital and surplus for the six months then
ended, and the related unaudited statutory-basis
statements of operations and cash flows for the six
months ended June 30, 1998 and 1997 also appear herein.
It is anticipated that the Variable Account will commence
operations in 1998; accordingly, no financial statements
currently exist for the variable account.
43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
EquiTrust Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of EquiTrust
Life Insurance Company (the Company), formerly known as Continental Western Life
Insurance Company, as of December 31, 1997 and 1996, and the related
statutory-basis statements of operations, changes in capital and surplus, and
cash flow for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, State of Iowa,
which practices differ from generally accepted accounting principles. The
variances between such practices and generally accepted accounting principles
and the effects on the accompanying financial statements are described in Note
1.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of the Company at December 31, 1997 or 1996, or the results of its operations or
its cash flow for the years then ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1997 and 1996, and the results of its operations and its cash flow
for the years then ended, in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, State of Iowa.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
January 16, 1998
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------
1998 1997 1996
------------ ------ --------
(UNAUDITED)
<S> <C> <C> <C>
ADMITTED ASSETS
United States Government and agencies
bonds $24,252 $5,515 $301,430
Common stocks -- -- 82
Mortgage loans -- -- 31,697
Policy loans -- -- 30,643
Real estate -- -- 1,730
Cash and short-term investments 6,405 2,593 17,926
Other invested assets 45 -- --
------------ ------ --------
Cash and invested assets 30,702 8,108 383,508
Property and equipment -- -- 235
Investment income due and accrued 217 54 3,702
Premiums deferred and uncollected, less
loading (1996--$307,000) -- -- 3,018
Other admitted assets 2 -- 1,719
------------ ------ --------
Total admitted assets $30,921 $8,162 $392,182
------------ ------ --------
------------ ------ --------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy and contract liabilities $ -- $ -- $349,067
Accrued expenses and other liabilities 19 -- 6,078
Deferred compensation (NOTE 7) -- -- 1,464
Federal income taxes 25 1 --
Asset valuation reserve 20 -- 2,216
Interest maintenance reserve 54 57 --
------------ ------ --------
Total liabilities 118 58 358,825
Capital and surplus:
Common stock, $1,500 par
value--authorized 2,500 shares;
issued and outstanding 2,000 shares 3,000 3,000 3,000
Additional paid-in capital 27,748 5,125 7,510
Unassigned surplus 55 (21) 22,847
------------ ------ --------
Total capital and surplus 30,803 8,104 33,357
------------ ------ --------
Total liabilities and capital and
surplus $30,921 $8,162 $392,182
------------ ------ --------
------------ ------ --------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30 DECEMBER 31
---------------- ----------------
1998 1997 1997 1996
------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Premiums and other revenues:
Life and annuity premiums $ -- $ -- $ -- $28,381
Accident and health premiums -- -- -- 983
Net investment income 324 241 473 26,144
Amortization of the interest
maintenance reserve 3 -- 3 (1,231)
Other revenues -- -- -- 938
------ ------ ------ -------
Total premiums and other revenues 327 241 476 55,215
Benefits paid or provided:
Death and annuity benefits -- -- -- 37,002
Accident and health benefits -- -- -- 875
------ ------ ------ -------
Total benefits paid or provided -- -- -- 37,877
Insurance expenses and other deductions:
Commissions -- -- -- 3,207
General expenses 130 1 -- 5,059
Insurance taxes, licenses and fees 44 14 -- 1,382
------ ------ ------ -------
Total insurance expenses and other
deductions 174 15 -- 9,648
------ ------ ------ -------
Gain from operations before federal
income taxes
and net realized capital gains 153 226 476 7,690
Federal income taxes 57 79 148 1,625
------ ------ ------ -------
Net gain from operations before net
realized capital gains 96 147 328 6,065
Net realized capital gains -- -- -- 591
------ ------ ------ -------
Net income $ 96 $ 147 $ 328 $ 6,656
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN UNASSIGNED TOTAL CAPITAL
STOCK CAPITAL SURPLUS AND SURPLUS
------ ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $3,000 $ 7,510 $ 15,475 $ 25,985
Net income for 1996 -- -- 6,656 6,656
Change in difference between cost and
admitted asset investment amounts -- -- (16) (16)
Decrease in nonadmitted assets -- -- 1,318 1,318
Increase in asset valuation reserve -- -- (591) (591)
Other -- -- 5 5
------ ---------- ---------- -------------
Balance at December 31, 1996 3,000 7,510 22,847 33,357
Transfer of assets to TMG Life
Insurance Company under assumption
reinsurance agreement -- (2,823) (22,847) (25,670)
Net income for 1997 -- -- 328 328
Increase in nonadmitted assets -- -- (349) (349)
Other -- 438 -- 438
------ ---------- ---------- -------------
Balance at December 31, 1997 3,000 5,125 (21) 8,104
Net income for six month period ended
June 30, 1998 (Unaudited) -- -- 96 96
Increase in asset valuation reserve
(Unaudited) -- -- (20) (20)
Capital contributions (Unaudited) -- 22,623 -- 22,623
------ ---------- ---------- -------------
Balance at June 30, 1998 (Unaudited) $3,000 $27,748 $ 55 $ 30,803
------ ---------- ---------- -------------
------ ---------- ---------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOW--STATUTORY BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE YEAR ENDED DECEMBER
30 31
--------------------- ---------------------
1998 1997 1997 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and considerations, net of
reinsurance $ -- $ -- $ -- $ 30,013
Net investment income 177 169 440 23,104
Benefits paid -- -- -- (44,572)
Commissions, general insurance expenses
and taxes (171) (1) -- (8,459)
Federal income taxes (33) -- (180) (2,023)
Other income received less other
expenses -- -- -- 733
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities (27) 168 260 (1,199)
INVESTING ACTIVITIES
Proceeds from investments sold, matured,
or repaid:
Bonds -- -- 5,793 131,843
Mortgage loans -- -- -- 855
Real estate -- -- -- 5,114
--------- --------- --------- ---------
Total investment proceeds -- -- 5,793 137,812
Cost of investments acquired:
Bonds (18,750) -- (5,518) (138,785)
Mortgage loans -- -- -- (5,533)
--------- --------- --------- ---------
Total investments acquired (18,750) -- (5,518) (144,318)
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities (18,777) 168 275 (6,506)
FINANCING ACTIVITIES
Capital contributions 22,623 -- -- --
Other cash applied (33) (15,918) (15,868) --
--------- --------- --------- ---------
Net change in cash and short-term
investments 3,813 (15,750) (15,333) (7,705)
Cash and short-term investments at
beginning of period 2,592 17,926 17,926 25,631
--------- --------- --------- ---------
Cash and short-term investments at end
of period $ 6,405 $ 2,176 $ 2,593 $ 17,926
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
EquiTrust Life Insurance Company (the Company), formerly Continental Western
Life Insurance Company, is a life insurance company domiciled in the state of
Iowa and licensed in 38 states. All in force policies, annuities and
certificates of the Company were ceded to TMG Life Insurance Company (TMG Life),
formerly an affiliated company, through an assumption reinsurance agreement as
of January 1, 1997. At December 31, 1997, the Company had no insurance in force.
The Company was purchased by Farm Bureau Life Insurance Company (Farm Bureau) on
December 30, 1997, and became a wholly owned subsidiary of Farm Bureau which, in
turn, is wholly owned by FBL Financial Group, Inc. The Company was previously
wholly owned by TMG Life which is owned by The Mutual Group (U.S.), Inc. [TMG
(U.S.)], which itself is a wholly owned subsidiary of The Mutual Life Assurance
Company of Canada.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with accounting
practices prescribed or permitted by the Insurance Division, Department of
Commerce, State of Iowa (Insurance Division). Such practices differ from
generally accepted accounting principles (GAAP). The more significant variances
from GAAP are as follows: (a) costs of acquiring new business are expensed as
incurred rather than deferred and amortized over the life of the policies; (b)
carrying values of bonds designated under GAAP as available-for-sale securities
are based on values specified by the National Association of Insurance
Commissioners (NAIC) rather than fair values; (c) policy reserves on traditional
life products are based on statutory mortality and interest rates rather than
expected mortality and interest rates; (d) reinsurance amounts are netted
against the corresponding amounts rather than reported gross; (e) policy
reserves on universal life and investment products are stated using statutory
discounting methodologies rather than at full account values; (f) deferred
income taxes are not provided for the differences between the financial
statement and income tax bases of assets and liabilities; (g) after-tax net
realized capital gains or losses attributed to changes in interest rates are
deferred and amortized over the remaining life of the investment rather than
recognized as pre-tax gains or losses in the statement of operations when the
sale is completed; (h) declines in the estimated realizable value of investments
are recognized through a formula-determined reserve carried as a liability whose
changes are charged directly to surplus rather than reducing the carrying value
of the related investment and recognizing realized losses in the statements of
operations; (i) certain assets designated as "nonadmitted," principally agents'
debit balances and furniture and equipment, are excluded from the accompanying
balance sheets and are charged directly to unassigned surplus; (j) revenues for
universal life and investment products consist of premiums received rather than
policy charges; (k) pension expense is recognized in accordance with rules and
regulations permitted by the Employee Retirement Income Security Act of 1974
rather than Statement of Financial Accounting Standards (SFAS) No. 87,
"Employers' Accounting for Pensions"; (l) accrued postretirement benefits other
than pensions do not include a provision for benefits that are not fully vested;
and (m) assets and liabilities continue to be shown at historical values rather
than restated fair values when a change in ownership occurs.
The National Association of Insurance Commissioners (NAIC) is in the process of
codifying statutory accounting practices (Codification). Codification will
likely change, to some extent, prescribed statutory accounting practices and may
result in changes to the accounting practices that the Company used to prepare
its statutory-basis financial statements. Codification, which was approved by
the NAIC in 1998, will require adoption by the various states before it becomes
the prescribed statutory basis of accounting for insurance companies
domesticated within those states. Accordingly, before Codification becomes
effective for the Company, the State of Iowa must adopt Codification as the
prescribed basis of accounting on which domestic insurers must report their
statutory-basis results to the Insurance Division. At this time, it is unclear
whether the State of Iowa will adopt Codification.
PERMITTED PRACTICE
The statutory-basis financial statements are prepared in accordance with
accounting practices prescribed or permitted by the Insurance Division.
"Prescribed" statutory accounting practices include regulations and general
administrative rules, as well as a variety of publications of the NAIC.
"Permitted" statutory accounting practices encompass all practices that are not
prescribed, may differ from insurance company to insurance company, and may
change in the future.
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has received approval from the Insurance Division to account for the
disposition of many of the balance sheet items related to the assumption
reinsurance agreement as a change in surplus rather than reporting their effect
in the income statement. The majority of the assets and liabilities of the
Company were transferred to TMG Life effective January 1, 1997, leaving only
that amount of invested assets, capital and surplus required to maintain minimum
capital. An analysis of these transferred amounts follows (in thousands):
<TABLE>
<S> <C>
Assets:
Bonds $ 295,713
Common stocks 82
Mortgage loans 31,697
Real estate 1,730
Policy loans 30,643
Cash and short-term investments 16,333
Other admitted assets 8,297
---------
Total 384,495
Less liabilities 358,825
---------
Net transferred $ 25,670
---------
---------
Capital and surplus:
Contributed capital $ 2,823
Unassigned surplus 22,847
---------
Total $ 25,670
---------
---------
</TABLE>
INTERIM FINANCIAL INFORMATION
The financial statements as of June 30, 1998 and for the six-month periods ended
June 30, 1998 and 1997 and related disclosures in these notes have not been
audited. The interim financial statements have been prepared in accordance with
statutory accounting principles. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals unless noted otherwise herein)
considered necessary for a fair presentation have been included. Operating
results for the six-month period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
INVESTMENTS
Investment values have been determined in accordance with methods adopted by the
NAIC. Bonds are valued at amortized cost or NAIC designated value. The amortized
cost for loan-backed bonds is valued using the interest method including
anticipated prepayments.
Prepayment assumptions are obtained from internal estimates and are based on the
current interest rate and economic environment. The retrospective adjustment
method is used to value all such securities except for interest-only securities,
which are valued using the prospective method. Common stocks are reported at
market value. Real estate is carried at cost less encumbrances and accumulated
depreciation is calculated on a straight-line basis over the estimated useful
lives of the properties. Short-term investments are valued at cost which
approximates market. Mortgage loans and policy loans are valued at the unpaid
principal balance.
As required by the NAIC, the Company maintains an Asset Valuation Reserve (AVR),
a separately stated liability on the statutory balance sheet which is computed
under a prescribed formula to provide for possible credit losses and declines in
the value of bonds, stocks, mortgage loans, real estate, short-term investments
and other invested assets. Changes to the AVR are reported directly on the
statement of changes in capital and surplus.
Interest income from bonds and mortgage loans is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of
mortgage-backed securities, over the estimated life of the security. Accrual of
interest is nonadmitted on investments that have become 90 days past due or if
management doubts the collectibility of principal
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
or interest on an investment that is currently performing. Investments are
restored to accrual status when brought current, or when management no longer
doubts the ultimate collectibility of principal and interest. Mortgage loan
origination fees are deferred and recognized as income over the life of the
loan.
Net unrealized gains or losses in the carrying value of investments are
reflected in unassigned surplus. Realized gains and losses are determined by
specific identification of cost of investments sold and are recorded in the
statement of operations net of tax and net of amounts transferred to the
Interest Maintenance Reserve (IMR). The IMR is maintained as prescribed by the
NAIC and represents the accumulation of deferred after-tax net realized capital
gains and losses from sales of investments that are attributable to changes in
interest rates. These deferred gains and losses are amortized into income over
the remaining period to maturity. Amortization of the IMR is reported in the
statement of operations.
CASH AND SHORT-TERM INVESTMENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of twelve months or less to be
short-term investments.
POLICY RESERVES
Future policy benefit reserves on life policies are provided principally under
the Commissioners' Reserve Valuation Method using primarily 1958 and 1980
Commissioners' Standard Ordinary mortality tables assuming interest rates from
2 1/2 to 6 percent. All reserves are calculated using the mean reserve method.
Liabilities for future policy benefits on annuity policies are generally based
on policy values including interest additions at current rates.
The Company had no insurance in force as of December 31, 1997. The Company had
insurance in force of $174,086,000 for which gross premiums were less than the
net valuation premiums required by the Insurance Division as of December 31,
1996. Policy reserves of $401,000 were held by the Company to cover these
deficiencies at December 31, 1996. Tabular interest, tabular less actual reserve
released, tabular cost, and tabular interest on funds not involving life
contingencies are determined by formula as prescribed by the NAIC.
POLICY AND CONTRACT CLAIMS
The liabilities for insurance claims are determined using estimates of the
ultimate net cost of all reported and unreported claims which are unpaid at year
end. Although it is not possible to measure the degree of variability inherent
in such estimates, management believes that the liabilities for insurance claims
are adequate. The estimates are reviewed periodically and adjusted as necessary
with such adjustments being reflected in current operations.
PREMIUMS
Premiums for traditional life policies are recognized as revenue when due.
Premiums for accident and health policies are recognized ratably over the period
of insurance coverage. Universal life insurance and annuity premiums are
recognized as revenue when received.
REINSURANCE
The Company cedes reinsurance and participates in various pools and
associations. These reinsurance arrangements allow management to control
exposure to potential losses arising from large risks. Reinsurance premiums,
commissions, expense reimbursements, and reserves related to reinsured business
are accounted for on bases consistent with those used in accounting for the
original policies issued and with the terms of the reinsurance contracts.
Premiums, benefits and expenses, premiums receivable, and policy reserves are
reported in the financial statements net of reinsured amounts.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the estimated useful
lives of the related property.
FEDERAL INCOME TAXES
Federal income taxes have been provided on income currently taxable in
accordance with the provisions of the Internal Revenue Code that relate to life
insurance companies.
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
fair value of each class of financial instruments.
INVESTMENTS
Fair values for bonds and stocks are generally based on quoted market prices.
Fair values for mortgage loans are calculated as the net present value of future
loan payments, which are assumed to be received in accordance with the terms of
the contracts, using discount rates based on the Treasury yield curve and the
Company's current mortgage pricing. Fair values for policy loans are estimated
through discounted cash flow analyses using interest rates reflective of current
asset yields and assumed annual repayment rates. The recorded values of cash,
short-term investments and accrued investment income approximate their fair
value.
INVESTMENT-TYPE CONTRACTS
The Company underwrites certain investment-type contracts comprising mainly
individual annuities and supplementary contracts without life contingencies. The
fair value of liabilities related to these contracts, included in annuity
reserves, was determined using a price behavior model that projects monthly cash
flows and calculates their present value under various interest rate assumptions
using the Treasury yield curve and specific assumptions for mortality, lapse
rates, policy loads, crediting rates, expenses and surrender charges that are
particular to each type of annuity product. Probabilities assigned to the
interest rate assumptions are used to calculate the expected present value of
the cash flows.
The fair values of contract liabilities are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The carrying amounts and fair values of the Company's financial instruments were
as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------------- ------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Investments:
Bonds $ 5,515 $ 5,555 $ 301,430 $ 305,507
Common stocks -- -- 82 82
Mortgage loans -- -- 31,697 33,731
Policy loans -- -- 30,643 30,171
Cash and short-term investments 2,593 2,593 17,926 17,926
Accrued investment income 54 54 3,702 3,702
LIABILITIES
Investment-type contracts -- -- 78,412 90,183
</TABLE>
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
3. INVESTMENTS
The amortized cost and the fair or comparable value of investments in bonds are
summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
At December 31, 1997--U.S. Treasury $ 5,515 $ 40 $ -- $ 5,555
--------------------------------------------------
Total bonds $ 5,515 $ 40 $ -- $ 5,555
--------------------------------------------------
--------------------------------------------------
At December 31, 1996:
U.S. Treasury $ 111,757 $ 827 $ 78 $ 112,506
U.S. government agencies, states and political
subdivisions 89,530 1,987 243 91,274
Industrial and other 100,143 2,311 727 101,727
--------------------------------------------------
Total bonds $ 301,430 $ 5,125 $ 1,048 $ 305,507
--------------------------------------------------
--------------------------------------------------
</TABLE>
At December 31, 1997, the Company's bond investment was rated as a Class 1 by
the NAIC (i.e.; investment grade bonds) and is due to mature in 1999.
Proceeds from investments in bonds sold, redeemed or otherwise disposed of
during 1997 and 1996 were $5,793,000 and $498,858,000, respectively. Gross gains
of $94,000 and $902,000 were realized in 1997 and 1996, respectively. Gross
losses of $1,029,000 were realized on those dispositions in 1996. Substantially
all 1997 and 1996 gains and losses from bonds were transferred to the IMR. On
January 1, 1997, bonds with an admitted asset value of $295,713,000 were
transferred to TMG Life as part of the assumption reinsurance agreement. No gain
or loss was realized on the transfer.
At December 31, 1997, bonds and cash with an admitted asset value of $8,108,000
were on deposit with state insurance departments to meet regulatory
requirements.
The Company sold its home office building during 1996 for a gain of $909,000.
This gain is included with net realized gains on investments in the
statutory-basis statement of operations.
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1997 1996
--------------------
<S> <C> <C>
(IN THOUSANDS)
Bonds $ 407 $ 21,156
Mortgage loans -- 2,680
Short-term investments 70 1,989
Amortization of interest maintenance reserve -- 1,285
--------------------
477 27,110
Less investment expenses (4) (966)
--------------------
Net investment income $ 473 $ 26,144
--------------------
--------------------
</TABLE>
Realized capital gains are reported net of federal income taxes and amounts
transferred to the IMR as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1997 1996
--------------------
<S> <C> <C>
(IN THOUSANDS)
Realized capital gains $ 94 $ 782
Less amount transferred (to) from IMR (61) 83
--------------------
33 865
Less federal income taxes on realized capital
gains before effect
of transfer to IMR (33) (274)
--------------------
Net realized capital gains $ -- $ 591
--------------------
--------------------
</TABLE>
At December 31, 1996, the Company had a nonadmitted IMR asset of $663,000.
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. STATUTORY CAPITAL AND SURPLUS RESTRICTIONS
Prior approval of insurance regulatory authorities is required for payment of
dividends to the Company's stockholder which exceed an annual limitation. During
1998, the Company may pay dividends to its stockholder of approximately $510,000
without prior approval of the Insurance Division.
5. FEDERAL INCOME TAXES
The Company files a separate tax return. The Company's taxable income differs
from gain from operations before income taxes as reported in the financial
statements due to differences in reporting investment income, policy reserves,
depreciation, agents' deferred compensation, premium income, expenses, realized
gains and losses and the impact of differences in asset valuations.
6. REINSURANCE
Prior to January 1, 1997, the maximum amount the Company retained on any one
life was $500,000 of basic life coverage. The Company retained all its risk on
accidental death insurance risks with an issue limit of $200,000. Amounts in
excess of retention limits were reinsured with other life insurance companies
under reinsurance treaties principally on yearly renewable term and coinsurance
bases.
The effect of ceded reinsurance on the Company's statutory-basis financial
statements in 1996 was as follows (in thousands):
<TABLE>
<S> <C>
Premiums receivable $ 550
Policy reserves and liabilities:
Life 30,552
Annuity 24,070
Policy and contract claims 305
Premiums:
Life 5,147
Annuity 217
Policy benefits paid or provided:
Life 2,098
Annuity (2,462)
</TABLE>
On January 1, 1997, the Company entered into an assumption reinsurance agreement
with TMG Life. Under the agreement, TMG Life assumed all of the Company's rights
and obligations for policies, annuities and certificates issued by the Company
prior to January 1, 1997.
7. RETIREMENT AND COMPENSATION PLANS
Prior to January 1, 1997, the Company participated in several benefit programs
sponsored by TMG (U.S.). In conjunction with execution of the assumption
reinsurance agreement, all of the Company's employees became employees of TMG
(U.S.). As the Company had no employees during 1997, no contributions were made
to any benefit plans for the year ended December 31, 1997 and all liabilities
associated with the benefit plans were assumed by TMG (U.S.).
Prior to January 1, 1997, the Company participated in a noncontributory
defined-benefit plan sponsored by TMG (U.S.) covering substantially all of its
employees. Benefits provided were based on years of service and the employee's
compensation. Funding and accounting policies were to contribute annually the
maximum amount that can be currently deducted for income tax purposes. Total
contributions to the plan were $466,000 for the year ended December 31, 1996.
The funded status of the TMG (U.S.) plan was determined using an effective date
of January 1, 1996, an interest rate of 7.0% compounded annually and a salary
scale of 5.5%. At December 31, 1996, the Company's separately determined
accumulated benefit obligation under the Plan was $1,812,000. The net assets
available for benefits at December 31, 1996 were $1,381,000. The Company is not
obligated under the TMG (U.S.) plan subsequent to the sale of the Company to
Farm Bureau Life Insurance Company.
Prior to January 1, 1997, the Company participated in a 401(k) savings plan
sponsored by TMG (U.S.). Participating employees were allowed to contribute up
to 12% of their base compensation to the 401(k) plan. The Company would match
50% of the amount contributed by each employee up to the first 6% of
compensation and also made discretionary contributions. Participants are
immediately vested in Company contributions. Company contributions to the 401(k)
plan were $40,000 for the year ended December 31, 1996.
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
7. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
Prior to January 1, 1997, the Company provided defined postretirement health and
life insurance benefits on a noncontributory basis. Eligible employees were
those with ten or more years of service who retired under the TMG Life pension
plan. Health insurance benefits for retirees under age 65 were the same as for
active employees provided the retiree maintained continuity of coverage. For
retirees attaining age 65, health insurance was available as a Medicare
supplement. Life insurance benefits are 100% of final earnings in the first year
of retirement, reducing 10% per year to a minimum benefit of $10,000. The
estimated net postretirement benefit cost for the year ended December 31, 1996
was $15,000.
At December 31, 1996, the unfunded postretirement benefit obligation for
retirees and other fully eligible or vested plan participants was $353,000. The
estimated postretirement benefit obligation for active nonvested employees was
$441,000 at December 31, 1996. The discount rate used in determining the
accumulated postretirement benefit was 7.0% in 1996 and the health care cost
trend rate was 6.0% graded to 5.5% over 8 years. Effective January 1, 1997, TMG
(U.S.) assumed all liabilities related to the postretirement benefits.
Prior to January 1, 1997, the Company sponsored a deferred compensation plan for
its agents. Benefit expenses related to the plan were $172,000 for the year
ended December 31, 1996. The liability accrued at December 31, 1996 under this
plan was $1,218,000. At December 31, 1996, the Company had liabilities of
$246,000 related to a discontinued employee deferred compensation plan, the
activity under which consists of interest accumulations and withdrawals.
8. RELATED-PARTY TRANSACTIONS
During 1997 and 1996, the Company paid to TMG (U.S.) investment advisory and
management fees of $4,000 and $422,000, respectively.
TMG Life provided group health insurance to the Company prior to January 1,
1997. Premiums paid by the Company to TMG Life were $80,000 for the year ended
December 31, 1996. TMG (U.S.) provided the Company with administrative services
and computer facilities for which it was charged a fee of $502,000 for the year
ended December 31, 1996. The Company provided TMG Life with underwriting, policy
issuing and administrative services, for which it charged a fee of $876,000 for
the year ended December 31, 1996. No fees were paid or received by the Company
during 1997 for such services.
9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various lawsuits and other contingencies that have
arisen from the normal conduct of business. Contingent liabilities arising from
litigation and other matters are not considered material to the financial
position of the Company. TMG Life, as part of the sale agreement, has assumed
all accrued, absolute and contingent liabilities that may arise out of or
related to the business of the Company prior to December 30, 1997. At June 30,
1998, management is not aware of any claims which would result in a material
loss to the Company.
<PAGE>
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
ILLUSTRATIONS OF DEATH BENEFITS AND ACCUMULATED VALUES
The following tables illustrate how the death benefits,
Accumulated Values and Surrender Values of a Policy may
vary over an extended period of time at certain ages,
assuming hypothetical gross rates of investment return
for the Investment Options equivalent to constant gross
annual rates of 0%, 4%, 8% and 12%. The hypothetical
rates of investment return are for purposes of
illustration only and should not be deemed a
representation of past or future rates of investment
return. Actual rates of return for a particular Policy
may be more or less than the hypothetical investment
rates of return and will depend on a number of factors
including the investment allocations made by a
Policyowner. Also, values would be different from those
shown if the gross annual investment returns averaged 0%,
4%, 8% and 12% over a period of years but fluctuated
above and below those averages for individual Policy
Years.
The amounts shown are as of the end of each Policy Year.
The tables assume that the assets in the Investment
Options are subject to an annual expense ratio of 0.77%
of the average daily net assets. This annual expense
ratio is based on the average of the expense ratios of
each of the Investment Options available under the Policy
for the last fiscal year and takes into account current
expense reimbursement arrangements. The fees and expenses
of each Investment Option vary, and in 1997 the total
fees and expenses ranged from an annual rate of 0.33% to
an annual rate of 1.06% of average daily net assets. For
information on Investment Option expenses, see the
prospectuses for the Investment Options.
The tables reflect deduction of the premium expense
charge, the monthly Policy expenses charge, the
first-year monthly administrative charge, the first-year
monthly expense charge, the daily charge for the
Company's assumption of mortality and expense risks, and
cost of insurance charges for the hypothetical Insured.
The surrender values illustrated in the tables also
reflect deduction of applicable surrender charges. The
current charges and the higher guaranteed maximum charges
the Company may charge are reflected in separate tables
on each of the following pages.
Applying the current charges and the average Investment
Option fees and expenses of 0.77% of average net assets,
the gross annual rates of investment return of 0%, 4%, 8%
and 12% would produce net annual rates of return of
-1.82%, 2.18%, 6.18% and 10.18%, respectively, on a
guaranteed basis, and -1.67%, 2.33%, 6.33% and 10.33%,
respectively, on a current basis.
The hypothetical values shown in the tables do not
reflect any charges for federal income taxes against the
Variable Account since the Company is not currently
making such charges. However, such charges may be made in
the future and, in that event, the gross annual
investment rate of return would have to exceed 0%, 4%, 8%
or 12% by an amount sufficient to cover tax charges in
order to produce the death benefits and Accumulated
Values illustrated. (See "FEDERAL TAX MATTERS--Taxation
of the Company.")
The tables illustrate the Policy values that would result
based upon the hypothetical investment rates of return if
premiums are paid as indicated, if all Net Premiums are
allocated to the Variable Account and if no Policy Loans
have been made. The tables are also based on the
assumptions that the Policyowner has not requested an
increase or decrease in Specified Amount, and that no
partial withdrawals or transfers have been made.
For comparative purposes, the second column of each table
shows the amount to which the premiums would accumulate
if an amount equal to those premiums were invested to
earn interest at 5% compounded annually.
* * *
Upon request, the Company will provide a comparable
illustration based upon the proposed insured's age, sex
and premium class, the Specified Amount or premium
requested, and the proposed frequency of premium
payments.
A-1
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 0% HYPOTHETICAL GROSS RETURN,
0% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT
AND GUARANTEED MAXIMUM EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS ------------------------------------------------ -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- --------------- ----------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 581 $ 106 $ 0 $ 100,106 $ 227 $ 0 $ 100,227
2............... 1,190 367 0 100,367 563 0 100,563
3............... 1,831 612 0 100,612 886 0 100,886
4............... 2,503 * * * 1,194 218 101,194
5............... 3,208 * * * 1,488 512 101,488
6............... 3,950 * * * 1,766 930 101,766
7............... 4,728 * * * 2,028 1,375 102,028
8............... 5,545 * * * 2,273 1,795 102,273
9............... 6,403 * * * 2,502 2,191 102,502
10............... 7,303 * * * 2,715 2,563 102,715
15............... 12,530 * * * 3,482 3,482 103,482
20............... 19,200 * * * 3,611 3,611 103,611
25............... 27,713 * * * 2,976 2,976 102,976
30............... 38,578 * * * 1,329 1,329 101,329
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 * * * 1,329 1,329 101,329
Age 70............... * * * * * * *
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF -1.82% ON A GUARANTEED BASIS AND -1.67% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-2
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 4% HYPOTHETICAL GROSS RETURN,
4% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT
AND GUARANTEED MAXIMUM EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS ------------------------------------------------ -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- --------------- ----------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 581 $ 118 $ 0 $ 100,118 $ 242 $ 0 $ 100,242
2............... 1,190 399 0 100,399 604 0 100,604
3............... 1,831 674 0 100,674 967 0 100,967
4............... 2,503 * * * 1,329 353 101,329
5............... 3,208 * * * 1,691 715 101,691
6............... 3,950 * * * 2,049 1,213 102,049
7............... 4,728 * * * 2,404 1,751 102,404
8............... 5,545 * * * 2,754 2,276 102,754
9............... 6,403 * * * 3,101 2,790 103,101
10............... 7,303 * * * 3,443 3,291 103,443
15............... 12,530 * * * 5,013 5,013 105,013
20............... 19,200 * * * 6,141 6,141 106,141
25............... 27,713 * * * 6,575 6,575 106,575
30............... 38,578 * * * 5,895 5,895 105,895
35............... 52,445 * * * 3,166 3,166 103,166
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 * * * 5,895 5,895 105,895
Age 70............... 52,445 * * * 3,166 3,166 103,166
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 4% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 2.18% ON A GUARANTEED BASIS AND 2.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 4%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-3
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
8% HYPOTHETICAL GROSS RETURN, 8% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 581 $ 130 $ 0 $ 100,130 $ 257 $ 0 $ 100,257
2............... 1,190 432 0 100,432 647 0 100,647
3............... 1,831 740 0 100,740 1,053 77 101,053
4............... 2,503 1,053 77 101,053 1,476 500 101,476
5............... 3,208 1,371 395 101,371 1,916 940 101,916
6............... 3,950 1,692 856 101,692 2,373 1,537 102,373
7............... 4,728 2,014 1,361 102,014 2,846 2,193 102,846
8............... 5,545 2,337 1,859 102,337 3,336 2,858 103,336
9............... 6,403 2,662 2,351 102,662 3,845 3,534 103,845
10............... 7,303 2,988 2,836 102,988 4,374 4,222 104,374
15............... 12,530 4,581 4,581 104,581 7,279 7,279 107,279
20............... 19,200 5,844 5,844 105,844 10,530 10,530 110,530
25............... 27,713 6,274 6,274 106,274 14,032 14,032 114,032
30............... 38,578 4,908 4,908 104,908 17,513 17,513 117,513
35............... 52,445 * * * 20,079 20,079 120,079
40............... 70,143 * * * 20,259 20,259 120,259
45............... 92,730 * * * 14,180 14,180 114,180
50............... 121,558 * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 4,908 4,908 104,908 17,513 17,513 117,513
Age 70............... 52,445 * * * 20,079 20,079 120,079
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 8% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 6.18% ON A GUARANTEED BASIS AND 6.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 8%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-4
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
12% HYPOTHETICAL GROSS RETURN, 12% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
PREMIUMS ----------------------------------------- ----------------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............. $ 581 $ 142 $ 0 $ 100,142 $ 271 $ 0 $ 100,271
2............. 1,190 466 0 100,466 690 0 100,690
3............. 1,831 809 0 100,809 1,144 168 101,144
4............. 2,503 1,174 198 101,174 1,635 659 101,635
5............. 3,208 1,562 586 101,562 2,167 1,191 102,167
6............. 3,950 1,971 1,135 101,971 2,742 1,906 102,742
7............. 4,728 2,403 1,750 102,403 3,364 2,711 103,364
8............. 5,545 2,859 2,381 102,859 4,038 3,560 104,038
9............. 6,403 3,344 3,033 103,344 4,768 4,457 104,768
10............. 7,303 3,858 3,706 103,858 5,561 5,409 105,561
15............. 12,530 6,940 6,940 106,940 10,633 10,633 110,633
20............. 19,200 10,970 10,970 110,970 18,157 18,157 118,157
25............. 27,713 16,109 16,109 116,109 29,447 29,447 129,447
30............. 38,578 22,330 22,330 122,330 46,504 46,504 146,504
35............. 52,445 28,283 28,283 128,283 72,006 72,006 172,006
40............. 70,143 31,088 31,088 131,088 110,081 110,081 210,081
45............. 92,730 21,633 21,633 121,633 165,382 165,382 265,382
50............. 121,558 * * * 245,204 245,204 345,204
55............. 158,351 * * * 359,631 359,631 459,631
60............. 205,309 * * * 523,479 523,479 623,479
65............. 265,240 * * * 701,287 701,287 801,287
70............. 341,730 * * * 896,995 896,995 996,995
75............. 439,352 * * * 1,185,875 1,185,875 1,285,875
80............. 563,945 * * * 1,637,969 1,637,969 1,737,969
Age 65............. 38,578 22,330 22,330 122,330 46,504 46,504 146,504
Age 70............. 52,445 28,283 28,283 128,283 72,006 72,006 172,006
Age 115............. 563,945 * * * 1,637,969 1,637,969 1,737,969
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 12% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 10.18% ON A GUARANTEED BASIS AND 10.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-5
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 0% HYPOTHETICAL GROSS RETURN,
0% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT
AND GUARANTEED MAXIMUM EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS ---------------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ----------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 581 $ 107 $ 0 $ 100,000 $ 228 $ 0 $ 100,000
2............... 1,190 369 0 100,000 565 0 100,000
3............... 1,831 614 0 100,000 888 0 100,000
4............... 2,503 * * * 1,198 222 100,000
5............... 3,208 * * * 1,494 518 100,000
6............... 3,950 * * * 1,775 939 100,000
7............... 4,728 * * * 2,039 1,386 100,000
8............... 5,545 * * * 2,288 1,810 100,000
9............... 6,403 * * * 2,522 2,211 100,000
10............... 7,303 * * * 2,740 2,588 100,000
15............... 12,500 * * * 3,546 3,546 100,000
20............... 19,200 * * * 3,740 3,740 100,000
25............... 27,713 * * * 3,190 3,190 100,000
30............... 38,578 * * * 1,624 1,624 100,000
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65............... 38,578 * * * 1,624 1,624 100,000
Age 70............... * * * * * * *
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF -1.82% ON A GUARANTEED BASIS AND -1.67% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-6
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 4% HYPOTHETICAL GROSS RETURN,
4% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT
AND GUARANTEED MAXIMUM EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS ------------------------------------------------ -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- --------------- ----------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 581 $ 119 $ 0 $ 100,000 $ 242 $ 0 $ 100,000
2............... 1,190 400 0 100,000 605 0 100,000
3............... 1,831 676 0 100,000 969 0 100,000
4............... 2,503 * * * 1,334 358 100,000
5............... 3,208 * * * 1,698 722 100,000
6............... 3,950 * * * 2,059 1,223 100,000
7............... 4,728 * * * 2,418 1,765 100,000
8............... 5,545 * * * 2,774 2,296 100,000
9............... 6,403 * * * 3,126 2,815 100,000
10............... 7,303 * * * 3,477 2,325 100,000
15............... 12,530 * * * 5,110 5,110 100,000
20............... 19,200 * * * 6,367 6,367 100,000
25............... 27,713 * * * 7,023 7,023 100,000
30............... 38,578 * * * 6,683 6,683 100,000
35............... 52,445 * * * 4,404 4,404 100,000
40............... 70,143 * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 * * * 6,683 6,683 100,000
Age 70............... 52,445 * * * 4,404 4,404 100,000
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 4% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 2.18% ON A GUARANTEED BASIS AND 2.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 4%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-7
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
8% HYPOTHETICAL GROSS RETURN, 8% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 581 $ 131 $ 0 $ 100,000 $ 257 $ 0 $ 100,000
2............... 1,190 433 0 100,000 648 0 100,000
3............... 1,831 743 0 100,000 1,056 80 100,000
4............... 2,503 1,058 82 100,000 1,481 505 100,000
5............... 3,208 1,380 404 100,000 1,924 948 100,000
6............... 3,950 1,705 869 100,000 2,385 1,549 100,000
7............... 4,728 2,033 1,380 100,000 2,863 2,210 100,000
8............... 5,545 2,364 1,886 100,000 3,360 2,882 100,000
9............... 6,403 2,698 2,387 100,000 3,878 3,567 100,000
10............... 7,303 3,036 2,884 100,000 4,418 4,266 100,000
15............... 12,530 4,731 4,731 100,000 7,426 7,426 100,000
20............... 19,200 6,217 6,217 100,000 10,930 10,930 100,000
25............... 27,713 7,073 7,073 100,000 14,975 14,975 100,000
30............... 38,578 6,434 6,434 100,000 19,552 19,552 100,000
35............... 52,445 1,834 1,834 100,000 24,290 24,290 100,000
40............... 70,143 * * * 28,619 28,619 100,000
45............... 92,730 * * * 32,407 30,407 100,000
50............... 121,558 * * * 25,872 25,872 100,000
55............... * * * * 4,724 4,724 100,000
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 6,434 6,434 100,000 19,552 19,552 100,000
Age 70............... 52,445 1,834 1,834 100,000 24,290 24,290 100,000
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 8% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 6.18% ON A GUARANTEED BASIS AND 6.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 8%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-8
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 12% HYPOTHETICAL GROSS RETURN,
12% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
AND GUARANTEED MAXIMUM EXPENSE CHARGES CHARGES
PREMIUMS ---------------------------------------------- ----------------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1........ $ 581 $ 143 $ 0 $ 100,000 $ 272 $ 0 $ 100,000
2........ 1,190 467 0 100,000 691 0 100,000
3........ 1,831 813 0 100,000 1,146 170 100,000
4........ 2,503 1,180 204 100,000 1,640 664 100,000
5........ 3,208 1,572 596 100,000 2,176 1,200 100,000
6........ 3,950 1,987 1,151 100,000 2,756 1,920 100,000
7........ 4,728 2,426 1,773 100,000 3,385 2,732 100,000
8........ 5,545 2,893 2,415 100,000 4,068 3,590 100,000
9........ 6,403 3,390 3,079 100,000 4,810 4,499 100,000
10........ 7,303 3,922 3,770 100,000 5,619 5,467 100,000
15........ 12,530 7,171 7,171 100,000 10,856 10,856 100,000
20........ 19,200 11,653 11,653 100,000 18,865 18,865 100,000
25........ 27,713 17,902 17,902 100,000 31,429 31,429 100,000
30........ 38,578 26,751 26,751 100,000 51,677 51,677 100,000
35........ 52,445 39,032 39,032 100,000 85,218 85,218 100,000
40........ 70,143 57,039 57,039 100,000 141,152 141,152 151,032
45........ 92,730 86,186 86,186 100,000 232,243 232,243 243,855
50........ 121,558 139,258 139,258 146,220 378,555 378,555 397,483
55........ 158,351 220,540 220,540 231,567 611,274 611,274 641,838
60........ 205,309 348,805 348,805 352,293 987,640 987,640 997,517
65........ 265,240 551,296 551,296 556,809 1,597,290 1,597,290 1,613,263
70........ 341,730 850,593 850,593 859,099 2,563,667 2,563,667 2,589,304
75........ 439,352 1,310,844 1,310,844 1,323,952 4,103,173 4,103,173 4,144,205
80........ 563,945 2,018,604 2,018,604 2,038,790 6,555,314 6,555,314 6,620,867
Age 65........ 38,578 26,751 26,751 100,000 51,677 51,677 100,000
Age 70........ 52,445 39,032 39,032 100,000 85,218 85,218 100,000
Age 115........ 563,945 2,018,604 2,018,604 2,038,790 6,555,314 6,555,314 6,620,867
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 12% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 10.18% ON A GUARANTEED BASIS AND 10.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-9
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 227 $ 0 $ 100,227 $ 356 $ 0 $ 100,356
2............... 1,526 608 0 100,608 818 0 100,818
3............... 2,347 969 0 100,969 1,265 0 101,265
4............... 3,209 1,311 23 101,311 1,696 408 101,696
5............... 4,114 1,634 503 101,634 2,110 979 102,110
6............... 5,064 1,933 1,013 101,933 2,507 1,587 102,507
7............... 6,061 2,209 1,491 102,209 2,884 2,166 102,884
8............... 7,109 2,462 1,936 102,462 3,243 2,717 103,243
9............... 8,209 2,689 2,347 102,689 3,582 3,240 103,582
10............... 9,364 2,890 2,723 102,890 3,900 3,733 103,900
15............... 16,064 3,419 3,419 103,419 5,091 5,091 105,091
20............... 24,616 2,870 2,870 102,870 5,391 5,391 105,391
25............... 35,530 539 539 100,539 4,348 4,348 104,348
30............... 49,460 * * * 1,345 1,345 101,345
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 * * * 1,345 1,345 101,345
Age 70............... * * * * * * *
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF -1.82% ON A GUARANTEED BASIS AND -1.67% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-10
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
4% HYPOTHETICAL GROSS RETURN, 4% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 244 $ 0 $ 100,244 $ 376 $ 0 $ 100,376
2............... 1,526 655 0 100,655 875 0 100,875
3............... 2,347 1,062 0 101,062 1,379 91 101,379
4............... 3,209 1,465 177 101,465 1,885 597 101,885
5............... 4,114 1,863 732 101,863 2,393 1,262 102,393
6............... 5,064 2,252 1,332 102,252 2,902 1,982 102,902
7............... 6,061 2,632 1,914 102,632 3,411 2,693 103,411
8............... 7,109 3,001 2,475 103,001 3,918 3,392 103,918
9............... 8,209 3,356 3,014 103,356 4,424 4,082 104,424
10............... 9,364 3,696 3,529 103,696 4,925 4,758 104,925
15............... 16,064 5,061 5,061 105,061 7,268 7,268 107,268
20............... 24,616 5,450 5,450 105,450 9,023 9,023 109,023
25............... 35,530 3,872 3,872 103,872 9,545 9,545 109,545
30............... 49,460 * * * 7,882 7,882 107,882
35............... 67,239 * * * 2,685 2,685 102,685
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 * * * 7,882 7,882 107,882
Age 70............... 67,239 * * * 2,685 2,685 102,685
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 4% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 2.18% ON A GUARANTEED BASIS AND 2.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 4%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-11
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
8% HYPOTHETICAL GROSS RETURN, 8% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 262 $ 0 $ 100,262 $ 396 $ 0 $ 100,396
2............... 1,526 704 0 100,704 934 0 100,934
3............... 2,347 1,161 0 101,161 1,499 211 101,499
4............... 3,209 1,632 344 101,632 2,090 802 102,090
5............... 4,114 2,119 988 102,119 2,708 1,577 102,708
6............... 5,064 2,618 1,698 102,618 3,355 2,435 103,355
7............... 6,061 3,130 2,412 103,130 4,029 3,311 104,029
8............... 7,109 3,653 3,127 103,653 4,734 4,208 104,734
9............... 8,209 4,187 3,845 104,187 5,468 5,126 105,468
10............... 9,364 4,731 4,564 104,731 6,234 6,067 106,234
15............... 16,064 7,512 7,512 107,512 10,479 10,479 110,479
20............... 24,616 10,025 10,025 110,025 15,290 15,290 115,290
25............... 35,530 11,210 11,210 111,210 20,241 20,241 120,241
30............... 49,460 9,110 9,110 109,110 24,497 24,497 124,497
35............... 67,239 * * * 26,620 26,620 126,620
40............... 89,929 * * * 23,935 23,935 123,935
45............... 118,889 * * * 11,882 11,882 111,882
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 9,110 9,110 109,110 24,497 24,497 124,497
Age 70............... 67,239 * * * 26,620 26,620 126,620
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 8% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 6.18% ON A GUARANTEED BASIS AND 6.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 8%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-12
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
12% HYPOTHETICAL GROSS RETURN, 12% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
PREMIUMS ----------------------------------------- ----------------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 279 $ 0 $ 100,279 $ 416 $ 0 $ 100,416
2............... 1,526 754 0 100,754 995 0 100,995
3............... 2,347 1,265 0 101,265 1,625 337 101,625
4............... 3,029 1,814 526 101,814 2,311 1,023 102,311
5............... 4,114 2,404 1,273 102,404 3,059 1,928 103,059
6............... 5,064 3,037 2,117 103,037 3,871 2,951 103,871
7............... 6,061 3,715 2,997 103,715 4,755 4,037 104,755
8............... 7,109 4,442 3,916 104,442 5,717 5,191 105,717
9............... 8,209 5,221 4,879 105,221 6,763 6,421 106,763
10............... 9,364 6,055 5,888 106,055 7,901 7,734 107,901
15............... 16,064 11,166 11,166 111,166 15,221 15,221 115,221
20............... 24,616 18,106 18,106 118,106 26,134 26,134 126,134
25............... 35,530 26,953 26,953 126,953 42,232 42,232 142,232
30............... 49,460 37,265 37,265 137,265 65,833 65,833 165,833
35............... 67,239 47,076 47,076 147,076 100,390 100,390 200,390
40............... 89,929 51,519 51,519 151,519 150,776 150,776 250,776
45............... 118,889 39,636 39,636 139,636 223,892 223,892 323,892
50............... 155,849 * * * 331,464 331,464 431,464
55............... 203,020 * * * 491,497 491,497 591,497
60............... 263,225 * * * 733,492 733,492 833,492
65............... 340,062 * * * 1,044,009 1,044,009 1,144,009
70............... 438,129 * * * 1,457,833 1,457,833 1,557,833
75............... 563,290 * * * 2,103,237 2,103,237 2,203,237
80............... 723,030 * * * 3,138,146 3,138,146 3,238,146
Age 65............... 49,460 37,265 37,265 137,265 65,833 65,833 165,833
Age 70............... 67,239 47,076 47,076 147,076 100,390 100,390 200,390
Age 115............... 723,030 * * * 3,138,146 3,138,146 3,238,146
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 12% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 10.18% ON A GUARANTEED BASIS AND 10.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-13
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 228 $ 0 $ 100,000 $ 356 $ 0 $ 100,000
2............... 1,526 610 0 100,000 820 0 100,000
3............... 2,347 973 0 100,000 1,269 0 100,000
4............... 3,209 1,319 31 100,000 1,702 414 100,000
5............... 4,114 1,645 514 100,000 2,120 989 100,000
6............... 5,064 1,949 1,029 100,000 2,520 1,600 100,000
7............... 6,061 2,231 1,513 100,000 2,903 2,185 100,000
8............... 7,109 2,491 1,965 100,000 3,267 2,741 100,000
9............... 8,209 2,726 2,384 100,000 3,613 3,271 100,000
10............... 9,364 2,936 2,769 100,000 3,940 3,773 100,000
15............... 16,064 3,533 3,533 100,000 5,195 5,195 100,000
20............... 24,616 3,086 3,086 100,000 5,611 5,611 100,000
25............... 35,530 852 852 100,000 4,746 4,746 100,000
30............... 49,460 * * * 1,920 1,920 100,000
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65............... 49,460 * * * 1,920 1,920 100,000
Age 70............... * * * * * * *
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF -1.82% ON A GUARANTEED BASIS AND -1.67% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-14
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
4% HYPOTHETICAL GROSS RETURN, 4% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 245 $ 0 $ 100,000 $ 376 $ 0 $ 100,000
2............... 1,526 657 0 100,000 877 0 100,000
3............... 2,347 1,067 0 100,000 1,382 94 100,000
4............... 3,209 1,473 185 100,000 1,891 603 100,000
5............... 4,114 1,876 745 100,000 2,404 1,273 100,000
6............... 5,064 2,271 1,351 100,000 2,918 1,998 100,000
7............... 6,061 2,659 1,941 100,000 3,433 2,715 100,000
8............... 7,109 3,037 2,511 100,000 3,949 3,423 100,000
9............... 8,209 3,404 3,062 100,000 4,464 4,122 100,000
10............... 9,364 3,758 3,591 100,000 4,977 4,810 100,000
15............... 16,064 5,235 5,235 100,000 7,424 7,424 100,000
20............... 24,616 5,840 5,840 100,000 9,407 9,407 100,000
25............... 35,530 4,612 4,612 100,000 10,371 10,371 100,000
30............... 49,460 * * * 9,442 9,442 100,000
35............... 67,239 * * * 5,185 5,185 100,000
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 * * * 9,442 9,442 100,000
Age 70............... 67,239 * * * 5,185 5,185 100,000
Age 115............... * * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 4% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 2.18% ON A GUARANTEED BASIS AND 2.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 4%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-15
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
8% HYPOTHETICAL GROSS RETURN, 8% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT
CHARGES EXPENSE CHARGES
PREMIUMS ----------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
----------- ------------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1............... $ 744 $ 262 $ 0 $ 100,000 $ 396 $ 0 $ 100,000
2............... 1,526 706 0 100,000 936 0 100,000
3............... 2,347 1,166 0 100,000 1,503 215 100,000
4............... 3,209 1,642 354 100,000 2,097 809 100,000
5............... 4,114 2,134 1,003 100,000 2,721 1,590 100,000
6............... 5,064 2,641 1,721 100,000 3,373 2,453 100,000
7............... 6,061 3,162 2,444 100,000 4,056 3,338 100,000
8............... 7,109 3,698 3,172 100,000 4,771 4,245 100,000
9............... 8,209 4,248 3,906 100,000 5,519 5,177 100,000
10............... 9,364 4,812 4,645 100,000 6,302 6,135 100,000
15............... 16,064 7,777 7,777 100,000 10,715 10,715 100,000
20............... 24,616 10,370 10,370 100,000 15,964 15,964 100,000
25............... 35,530 12,875 12,875 100,000 21,964 21,964 100,000
30............... 49,460 12,634 12,634 100,000 28,543 28,543 100,000
35............... 67,239 6,389 6,389 100,000 35,461 35,461 100,000
40............... 89,929 * * * 42,205 42,205 100,000
45............... 118,889 * * * 47,783 47,783 100,000
50............... 155,849 * * * 51,074 51,074 100,000
55............... 203,020 * * * 48,862 48,862 100,000
60............... 263,225 * * * 31,665 31,665 100,000
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 12,634 12,634 100,000 28,543 28,543 100,000
Age 70............... 67,239 6,389 6,389 100,000 35,461 35,461 100,000
Age 115............... * * * * * *
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 8% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 6.18% ON A GUARANTEED BASIS AND 6.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 8%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-16
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 12% HYPOTHETICAL GROSS RETURN,
12% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
AND GUARANTEED MAXIMUM EXPENSE CHARGES CHARGES
PREMIUMS ---------------------------------------------- ----------------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ----------------- ------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.......... $ 744 $ 280 $ 0 $ 100,000 $ 416 $ 0 $ 100,000
2.......... 1,526 757 0 100,000 997 0 100,000
3.......... 2,347 1,270 0 100,000 1,630 342 100,000
4.......... 3,209 1,824 536 100,000 2,320 1,032 100,000
5.......... 4,114 2,421 1,290 100,000 3,073 1,942 100,000
6.......... 5,064 3,063 2,143 100,000 3,893 2,973 100,000
7.......... 6,061 3,754 3,036 100,000 4,787 4,069 100,000
8.......... 7,109 4,498 3,972 100,000 5,763 5,237 100,000
9.......... 8,209 5,299 4,957 100,000 6,828 6,486 100,000
10.......... 9,364 6,161 5,994 100,000 7,991 7,824 100,000
15.......... 16,064 11,570 11,570 100,000 15,577 15,577 100,000
20.......... 24,616 19,375 19,375 100,000 27,319 27,319 100,000
25.......... 35,530 30,601 30,601 100,000 45,823 45,823 100,000
30.......... 49,460 47,217 47,217 100,000 76,063 76,063 100,000
35.......... 67,239 73,564 73,564 100,000 126,351 126,351 146,567
40.......... 89,929 119,623 119,623 127,997 207,621 207,621 222,154
45.......... 118,889 194,460 194,460 204,183 339,949 339,949 356,946
50.......... 155,849 310,265 310,265 325,778 551,451 551,451 579,024
55.......... 203,020 484,714 484,714 508,949 886,595 886,595 930,925
60.......... 263,225 761,269 761,269 768,882 1,429,750 1,429,750 1,444,047
65.......... 340,062 1,200,489 1,200,489 1,212,494 2,311,648 2,311,648 2,334,764
70.......... 438,129 1,849,850 1,849,850 1,868,348 3,709,698 3,709,698 3,746,795
75.......... 563,290 2,848,418 2,848,418 2,876,902 5,936,787 5,936,787 5,996,154
80.......... 723,030 4,383,986 4,383,986 4,427,826 9,483,956 9,483,956 9,578,795
Age 65.......... 49,460 47,217 47,217 100,000 76,063 76,063 100,000
Age 70.......... 67,239 73,564 73,564 100,000 126,351 126,351 146,567
Age 115.......... 723,030 4,383,986 4,383,986 4,427,826 9,483,956 9,483,956 9,578,795
</TABLE>
- ------------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 12% SHOWN ABOVE CORRESPOND TO NET ANNUAL
RATES OF RETURN OF 10.18% ON A GUARANTEED BASIS AND 10.33% ON A CURRENT BASIS,
RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE
FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-17
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
DEATH BENEFIT OPTIONS OPTION A EXAMPLE. For purposes of this example, assume
that the Insured's Attained Age is between 0 and 40 and
that there is no outstanding Policy Debt. Under Option A,
a Policy with a Specified Amount of $50,000 will
generally provide a death benefit of $50,000 plus
Accumulated Value. Thus, for example, a Policy with a
Accumulated Value of $5,000 will have a death benefit of
$55,000 ($50,000 + $5,000); a Accumulated Value of
$10,000 will provide a death benefit of $60,000 ($50,000
+ $10,000). The death benefit, however, must be at least
2.50 multiplied by the Accumulated Value. As a result, if
the Accumulated Value of the Policy exceeds $33,333, the
death benefit will be greater than the Specified Amount
plus Accumulated Value. Each additional dollar of
Accumulated Value above $33,333 will increase the death
benefit by $2.50. A Policy with a Specified Amount of
$50,000 and a Accumulated Value of $40,000 will provide a
death benefit of $100,000 ($40,000 x 2.50); a Accumulated
Value of $60,000 will provide a death benefit of $150,000
($60,000 x 2.50).
Similarly, any time Accumulated Value exceeds $33,333,
each dollar taken out of Accumulated Value will reduce
the death benefit by $2.50. If, for example, the
Accumulated Value is reduced from $40,000 to $35,000
because of partial withdrawals, charges, or negative
investment performance, the death benefit will be reduced
from $100,000 to $87,500. If at any time, however,
Accumulated Value multiplied by the specified amount
factor is less than the Specified Amount plus the
Accumulated Value, then the death benefit will be the
current Specified Amount plus Accumulated Value of the
Policy.
The specified amount factor becomes lower as the
Insured's Attained Age increases. If the Attained Age of
the Insured in the example above were, for example, 50
(rather than under 40), the specified amount factor would
be 1.85. The amount of the death benefit would be the sum
of the Accumulated Value plus $50,000 unless the
Accumulated Value exceeded $58,824 (rather than $33,333),
and each dollar then added to or taken from the
Accumulated Value would change the death benefit by $1.85
(rather than $2.50).
OPTION B EXAMPLE. For purposes of this example, assume
that the Insured's Attained Age is between 0 and 40 and
that there is no outstanding Policy Debt. Under Option B,
a Policy with a $50,000 Specified Amount will generally
pay $50,000 in death benefits. However, because the death
benefit must be equal to or be greater than 2.50
multiplied by the Accumulated Value, any time the
Accumulated Value of the Policy exceeds $20,000, the
death benefit will exceed the $50,000 Specified Amount.
Each additional dollar added to Accumulated Value above
$20,000 will increase the death benefit by $2.50. A
Policy with a $50,000 Specified Amount and a Accumulated
Value of $30,000 will provide death proceeds of $75,000
($30,000 x 2.50); a Accumulated Value of $40,000 will
provide a death benefit of $100,000 ($40,000 x 2.50); a
Accumulated Value of $50,000 will provide a death benefit
of $125,000 ($50,000 x 2.50).
Similarly, so long as Accumulated Value exceeds $20,000,
each dollar taken out of Accumulated Value will reduce
the death benefit by $2.50. If, for example, the
Accumulated Value is reduced from $25,000 to $20,000
because of partial withdrawals, charges, or negative
investment performance, the death benefit will be reduced
from $62,500 to $50,000. If at any time, however, the
Accumulated Value multiplied by the specified amount
factor is less than the Specified Amount, the death
benefit will equal the current Specified Amount of the
Policy.
The specified amount factor becomes lower as the
Insured's Attained Age increases. If the Attained Age of
the Insured in the example above were, for example, 50
(rather than between 0 and 40), the specified amount
factor would be 1.85. The death proceeds would not exceed
the $50,000 Specified Amount unless the Accumulated Value
exceeded approximately $27,028 (rather than $20,000), and
each dollar then added to or taken from the Accumulated
Value would change the life insurance proceeds by $1.85
(rather than $2.50).
B-1
<PAGE>
<TABLE>
<CAPTION>
SPECIFIED AMOUNT FACTOR TABLE
- -----------------------------------------------------
ATTAINED AGE SPECIFIED AMOUNT FACTOR
- ------------------------ ---------------------------
<S> <C>
40 or younger 2.50
41 2.43
42 2.36
43 2.29
44 2.22
45 2.15
46 2.09
47 2.03
48 1.97
49 1.91
50 1.85
51 1.78
52 1.71
53 1.64
54 1.57
55 1.50
56 1.46
57 1.42
58 1.38
59 1.34
60 1.30
61 1.28
62 1.26
63 1.24
64 1.22
65 1.20
66 1.19
67 1.18
68 1.17
69 1.16
70 1.15
71 1.13
72 1.11
73 1.09
74 1.07
75 to 90 1.05
91 1.04
92 1.03
93 1.02
94 to 114 1.01
115 1.00
</TABLE>
B-2
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX C
- --------------------------------------------------------------------------------
MAXIMUM SURRENDER CHARGES
The chart below reflects the maximum surrender charge per
$1,000 of Specified Amount for selected issue ages as
policy years increase.
Male, Non-Tobacco
<TABLE>
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8
- -------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 5.50 5.50 5.50 5.50 5.50 5.50 4.30 3.15
20 7.46 7.46 7.46 7.46 7.46 6.46 5.05 3.70
30 10.48 10.48 10.48 10.48 9.85 8.01 6.26 4.59
40 16.08 16.08 16.08 15.81 13.22 10.75 8.39 6.14
50 25.74 25.74 25.74 22.86 19.06 15.46 12.03 8.77
60 56.18 48.88 41.98 35.48 29.36 23.61 18.21 13.17
70 57.48 49.03 41.24 34.10 27.56 21.62 16.26 11.44
80 57.48 46.35 36.74 28.53 21.60 15.82 11.08 7.25
Male, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8
- -------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A N/A
20 12.00 12.00 12.00 10.90 9.12 7.42 5.79 4.24
30 17.48 17.48 16.34 13.95 11.66 9.49 7.41 5.42
40 27.74 26.34 22.80 19.43 16.22 13.16 10.25 7.49
50 44.66 39.17 33.75 28.62 23.76 19.18 14.86 10.79
60 57.48 49.60 42.24 35.39 29.02 23.12 17.67 12.65
70 57.48 48.27 39.97 32.50 25.84 19.94 14.74 10.20
80 57.48 45.30 35.12 26.68 19.79 14.22 9.78 6.30
Female, Non-Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8
- -------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 5.30 5.30 5.30 5.30 5.30 5.15 4.03 2.95
20 5.66 5.66 5.66 5.66 5.66 5.66 4.69 3.44
30 8.04 8.04 8.04 8.04 8.04 7.37 5.76 4.22
40 11.98 11.98 11.98 11.98 11.84 9.63 7.52 5.50
50 17.96 17.96 17.96 17.96 16.44 13.34 10.40 7.60
60 43.60 40.26 34.72 29.46 24.49 19.79 15.34 11.15
70 57.48 49.61 42.25 35.38 28.99 23.06 17.59 12.56
80 57.48 47.51 38.62 30.77 23.90 17.97 12.92 8.67
Female, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8
- -------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A N/A
20 7.76 7.76 7.76 7.76 7.76 6.47 5.06 3.71
30 11.40 11.40 11.40 11.40 9.97 8.11 6.34 4.64
40 17.34 17.34 17.34 15.90 13.28 10.79 8.41 6.15
50 25.82 25.82 25.82 22.19 18.49 14.97 11.65 8.49
60 51.72 45.03 38.72 32.76 27.14 21.86 16.89 12.24
70 57.48 49.36 41.81 34.82 28.36 22.43 17.01 12.07
80 57.48 47.10 37.97 29.99 23.11 17.24 12.29 8.19
Unisex, Non-Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8
- -------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 5.50 5.50 5.50 5.50 5.50 5.43 4.24 3.11
20 7.10 7.10 7.10 7.10 7.10 6.37 4.98 3.65
30 9.98 9.98 9.98 9.98 9.69 7.88 6.16 4.51
40 15.24 15.24 15.24 15.24 12.94 10.52 8.21 6.01
50 24.16 24.16 24.16 22.20 18.51 15.01 11.69 8.53
60 53.96 46.98 40.38 34.16 28.29 22.77 17.59 12.73
70 57.48 49.17 41.48 34.39 27.89 21.95 16.56 11.70
80 57.48 46.67 37.26 29.15 22.24 16.42 11.60 7.65
Unisex, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8
- -------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A N/A
20 11.14 11.14 11.14 10.61 8.88 7.23 5.64 4.13
30 16.26 16.26 15.85 13.53 11.32 9.20 7.19 5.26
40 25.60 25.32 21.92 18.68 15.59 12.66 9.86 7.20
50 40.68 37.18 32.05 27.19 22.60 18.25 14.15 10.28
60 57.48 49.70 42.42 35.62 29.28 23.38 17.91 12.86
70 57.48 48.56 40.46 33.12 26.52 20.61 15.35 10.70
80 57.48 45.95 36.14 27.88 20.98 15.30 10.69 6.98
<CAPTION>
ISSUE AGE 9 10 11+
- -------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
10 2.05 1.00 0.00
20 2.41 1.18 0.00
30 2.99 1.46 0.00
40 3.99 1.95 0.00
50 5.69 2.77 0.00
60 8.46 4.07 0.00
70 7.14 3.34 0.00
80 4.21 1.83 0.00
Male, Tobacco
ISSUE AGE 9 10 11+
- -------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
10 N/A N/A N/A
20 2.76 1.35 0.00
30 3.53 1.72 0.00
40 4.86 2.37 0.00
50 6.96 3.37 0.00
60 8.04 3.83 0.00
70 6.26 2.88 0.00
80 3.60 1.55 0.00
Female, Non-Toba
ISSUE AGE 9 10 11+
- -------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
10 1.92 0.94 0.00
20 2.24 1.10 0.00
30 2.75 1.34 0.00
40 3.58 1.75 0.00
50 4.93 2.40 0.00
60 7.20 3.49 0.00
70 7.96 3.78 0.00
80 5.15 2.29 0.00
Female, Tobacco
ISSUE AGE 9 10 11+
- -------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
10 N/A N/A N/A
20 2.41 1.18 0.00
30 3.02 1.48 0.00
40 4.00 1.95 0.00
50 5.50 2.67 0.00
60 7.88 3.80 0.00
70 7.60 3.59 0.00
80 4.83 2.13 0.00
Unisex, Non-Toba
ISSUE AGE 9 10 11+
- -------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
10 2.02 0.99 0.00
20 2.38 1.16 0.00
30 2.94 1.43 0.00
40 3.91 1.91 0.00
50 5.53 2.69 0.00
60 8.18 3.95 0.00
70 7.33 3.44 0.00
80 4.47 1.96 0.00
Unisex, Tobacco
ISSUE AGE 9 10 11+
- -------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
10 N/A N/A N/A
20 2.69 1.32 0.00
30 3.42 1.67 0.00
40 4.68 2.28 0.00
50 6.64 3.22 0.00
60 8.20 3.92 0.00
70 6.62 3.07 0.00
80 4.05 1.76 0.00
</TABLE>
C-1
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore, or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
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.
REPRESENTATIONS PURSUANT TO SECTION 26(e)(2)(A)
The Company represents that the aggregate charges under the Contracts are
reasonable in relation to the services rendered, the expenses to be incurred and
the risks assumed by the Company.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of information shown in the Prospectus with the
items of Form N-8B-2.
The Prospectus consisting of 76 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
Representations pursuant to Section 26(a)(2)(A).
The signatures.
Written consents of the following persons:
Stephen M. Morain, Esquire.
Messrs. Sutherland, Asbill & Brennan LLP
Ernst & Young LLP, Independent Auditors.
Christopher G. Daniels, FSA, MSAA, Life Product Development and Pricing Vice
President.
The following exhibits:
<TABLE>
<S> <C> <C>
1.A. 1. * Certified Resolution of the Board of
Directors of the Company establishing
the Variable Account.
2. None.
3. * (a) Form of Principal Underwriting
Agreement.
* (b) Form of Sales Agreement.
* (c) Form of Wholesaling Agreement.
4. None.
5. * (a) Policy Form.
* (b) Application Form.
6. * (a) Articles of Incorporation of the
Company.
* (b) By-Laws of the Company.
7. None.
8. None.
9. * (a) Participation Agreement relating to
EquiTrust Variable Insurance Series
Fund.
* (b) Participation Agreement relating to
Dreyfus Variable Investment Fund.
* (c) Participation Agreement relating to
T. Rowe Price Equity Series, Inc. and
T. Rowe Price International Series,
Inc.
10. Form of Application (see Exhibit
1.A.(5)(c) above.)
2. * Opinion and Consent of Stephen M. Morain,
Esquire.
3. None.
4. Not applicable.
5. Not applicable.
6. *Opinion and Consent of Christopher G. Daniels,
FSA, MSAA, Life Product Development and
Pricing Vice President.
7. *(a) Consent of Ernst & Young LLP.
*(b) Consent of Messrs. Sutherland, Asbill &
Brennan LLP.
8. Memorandum describing the Company's conversion
procedure (included in Exhibit 9 hereto).
9. *Memorandum describing the Company's issuance,
transfer and redemption procedures for the
Policy.
10. *Powers of Attorney.
</TABLE>
- ------------------------
* Attached as an exhibit.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
EquiTrust Life Variable 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 10th day of August, 1998.
EquiTrust Life Insurance Company
EquiTrust Life Variable 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
Pursuant to the requirements of 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 August 10, 1998
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ------------------------------ [Principal Financial August 10, 1998
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ------------------------------ [Principal Accounting August 10, 1998
James W. Noyce Officer]
- ------------------------------ Vice President and August 10, 1998
Thomas R. Gibson* Director
- ------------------------------ Director August 10, 1998
Timothy J. Hoffman*
- ------------------------------ Director August 10, 1998
Stephen M. Morain*
- ------------------------------ Director August 10, 1998
William J. Oddy*
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, EquiTrust Life
Variable 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 10th day of August, 1998.
EquiTrust Life Variable Account II
(Registrant)
EquiTrust Life Insurance Company
(Depositor)
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------
Edward M. Wiederstein
PRESIDENT
EquiTrust Life Insurance Company
* By /s/ STEPHEN M. MORAIN Attorney-In-Fact, pursuant to Power of Attorney.
------------------------
Stephen M. Morain
<PAGE>
RESOLUTIONS ADOPTED BY
THE BOARD OF DIRECTORS OF
EQUITRUST LIFE INSURANCE COMPANY
January 6, 1998
RESOLVED, that the Board of Directors of EquiTrust Life Insurance Company (the
"Company"), hereby establishes a separate account, pursuant to the provisions of
Section 508A.1 of the Insurance Laws of the State of Iowa, designated EquiTrust
Life Variable Account II (hereinafter the "Variable Account"), for the following
use and purposes, and subject to such conditions as hereinafter set forth; and
FURTHER RESOLVED, that the Variable Account is established for the purpose of
providing for the issuance by the Company of certain variable life insurance
policies (the "Policies"), and shall constitute a funding medium to support
reserves under such Policies issued by the Company; and
FURTHER RESOLVED, that the income, gains and losses, realized or unrealized,
from assets allocated to the Variable Account shall be credited to or charged
against the Variable Account, without regard to other income, gains or losses of
the Company; and
FURTHER RESOLVED, that the assets of the Variable Account equal to the reserves
and other liabilities under the Policies and any other variable life insurance
policies issued through the Variable Account may not be charged with liabilities
arising out of any other business the Company may conduct; and
FURTHER RESOLVED, that the Variable Account shall be divided into investment
subaccounts (the "Subaccounts"), each of which shall invest in the shares of a
mutual fund portfolio, and net premiums under the Policies shall be allocated
among the Subaccounts in accordance with instructions received from owners of
the Policies; and
FURTHER RESOLVED, that the Executive Committee be, and hereby is, authorized
to add or remove any Subaccount of the Variable Account or add or remove any
mutual fund portfolio as may hereafter be deemed necessary or appropriate; and
FURTHER RESOLVED, that the income, gains and losses, realized or unrealized,
from assets allocated to each Subaccount of the Variable Account shall be
credited to or charged against such Subaccount of the Variable Account, without
regard to other income, gains or losses of any other Subaccount of the Variable
Account; and
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FURTHER RESOLVED, that the Executive Committee be, and it hereby is,
authorized to invest such amount or amounts of the Company's cash in the
Variable Account or in any Subaccount thereof or in any mutual fund portfolio
as may be deemed necessary or appropriate to facilitate the commencement of
the Variable Account's and/ or the mutual fund portfolio's operations and/or
to meet any minimum capital requirements under the Investment Company Act of
1940, as amended (the "1940 Act"); and
FURTHER RESOLVED, that the Chief Executive Officer, Chief Operating Officer, and
Chief Financial Officer (hereafter, the "empowered officers") and each of them,
with full power to act without the others, be, and they hereby are, severally
authorized to transfer cash from time to time from the Company's general account
to the Variable Account, or from the Variable Account to the general account, as
deemed necessary or appropriate and consistent with the terms of the Policies;
and
FURTHER RESOLVED, that the Board of Directors of the Company reserves the right
to change the designation of the Variable Account hereafter to such other
designation as it may deem necessary or appropriate; and
FURTHER RESOLVED, that the empowered officers and each of them, with full
power to act without the others, with such assistance from the Company's
independent certified public accountants, legal counsel and independent
consultants or others as they may require, be, and they hereby are, severally
authorized and directed to take all action necessary to: (a) register the
Variable Account as a unit investment trust under the 1940 Act; (b) register
the Policies under the Securities Act of 1933 (the "1933 Act"); and (c) take
all other actions that are necessary in connection with the offering of the
Policies for sale and the operation of the Variable Account in order to
comply with the 1940 Act, the 1933 Act, the Securities Exchange Act of 1934
and other applicable Federal laws, including the filing of any registration
statements, any undertakings, no-action requests, consents, applications for
exemptions from the 1940 Act or other applicable federal laws, and any
amendments to the foregoing as the empowered officers of the Company shall
deem necessary or appropriate; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, are severally authorized to prepare, execute and
cause to be filed with the Securities and Exchange Commission on behalf of the
Variable Account, and by the Company as sponsor and depositor, a Notification of
Registration on Form N-8A, a registration statement on Form N-8B-2, and a
registration statement on Form S-6 registering the Variable Account under the
1940 Act and registering the Policies under the 1933 Act, and any and all
amendments to the foregoing on behalf of the Variable Account and the Company
and on behalf of and as attorneys-in-fact for the empowered officers and/ or any
other officer of the Company; and
FURTHER RESOLVED, that Stephen M. Morain, Senior Vice President and General
Counsel (and any successor to such position), is duly appointed as agent for
service under any such registration statement, duly authorized to receive
communications and notices from the Securities and Exchange Commission with
respect thereto; and
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FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, are severally authorized on behalf of the Variable
Account and on behalf of the Company to take any and all such action that each
of them may deem necessary or advisable in order to offer and sell the Policies,
including any registrations, filings and qualifications both of the Company, its
officers, agents and employees, and of the Policies, under the insurance and
securities laws of any of the states of the United States of America or other
jurisdictions, and in connection therewith to prepare, execute, deliver and file
all such applications, requests, undertakings, reports, covenants, resolutions,
applications for exemptions, consents to service of process and other papers and
instruments as may be required under such laws, and to take any and all further
action which such officers or legal counsel of the Company may deem necessary or
desirable (including entering into whatever agreements and contracts may be
necessary) in order to maintain such registrations or qualifications for as long
as the officers or legal counsel deem it to be in the best interests of the
Variable Account and the Company; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, be, and they hereby are, severally authorized in the
names and on behalf of the Variable Account and the Company: (a) to execute and
file irrevocable written consents on the part of the Variable Account and of the
Company to be used in such states wherein such consents to service of process
may be required under the insurance or securities laws therein in connection
with the registration or qualification of the Policies; and (b) to appoint the
appropriate state official, or such other person as may be allowed by insurance
or securities laws, agent of the Variable Account and of the Company for the
purpose of receiving and accepting process; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, be, and hereby are, severally authorized to establish
procedures under which the Company will provide voting rights for owners of the
Policies with respect to securities owned by the Variable Account; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, are hereby severally authorized to execute such
agreement or agreements as deemed necessary and appropriate (a) with a qualified
entity under which such entity will be appointed principal underwriter and
distributor for the Policies, (b) with one or more qualified entities to provide
administrative services in connection with the establishment and maintenance
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of the Variable Account and the administration of the Policies, and (c) with the
designated mutual fund portfolios and/ or the principal underwriter and
distributor of such mutual fund portfolios for the purchase and redemption of
portfolio shares; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, are hereby severally authorized to execute and
deliver such agreements and other documents and do such acts and things as each
of them may deem necessary or desirable to carry out the foregoing resolutions
and the intent and purposes thereof.
FURTHER RESOLVED, that the Company hereby adopts and establishes the following
Standards of Suitability for its officers, employees, and agents with respect to
the suitability of the Policies for applicants:
1. No recommendation shall be made to an applicant to purchase a Policy,
and no Policy shall be issued, in the absence of reasonable grounds to
believe that the purchase of the Policy is suitable for the applicant
on the basis of information furnished after reasonable inquiry of the
applicant concerning the applicant's insurance and investment
objectives, financial situation and needs, and any other information
known to the Company or to the agent making the recommendation;
2. A good faith, reasonable inquiry shall be made as to the facts and
circumstances concerning a prospective Policy owner's insurance and
financial needs and no recommendation shall be made that the
prospective Policy owner purchase a Policy when such a purchase is not
reasonable consistent with the information that is known or reasonably
should be known to the Company or its agents. In making such
recommendation, factors which may be considered are: age, earnings,
marital status, number and age of dependents, the value of savings or
other assets, and current life insurance program.
Additionally, the Company's agents, as registered representatives, will be
subject to supervision by a registered broker-dealer with respect to suitability
and other sales practices under the NASD Conduct Rules of NASD Regulation, Inc;
and
FURTHER RESOLVED, that the Company hereby adopts and establishes the following
Standards of Conduct for itself and its officers, directors, and employees
(each, an "Employee) with respect to the purchase or sale of investments of the
Variable Account:
No Employee shall:
1. Employ any device, scheme or artifice to defraud the Variable Account
or the owners of the Policies;
2. Make any untrue statement of a material fact with respect to the
investments of the Variable Account or omit to state a material fact
necessary in order to make
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the statements made, in light of the circumstances in which they were
made, not misleading;
3. Engage in any act, practice or course of business that operates or
would operate as a fraud or deceit upon the Variable Account or the
owners of the Policies;
4. Engage in any manipulative practice with respect to the Variable
Account or the owners of the Policies;
5. Sell to, or purchase from the Variable Account any securities or other
property, except as permitted under applicable laws, rules,
regulations, order, or other interpretation of any government, agency,
or self-regulatory organization.
6. Purchase or allow to be purchased for the Variable Account any
securities of which the Company or an affiliated company is the
issuer, except as permitted under applicable laws, rules, regulations,
order, or other interpretation of any government, agency, or
self-regulatory organization.
7. Accept any compensation other than regular salary or wages from the
Company or an affiliated company for the sale or purchase of
investment securities to or from the Variable Account except as
permitted under applicable laws, rules, regulations, orders, or other
interpretations of any government, agency or self-regulatory
organization;
8. Engage in any joint transaction, participation or common undertaking
whereby the Company or an affiliated company participates with the
Variable Account in any transaction in which the Company or an
affiliated company obtains an advantage in the price or quality of
the item purchased, the service received or in the cost of such
service, and the Variable Account or the owners of the Policies are
disadvantaged in any of these respects by the same transaction; or
9. Borrow money or securities from the Variable Account other than under
a Policy loan provision.
FURTHER RESOLVED, that the Company shall require any third party providing
administrative services to the Variable Account to adopt Standards of Conduct
encompassing the standards set forth above.
5
<PAGE>
UNDERWRITING AGREEMENT
AGREEMENT dated as of this _____________ day of June, 1998 by and between
EquiTrust Life Insurance Company, an Iowa corporation ("Insurer"), on its behalf
and on behalf of EquiTrust Life Variable Account II and EquiTrust Life Annuity
Account II (the "Separate Accounts"), and EquiTrust Marketing Services, Inc.
("Distributor"), a Delaware corporation.
WITNESSETH
WHEREAS, Distributor is a broker-dealer that engages in the distribution of
variable insurance products and other investment products; and
WHEREAS, Insurer desires to issue certain variable insurance products
described more fully below to the public through Distributor acting as principal
underwriter;
NOW THEREFORE, in consideration of their mutual promises, Insurer and
Distributor hereby agree as follows:
1. Additional Definitions
a. Contracts - The class or classes of variable insurance products set
forth on Schedule 1 to this Agreement as in effect at the time this Agreement is
executed, and such other classes of variable products that may be added to
Schedule 1 from time to time in accordance with Section 11.b of this Agreement,
and including any riders to such contracts and any other contracts offered in
connection therewith. For the purpose of this Agreement generally, a "class of
Contracts" shall mean those Contracts issued by Insurer on the same policy form
or forms and covered by the same registration statement.
b. Registration Statement - With respect to each class of contracts, the
most recent post-effective registration statement filed with the SEC or the most
recent effective post-effective amendment thereto, including financial
statements included therein and all exhibits thereto. For purposes of Section 9
of this Agreement, the term "Registration Statement" means any document which is
or at any time was a Registration Statement within the meaning of this Section
1.b.
c. Prospectus - With respect to each class of Contracts, the prospectus
for such class of Contracts included within the Registration Statement for such
class of Contracts; provided, however, that if the most recently filed
prospectus filed pursuant to Rule 497 under the 1993 Act subsequent to the date
on which the Registration Statement became effective differs from the prospectus
on file at the time the Registration Statement became effective, the term
"Prospectus" shall refer to the most recently filed prospectus filed under Rule
497 from and after the date on which it shall have been filed. For
<PAGE>
purposes of Section 9 the term "any Prospectus" means any document which is or
at any time was a Prospectus within the meaning of this Section 1.c.
d. Fund - registered investment companies in which the Separate Accounts
invest.
e. Variable Accounts - separate accounts supporting a class or classes of
Contracts and specified in Schedule 1 as in effect at the time this Agreement is
executed, or as it may be amended from time to time in accordance with Section
11.b of this Agreement.
f. 1933 Act - The Securities Act of 1933, as amended.
g. 1934 Act - The Securities Exchange Act of 1934, as amended.
h. 1940 Act - The Investment Company Act of 1940, as amended.
i. SEC - The Securities and Exchange Commission.
j. NASD - The National Association of Securities Dealers, Inc. and any
affiliates.
k. Regulations - The rules and regulations promulgated by the SEC under
the 1933 Act, the 1934 Act and the 1940 Act as in effect at the time this
Agreement is executed or thereafter promulgated.
l. Selling Broker-Dealer - A person registered as a broker-dealer and
licensed as a life insurance agent or affiliated with a person so licensed, and
authorized to distribute the Contracts pursuant to a sales agreement as provided
for in Section 4 of this Agreement.
m. Agent Manual - Any manual and other written rules, regulations and
procedures provided by Insurer to insurance agents appointed to sell its
insurance contracts, as revised from time to time.
n. Representative - When used with reference to Distributor or a Selling
Broker-Dealer, an individual who is an associated person, as that term is
defined in the 1934 Act, thereof.
o. Application - An application for a Contract.
p. Premium - A payment made under a Contract by an applicant or purchaser
to purchase benefits under the Contract.
<PAGE>
q. Home Office -- the home office identified in the Prospectus as the
location at which Premiums and Applications are accepted.
2. Authorization and Appointment
a. Scope and Authority. Insurer hereby authorizes Distributor on an
exclusive basis, and Distributor accepts such authority, subject to the
registration requirements of the 1933 Act and the 1940 Act and the provisions of
the 1934 Act and conditions herein, to be the distributor and principal
underwriter for the sale of the contracts to the public in each state and other
jurisdiction in which the Contracts may lawfully be sold during the term of this
Agreement. Insurer hereby authorizes Distributor to grant authority to Selling
Broker-Dealers to solicit Applications and Premiums to the extent the
Distributor deems appropriate and consistent with the marketing program for the
Contracts or a class of Contracts, subject to the conditions set forth in
Section 4 of this Agreement. The Contracts shall be offered for sale and
distribution at premium rates set from time to time by Insurer. Distributor
shall use its best efforts to market the Contracts actively through Selling
Broker-Dealers in accordance with Section 4 of this Agreement, subject to
compliance with applicable law, including rules of the NASD.
b. Limits on Authority. Distributor shall act as an independent
contractor and nothing herein contained shall constitute Distributor or its
agents, officers, or employees as agents, officers or employees of Insurer
solely by virtue of their activities in connection with the sale of the
Contracts hereunder. Distributor and its Representatives shall not have
authority, on behalf of Insurer to make, alter, or discharge any Contract or
other insurance policy or annuity entered into pursuant to a Contract; to waive
any Contract forfeiture provision; to extend the time of paying any Premium; or
to receive monies or Premiums (except for the sole purpose of forwarding monies
or Premiums to Insurer). Distributor shall not expend, nor contract for the
expenditure of, funds of the Insurer. Distributor shall not possess or exercise
any authority on behalf of Insurer other than that expressly conferred on
Distributor by this Agreement.
3. Solicitation Activities
a. Distributor Representatives. The Distributor will not solicit
applications from the public for the Contracts through Distributor
Representatives.
b. Representations and Warranties of Distributor. Distributor represents
and warrants to Insurer that Distributor is and shall remain registered during
the term of this Agreement as a broker-dealer under the 1934 Act, is a member of
the NASD, and is duly registered under applicable state securities laws, and
that Distributor is and shall remain during the term of the Agreement in
compliance with Section 9(a) of the 1940 Act.
<PAGE>
4. Selling Broker-Dealers. Insurer and Distributor shall insure that sales of
the contracts by Selling Broker-Dealers comply with the following conditions,
and any additional conditions Insurer may specify from time to time.
a. Every Selling Broker-Dealer shall be both registered as a
broker-dealer with the SEC and a member of the NASD and licensed as an insurance
agent, if required, with authority to sell variable products or associated with
an insurance agent so licensed. Any individuals to be authorized to act on
behalf of Selling Broker-Dealer shall be duly registered with the NASD as
representatives of Selling Broker-Dealer with authority to sell variable
products, and shall be licensed as insurance agents with authority to sell
variable products. Insurer shall verify that Selling Broker-Dealer and its
Representatives are duly licensed under applicable state insurance law to sell
the Contracts or, if Broker-Dealer is not so licensed, that it is associated
with an entity so licensed.
b. Every Selling Broker-Dealer (or, if applicable, its associated
insurance agency) and each of its Representatives shall have been appointed by
Insurer, provided that Insurer reserves the right to refuse to appoint any
proposed person, or once appointed, to terminate such appointment.
c. Every Selling Broker-Dealer must enter into a written sales agreement
with Distributor which sales agreement, among other things, will require such
Selling Broker-Dealer to use its best efforts to solicit applications for the
Contracts and to comply with applicable laws and regulations, including the
Insurer's rules and regulations as reflected in the Agents Manual or otherwise
communicated to agents appointed by the Insurer, and will contain such other
provisions as the Distributor deems to be consistent herewith.
d. In view of the fact that Insurer and Distributor want to ensure that
Contracts will be sold to purchasers for whom the Contracts will be suitable,
the written Sales Agreement shall require that Selling Broker-Dealers and their
Representatives not make recommendations to an applicant to purchase a Contract
in the absence of reasonable grounds to believe that the purchase of the
Contract is suitable for the applicant. While not limited to the following, a
determination of suitability shall be based on information supplied by an
applicant after reasonable inquiry concerning the applicant's other security
holdings, insurance and investment objectives, financial situation and needs,
and the likelihood that the applicant will continue to make premium payments
contemplated by the Contract applied for and will keep the Contract in force for
a sufficient period of time so that Insurer's acquisition costs are amortized
over a reasonable period of time.
5. Marketing Materials
a. Preparation and Filing. Insurer shall be primarily responsible for
the design and preparation of all promotional, sales and advertising material
related to the
<PAGE>
Contracts. Distributor shall be responsible for filing such material as
required, with the NASD and any state securities regulatory authorities at
Insurers expense. Insurer shall be responsible for filing all promotional,
sales or advertising material, as required, with any state insurance regulatory
authorities. Insurer shall be responsible for preparing the Contract Forms and
filing them with applicable state insurance regulatory authorities, and for
preparing the Prospectuses and Registration Statements and filing them with the
SEC and state regulatory authorities, to the extent required. The parties shall
notify each other expeditiously of any comments provided by the SEC, NASD or any
securities or insurance regulatory authority on such material, and will
cooperate expeditiously in resolving and implementing any comments, as
applicable.
b. Use in Solicitation Activities. Insurer shall be responsible for
furnishing Distributor with such Applications, Prospectuses and other materials
for use by Distributor and any Selling Broker-Dealers in their solicitation
activities with respect to the Contracts. Insurer shall notify Distributor of
those states or jurisdictions which require delivery of a statement of
additional information with a prospectus to a prospective purchaser.
6. Compensation and Expenses.
a. Insurer shall pay compensation for sales of the Contracts in
accordance with Schedule 2 hereto. Upon Distributor's request, Insurer shall
pay compensation payable to Selling-Broker-Dealers, on Distributor's behalf,
subject to the provisions of Section 7 of this Agreement.
b. Insurer shall pay all expenses in connection with:
(1) the preparation and filing of each registration statement (including
each pre-effective and post-effective amendment thereto) and the
preparation and filing of each Prospectus (including any preliminary and
each definitive Prospectus);
(2) the preparation, underwriting, issuance and administration of the
Contracts;
(3) any registration, qualification or approval or other filing of the
Contracts or Contract forms required under the securities or insurance laws
of the states in which the Contracts will be offered;
(4) all registration fees for the Contracts payable to the SEC;
(5) the printing of promotional materials, definitive Prospectuses for the
Contracts and any supplements thereto for distribution;
(6) any applicable postage costs; and
<PAGE>
(7) any out-of-pocket expenses incurred by Distributor in carrying out its
obligations under this Agreement.
7. Compliance.
a. Maintaining Registration and Approvals. Insurer shall be responsible
for maintaining the registration of the Contracts with the SEC and any state
securities regulatory authority with which such registration is required, and
for gaining and maintaining the approval of the Contract forms where required
under the insurance laws and regulations of each state or other jurisdiction in
which the Contracts are to be offered.
b. Confirmations and the 1934 Act Compliance. Insurer, as agent for the
Distributor, shall confirm to each applicant for and purchaser of a Contract in
accordance with Rule 10b-10 under the 1934 Act acceptance of premiums and such
other transactions as are required by Rule 10b-10 or administrative
interpretations thereunder. Insurer shall maintain and preserve such books and
records with respect to such confirmations in conformity with the requirements
of Rules 17a-3 and 17a-4 under the 1934 Act to the extent such requirements
apply. Insurer shall maintain all such books and records and hold such books
and records on behalf of and as agent for Distributor whose property they are
and shall remain, and acknowledges that such books and records are at all times
subject to inspection by the SEC in accordance with Section 17(a) of the 1934
Act.
c. Issuance and Administration of Contracts. Insurer shall be
responsible for issuing the Contracts and administering the Contracts and the
Variable Account, provided, however, that Distributor shall have full
responsibility for the securities activities of all persons employed by the
Insurer, engaged directly or indirectly in the Contract operations, and for the
training, supervision and control of such persons to the extent of such
activities.
8. Investigations and Proceedings.
a. Cooperation. Distributor and Insurer shall cooperate fully in any
securities or insurance regulatory investigation or proceeding or judicial
proceeding arising in connection with the offering, sale or distribution of the
Contracts distributed under this Agreement. Without limiting the forgoing,
Insurer and Distributor shall notify each other promptly of any customer
complaint or notice of any regulatory investigation or proceeding or judicial
proceeding received by either party with respect to the Contracts.
b. Customer Complaints. In the case of any customer complaints,
Distributor and Insurer will cooperate in investigating such complaint and any
response by Distributor to such complaint or Insurer to such complaint will be
sent to the other party for review and approval not less than five business days
prior to its being sent to the
<PAGE>
customer or regulatory authority, except that if a more prompt response is
required, the response shall be communicated by telephone or electronic mail.
9. Indemnification.
a. By Insurer. Insurer shall indemnify and hold harmless Distributor and
each person who controls or is associated with Distributor within the meaning of
such terms under the federal securities laws, and any officer, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
Distributor and/or any such person may become subject, under any statute or
regulation, any NASD rule or interpretation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities:
(1) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances in which
they were made, contained in any (i) Registration Statement or in any
Prospectus or (ii) blue sky application or other document executed by
Insurer specifically for the purpose of qualifying any or all of the
Contracts for sale under the securities laws of any jurisdiction; provided
that Insurer shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of, or is based upon, an untrue
statement or alleged untrue statement or omission or alleged omission made
in reliance upon information furnished in writing to Insurer by Distributor
specifically for use in the preparation of any such Registration Statement
or any such blue sky application or any amendment thereof or supplement
thereto;
(2) result from any breach by Insurer of any provision of this Agreement.
This indemnification agreement shall be in addition to any liability that
Insurer may otherwise have; provided, however, that no person shall be
entitled to indemnification pursuant to this provision if such loss, claim,
damage or liability is due to the willful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the person seeking
indemnification.
b. By Distributor. Distributor shall indemnify and hold harmless Insurer
and each person who controls or is associated with the Insurer within the
meaning of such terms under the federal securities laws, and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which Insurer and/or any such person may become subject under any statute
<PAGE>
or regulation, any NASD rule or interpretation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(1) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances in which
they were made, contained in any (i) Registration Statement or in any
Prospectus or (ii) blue sky application or other document executed by
Insurer specifically for the purpose of qualifying any or all of the
Contracts for sale under the securities laws of any jurisdiction; in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon information furnished in writing by Distributor to Insurer
specifically for use in the preparation of any such Registration Statement
or any such blue sky application or any amendment thereof or supplement
thereto;
(2) result from any breach by Distributor of any provision of this
Agreement.
This indemnification shall be in addition to any liability that Distributor
may otherwise have; provided, however, that no person shall be entitled to
indemnification pursuant to this provision if such loss, claim, damage or
liability is due to the willful misfeasance, bad faith, gross negligence or
reckless disregard of duty by the person seeking indemnification.
c. General. Promptly after receipt by a party entitled to
indemnification ("Indemnified Person") under this Section 9 of notice of the
commencement of any action as to which a claim will be made against any person
obligated to provide indemnification under this Section 9 ("Indemnifying
Party"), such indemnified person shall notify the indemnifying party in writing
of the commencement thereof as soon as practicable thereafter, but failure to so
notify the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to the indemnified person otherwise than on account
of this Section 9. The indemnifying party will be entitled to participate in
the defense of the indemnified person but such participation will not relieve
such indemnifying party of the obligation to reimburse the indemnified person
for reasonable legal and other expense incurred by such indemnified person in
defending himself or herself.
The indemnification provisions contained in this Section 9 shall remain
operative in full force and effect, regardless of any termination of this
Agreement. A successor by law of Distributor or Insurer, as the case may be,
shall be entitled to the benefits of the indemnification provisions contained in
this Section 9.
10. Termination. This Agreement shall terminate automatically if it is
assigned by a party without the prior written consent of the other party. (The
term "assigned" shall not include any transaction exempted from Section 15(b)(2)
of the 1940 Act.) This
<PAGE>
Agreement may be terminated at any time for any reason by either party upon 60
days' written notice to the other party, without payment of any penalty. This
Agreement may be terminated at the option of either party to this Agreement upon
the other party's material breach of any provision of this Agreement or of any
representation or warranty made in this Agreement, unless such breach has been
cured within 10 days after receipt of notice of breach from the non-breaching
party. Upon termination of this Agreement all authorizations, rights and
obligations shall cease except the obligation to settle accounts hereunder,
including commissions on Premiums subsequently received for Contracts in effect
at the time of termination or issued pursuant to Applications received by
Insurer prior to termination.
11. Miscellaneous.
a. Binding Effect. This Agreement shall be binding on and shall inure to
the benefit of the respective successors and assigns of the parties hereto
provided that neither party shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party.
b. Schedules. The parties to this Agreement may amend Schedule 1 to this
Agreement from time to time to reflect the addition of any class of Contracts
and Variable Accounts. The provisions of this Agreement shall be equally
applicable to each such class of Contracts and each Variable Account that may be
added to the Schedule, unless the context otherwise requires. Insurer may amend
Schedule 2 unilaterally, from time to time. Any other change in the terms or
provisions of this Agreement shall be by written agreement between Insurer and
Distributor.
c. Rights, Remedies, etc. are Cumulative. The rights, remedies and
obligations contained in this Agreement are cumulative and are in addition to
any and all rights, remedies and obligations, at law or in equity, which the
parties hereto are entitled to under state and federal laws. Failure of either
party to insist upon strict compliance with any conditions of this Agreement
shall not be construed as a waiver of any of the conditions, but the same shall
remain in full force and effect. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.
d. Notices. All notices hereunder are to be made in writing and shall be
given:
If to Insurer, to:
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
<PAGE>
If to Distributor, to:
EquiTrust Marketing Services, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
or such address as such party may hereafter specify in writing. Each such
notice to a party shall be either hand delivered or transmitted by registered or
certified United States mail with return receipt requested, or by overnight mail
by a nationally recognized courier, and shall be effective upon delivery.
e. Interpretation; Jurisdiction. This Agreement constitutes the whole
Agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior written or oral understandings, agreements or
negotiations between the parties with respect to such subject matter. No prior
writings by or between the parties with respect to the subject matter hereof
shall be used by either party in connection with the interpretation of any
provision of this Agreement. This Agreement shall be construed and its
provisions interpreted under and in accordance with the laws of the state of
Iowa without giving effect to principles of conflict of laws.
f. Severability. In the event that any provision of this Agreement would
require a party to take action prohibited by applicable federal or state law or
prohibit a party from taking action required by applicable federal or state law,
then it is the intention of the parties hereto that such provision shall be
enforced to the extent permitted under the law, and, in any event, that all
other provisions of this Agreement shall remain valid and duly enforceable as if
the provision at issue had never been a part hereof.
g. Section and Other Headings. The headings in this Agreement are
included for convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
h. Counterparts. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
i. Regulation. This Agreement shall be subject to the provisions of the
1933 Act, 1934 Act and the 1940 Act and the rules and regulations of the NASD,
from time to time in effect, including such exemptions from the 1940 Act as the
SEC may grant, and the terms hereof shall be interpreted and construed in
accordance therewith.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by such authorized officers on the date specified below.
INSURER:
By: Date
------------------------------------- -----------
Name
------------------------------------
Title
-----------------------------------
DISTRIBUTOR:
By: Date
------------------------------------- -----------
Name
------------------------------------
Title
-----------------------------------
<PAGE>
SCHEDULE 1
Separate Accounts
Effective
--------------------
[put contract names in]
EquiTrust Life Variable Account
EquiTrust Life Annuity Account
SCHEDULE 2
Compensation
Effective
--------------------
<PAGE>
SALES AGREEMENT
Agreement dated as of __________________, by and among EquiTrust Life
Insurance Company ("Insurer"), an Iowa insurance company; EquiTrust Marketing
Services, Inc. ("Distributor"), a Delaware Corporation which is a registered
broker-dealer with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.; ______________________, an ___________ corporation
("Broker-Dealer") also a registered broker/dealer with the SEC under the
Exchange Act and a member of the NASD; and ________________ a licensed insurance
agency associated with Broker/Dealer ("Insurance Agency"); and each additional
insurance agency , if any , signatory hereto (all such insurance agencies
referred to collectively as "Agency").
RECITALS:
A. Pursuant to an agreement with Distributor (the "Underwriting
Agreement"), Insurer has appointed Distributor as the principal underwriter of
the class or classes of variable insurance contracts identified in Schedule 1 to
this Agreement at the time that this Agreement is executed, and such other class
or classes of variable insurance contracts that may be added to Schedule 1 from
time to time in accordance with Section 10 of this Agreement (each, a "class of
Contracts"; all such classes, the "Contracts"). Each class of Contracts will be
issued by Insurer through one or more separate accounts of Insurer ("Separate
Accounts"). Pursuant to the Underwriting Agreement, Insurer has authorized
Distributor to enter into separate written agreements with broker-dealers
pursuant to which such broker-dealers would be authorized to participate in the
sale of the Contracts and would agree to use their best efforts to solicit
applications for the Contracts.
B. Broker-Dealer and Insurance Agency are engaged in the business of
selling various investment products, including variable insurance contracts.
C. The parties to this Agreement desire that Broker-Dealer and Insurance
Agency be authorized to solicit applications for the sale of the Contracts,
subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants hereinafter set forth, the parties agree as follows:
1. ADDITIONAL DEFINITIONS
a. REGISTRATION STATEMENT - With respect to each class of Contracts, the
most recent effective registration statement(s) filed with the SEC or
the most recent effective post-effective amendment(s) thereto,
including financial statements included therein and all exhibits
thereto.
b. PROSPECTUS - With respect to each class of Contracts, the prospectus
for such class of Contracts included within the Registration Statement
for such class of
<PAGE>
Contracts; provided, however, that, if the most recently filed
prospectus filed pursuant to Rule 497 under the 1933 Act subsequent to
the date on which the Registration Statement became effective differs
from the prospectus on file at the time the Registration Statement
became effective, the term "Prospectus" shall refer to the most
recently filed prospectus filed under Rule 497 from and after the date
on which it shall have been filed.
c. 1933 ACT - The Securities Act of 1933, as amended.
d. 1934 ACT - The Securities Exchange Act of 1934, as amended.
e. 1940 ACT - The Investment Company Act of 1940, as amended.
f. FUND - Registered investment companies in which the Separate Account
invests.
g. AGENT - An individual associated with Insurance Agency and
Broker-Dealer who is appointed by Insurer as an agent for the purpose
of soliciting applications.
h. PREMIUM - A payment made under a Contract to purchase benefits under
such Contract.
i. ADMINISTRATIVE OFFICE - The administrative office of the Insurer
identified in the most recently filed prospectus filed pursuant to
Rule 497.
j. AGENT'S MANUAL - Any written rules, regulations and procedures
provided by Insurer to insurance agents appointed to sell the
Contracts, which may be collected in a manual, as revised from time to
time.
k. SEC - The Securities and Exchange Commission.
l. NASD - The National Association of Securities Dealers, Inc. and its
affiliates.
2. AUTHORIZATION OF BROKER-DEALER AND INSURANCE AGENT
a. Pursuant to the authority granted to it in the Underwriting Agreement,
Distributor hereby authorizes Broker-Dealer under the securities laws,
and Insurer hereby authorizes Insurance Agency under the insurance
laws, each in a non-exclusive capacity, to sell the Contracts.
Broker-Dealer and Insurance Agency accept such authorization and shall
use their best efforts to find purchasers for the Contracts in each
case acceptable to Insurer. Distributor and Insurer acknowledge that
Broker-Dealer and Insurance Agency are each an independent contractor
in the performance of their respective duties and obligations under
this Agreement. Accordingly, Broker-Dealer and Insurance Agency are
not obliged or expected to give full time and energies to the
performance of their obligations hereunder, nor are Broker-Dealer and
Insurance Agency obliged or expected to represent Distributor or
Insurer exclusively. Nothing herein contained shall constitute
<PAGE>
Broker-Dealer, Insurance Agency, the Agents or any agents or
representatives of Broker-Dealer or Insurance Agency as employees of
Distributor or Insurer in connection with the solicitation of
applications and Premiums for the Contracts.
b. Broker-Dealer and Insurance Agency acknowledge that no territory is
exclusively assigned hereunder, and that Insurer and Distributor may
in their sole discretion authorize and appoint one or more persons in
any jurisdiction in which Broker-Dealer and Insurance Agency transact
business, to solicit applications and Premiums for the Contracts.
c. Insurance Agency is vested under this Agreement with power and
authority to select and recommend individuals associated with
Insurance Agency for appointment as Agents of the Insurer, and only
individuals so recommended by Insurance Agency shall become Agents,
provided that the conditions of Section 3 are satisfied, and provided
further that Insurer reserves the right to refuse to appoint any
proposed agent or, once appointed, to terminate or refuse to renew the
appointment at any time with or without cause. [INITIAL AND RENEWAL
STATE APPOINTMENT FEES FOR INSURANCE AGENCY AND APPOINTEES OF
INSURANCE AGENCY AS AGENTS OF INSURER WILL BE PAID BY INSURER IN
ACCORDANCE WITH ITS THEN-APPLICABLE REQUIREMENTS.]
d. Neither Broker-Dealer nor Insurance Agency shall expend or contract
for the expenditure of the funds of Distributor or Insurer, except as
may otherwise be agreed in writing. Broker-Dealer and Insurance
Agency each shall pay all expenses incurred by each of them in the
performance of this Agreement, unless otherwise specifically provided
for in this Agreement or unless Distributor and Insurer shall have
agreed in advance in writing to share the cost of any such expenses.
Neither Broker-Dealer nor Insurance Agency shall possess or exercise
any authority on behalf of Insurer or Distributor other than that
expressly conferred on Broker-Dealer or Insurance Agency by this
Agreement. In particular, and without limiting the foregoing, neither
Broker-Dealer nor Insurance Agency shall have any authority, nor shall
either grant such authority to any Agent, on behalf of Insurer: to
make, alter or discharge any Contract or other insurance policy or
annuity entered into pursuant to a Contract; to waive any Contract
forfeiture provision; to extend the time of paying any Premiums; or to
receive any monies or Premiums from applicants for or purchasers of
the Contracts (except for the sole purpose of forwarding monies or
Premiums to Insurer).
e Broker-Dealer and Insurance Agency acknowledge that Insurer has the
right in its sole discretion to reject any applications or Premiums
received by it and to return or refund to an applicant such
applicant's Premiums.
<PAGE>
3. LICENSING AND REGISTRATION OF BROKER-DEALER, INSURANCE AGENCY AND AGENTS
a. Broker-Dealer represents and warrants that it is a broker-dealer
registered with the SEC under the 1934 Act, and is a member of the
NASD. Broker-Dealer shall, at all times when performing its functions
and fulfilling its obligations under this Agreement, be duly
registered as a broker-dealer under the 1934 Act and in each state or
other jurisdiction in which Broker-Dealer intends to perform its
functions and fulfill its obligations hereunder, as required, and be a
member in good standing of the NASD.
b. Insurance Agency represents and warrants that it is a licensed life
insurance agent where required to solicit applications. Insurance
Agency shall, at all times when performing its functions and
fulfilling its obligations under this Agreement, be duly licensed to
sell the Contracts in each state or other jurisdiction in which
Insurance Agency intends to perform its functions and fulfill its
obligations hereunder.
c. Broker-Dealer and Insurance Agency shall ensure that no individual
shall solicit applications or Premiums for the Contracts on their
behalf in any state or other jurisdiction in which the Contracts may
lawfully be sold unless (i) such individual is an associated person of
Broker-Dealer (as that term is defined in Section 3(a)(18) of the 1934
Act) and duly registered with the NASD and any applicable state
securities regulatory authority as a registered person of
Broker-Dealer qualified to solicit applications or Premiums for the
Contracts in such state or jurisdiction, (ii) duly licensed,
registered or otherwise qualified to solicit applications or Premiums
for the Contracts to be offered and sold by such individual under the
insurance laws of such state or jurisdiction, and (iii) duly appointed
by Insurer to solicit applications or Premiums for Contracts in such
state or jurisdiction. INSURER SHALL BE SOLELY RESPONSIBLE FOR
BACKGROUND INVESTIGATIONS OF THE AGENTS TO DETERMINE THEIR
QUALIFICATIONS, GOOD CHARACTER AND MORAL FITNESS TO SELL THE
CONTRACTS. ALL MATTERS CONCERNING THE LICENSING OF ANY INDIVIDUALS
RECOMMENDED FOR APPOINTMENT BY INSURANCE AGENCY UNDER ANY APPLICABLE
STATE INSURANCE LAW SHALL BE A MATTER DIRECTLY BETWEEN INSURANCE
AGENCY AND SUCH INDIVIDUAL, AND SHALL FURNISH INSURER WITH PROOF, OF
PROPER LICENSING OF SUCH INDIVIDUAL OR OTHER PROOF, REASONABLY
ACCEPTABLE TO INSURER, OF SATISFACTION BY SUCH INDIVIDUAL AS AN AGENT
OF INSURER. INSURANCE AGENCY AND BROKER-DEALER SHALL NOTIFY INSURER
AND DISTRIBUTOR IMMEDIATELY UPON TERMINATION (FOR WHATEVER REASON) OF
AN AGENT'S ASSOCIATION WITH BROKER-DEALER AND INSURANCE AGENCY.
d. Without limiting the foregoing, Broker-Dealer and Insurance Agency
represent that they are in compliance with the terms and conditions of
HOWARD & HOWARD (SUB. NOM. FIRST OF AMERICA BROKERAGE SERVICE, INC.)
(avail. Sept. 28, 1995) issued by the Staff of the SEC with respect to
the non-registration as a broker-dealer of an insurance agency
associated with a registered broker-dealer. Broker-Dealer and
Insurance Agency shall notify Distributor immediately in writing if
Broker-Dealer and/or Insurance Agency fail to comply with any such
terms and
<PAGE>
conditions and shall take such measures as may be necessary and as
promptly as practicable under the circumstances to cure any such
non-compliance.
4. BROKER-DEALER AND INSURANCE AGENCY COMPLIANCE
a. Broker-Dealer, and not Distributor, shall be responsible for
securities training, supervision and control of the Agents in
connection with their solicitation activities with respect to the
Contracts and shall supervise Agents' compliance with applicable
federal and state securities law and NASD requirements in connection
with such solicitation activities.
b. Broker-Dealer and Insurance Agency hereby represent and warrant that
they are duly in compliance with all applicable federal and state
securities laws and regulations, and all applicable insurance laws and
regulations. Broker-Dealer and Insurance Agency each shall carry out
their respective obligations under this Agreement in continued
compliance with such laws and regulations. Further, Broker-Dealer and
Insurance Agent shall comply, and shall ensure that Agents comply,
with the rules and procedures set for the in the Agents Manual, and
the rules set forth below, and Broker-Dealer and Insurance Agency
shall be solely responsible for such compliance.
(1) Broker-Dealer, Insurance Agency and Agents shall not offer or
attempt to offer the Contracts, nor solicit applications or
Premiums for the Contracts, nor deliver Contracts, in any state
or jurisdiction in which the Contracts have not been approved for
sale. For purposes of determining where the Contracts may be
offered and applications or Premiums solicited, Broker-Dealer and
Insurance Agency may rely on written notification, as revised
from time to time, that they receive from Insurer pursuant to
this Agreement.
(2) Broker-Dealer, Insurance Agency and Agents shall not solicit
applications or Premiums for the Contracts without delivering the
Prospectus for the Contracts, and, where required by state
insurance law, the then-currently effective statement of
additional information for the Contracts, and the then-currently
effective prospectus(es) for the Fund(s).
(3) Broker-Dealer, Insurance Agency and Agents shall not recommend
the purchase of a Contract to an applicant unless each has
reasonable grounds to believe that such purchase is suitable for
the applicant in accordance with, among other things, applicable
regulations of any state insurance regulatory authority, the SEC
and the NASD. While not limited to the following, a
determination of suitability shall be based on information
supplied by the applicant after a reasonable inquiry concerning
the applicant's insurance and investment objectives, financial
situation and needs and the likelihood that the applicant will
continue to make premium payments. Each application or related
documentation obtained by an
<PAGE>
agent of Broker-Dealer shall bear the initials of a principal of
Broker-Dealer indicating the application has been reviewed by
such principal for suitability, completeness and accuracy.
(4) Broker-Dealer, Insurance Agency and all Agents shall accept
initial Premiums in the form of a check or money order only if
made payable to the name of Insurer and signed by the applicant
for the Contract. Broker-Dealer, Insurance Agency and Agent
shall not accept third-party checks or cash for Premiums.
(5) Broker-Dealer, Insurance Agency and Agents shall not encourage a
prospective applicant to surrender or exchange an instrument
contract in order to purchase a Contract, nor to encourage a
Contract owner to lapse, terminate, surrender, exchange or cancel
his or her Contract or discontinue paying Premiums thereunder.
(6) Broker-Dealer and Insurance Agency shall ensure that all checks
and money orders and applications for the Contracts received by
either of them or an Agent shall be remitted promptly, and in any
event not later than noon of the next business day after receipt,
to the Administrative Office. In the event that any other
Premiums are sent to an Agent, Insurance Agency or Broker-Dealer,
rather than to the Administrative Office, Insurance Agency and
Broker-Dealer shall promptly (and in any event, not later than
noon of the next business day) remit such Premiums to the
Administrative Office. Insurance Agency and Broker-Dealer
acknowledge that if any Premium is held at any time by either of
them such Premium shall be held on behalf of Insurer, and
Insurance Agency or Broker-Dealer shall segregate such Premium
from their own funds and promptly (and in any event, by noon of
the next business day) remit such Premium to the Insurer. All
such Premium, whether by check, money order or wire, shall at all
times be the property of Insurer.
(7) Upon issuance of a Contract by Insurer and delivery of such
Contracts to Insurance Agency, Insurance Agent or Agent shall
promptly deliver such Contract to its purchaser. For purposes of
this provision, "promptly" shall be deemed to mean not later than
five calendar days. Broker-Dealer and Insurance Agency shall
return promptly to Insurer all receipts, if applicable, for
delivered Contracts, all undelivered Contracts and all receipts,
if applicable, for cancellation, in accordance with the
instructions set forth in the Agents Manual. Broker-Dealer,
Insurance Agency, and the Agents in connection with the offer or
sale of the Contracts, shall not give any information or make any
representations or statements, written or oral, concerning the
Contracts, a Fund or Fund shares, other than or inconsistent with
information or representations contained in the Prospectuses,
statements of additional information and Registration Statements
for the Contracts, or a Fund, or in reports or proxy statements
<PAGE>
therefor, or in promotional, sales or advertising material or
other information supplied and approved in writing by Distributor
and Insurer.
c. Broker-Dealer and Insurance Agency understand, acknowledge, and
represent that Contracts and Premiums thereunder shall not be
solicited, offered, or sold in connection with any so-called "market
timing" or "asset reallocation" program, plan, arrangement or service
that has not been approved in advance in writing by Insurer and
Distributor. Should Distributor or Insurer determine in their sole
discretion that Broker-Dealer or Insurance Agency is soliciting,
offering, or selling, or has solicited, offered, or sold, Contracts or
Premiums subject to any so-called "market timing" or "asset
reallocation" program, plan, arrangement or service, Distributor or
Insurer may take such action which is necessary, in their sole
discretion, to halt such solicitations, offers or sales. Furthermore,
in addition to any indemnification provided in Section 11 of this
Agreement and any other liability that Broker-Dealer and Insurance
Agency might have, Broker-Dealer and Insurance Agency shall each be
liable to Distributor and Insurer and each Fund affected by any
so-called "market timing" or "asset reallocation" program, plan,
arrangement or service, for any damages or losses, actual or
consequential, sustained by Distributor or Insurer or any Fund, as a
result of any so-called "market timing" or "asset reallocation"
program, plan, arrangement or service which causes such losses or
damages following solicitation, offer, or sale of a Contract or
Premiums subject to "market timing" or "asset reallocation" or similar
service by Broker-Dealer or Insurance Agency.
c. Broker-Dealer and Insurance Agency shall promptly furnish to Insurer
or its authorized agent any reports and information that Insurer may
reasonably request for the purpose of meeting Insurer's reporting and
recordkeeping requirements under the insurance laws of any state,
under any applicable federal and state securities laws, rules and
regulations.
d. Broker-Dealer shall secure and maintain a fidelity bond (including
coverage for larceny and embezzlement), issued by a reputable bonding
company, covering all of its directors, officers, agents and employees
who have access to funds of Insurer or Distributor. This bond shall
be maintained at Broker-Dealer's expense in at least the amount
prescribed under Rule 3020 of the NASD Conduct Rules. Broker-Dealer
shall provide Distributor with a copy of said bond before executing
this Agreement. Broker-Dealer shall also secure and maintain errors
and omissions insurance acceptable to Insurer and covering
Broker-Dealer and Agents (registered representatives). Broker-Dealer
hereby assigns any proceeds received from a fidelity bonding company,
errors and omissions or other liability coverage, to Insurer or
Distributor as their interest may appear, to the extent of their loss
due to activities covered by the bond, policy or other liability
coverage. If there is any deficiency, whether due to a deductible or
otherwise, Broker-Dealer shall promptly pay such amounts on demand.
Broker-Dealer hereby agrees to indemnify and hold harmless Insurer and
Distributor from any such deficiency and from the costs of collection
thereof, including reasonable attorneys' fees.
<PAGE>
5. SALES MATERIALS
a. During the term of this Agreement, Distributor and Insurer will
provide Broker-Dealer and Insurance Agency, without charge, with as
many copies of Prospectuses (and any supplements thereto), current
Fund prospectuses (and any supplements thereto), and applications for
the Contracts, as Broker-Dealer or Insurance Agency may reasonably
request. Upon termination of this Agreement, Broker-Dealer and
Insurance Agency will promptly return to Distributor any Prospectuses,
applications, Fund prospectuses, and other materials and supplies
furnished by Distributor or Insurer to Broker-Dealer or Insurance
Agency or to the Agents.
b. During the term of this Agreement, Distributor and Insurer will be
responsible for providing and approving all promotional, sales and
advertising material to be used by Broker-Dealer and Insurance Agency
in the course of their solicitation activities hereunder. Distributor
will file such materials or will cause such materials to be filed with
the SEC, the NASD, and/or with any state securities regulatory
authorities, as appropriate. Broker-Dealer and Insurance Agency shall
not use or implement, nor shall they allow any Agent to use or
implement, any promotional, sales or advertising material relating to
the Contracts or otherwise advertise the Contracts without the prior
written approval of Distributor and Insurer.
6. COMMISSIONS AND EXPENSES
a. COMPENSATION. During the term of this Agreement, Broker-Dealer and
Insurance Agency shall be compensated for services performed
hereunder, based on the Contracts for which Insurance Agency is the
Broker-of-Record and at the COMMISSION RATES AND FEES SET FORTH IN
SCHEDULE 2 TO THIS AGREEMENT, as such SCHEDULE 2 MAY BE AMENDED OR
MODIFIED UPON _____ DAYS NOTICE. ANY amendment to Schedule 2 will be
applicable to any Contract for which an application or Premium is
received by the Administrative Office on or after the effective date
of such amendment or which is in effect after the effective date of
such amendment. Compensation shall be paid on behalf of Insurer and
Distributor to Insurance Agency on its behalf and on behalf of
Broker-Dealer. Compensation with respect to any Contract shall be
paid to Insurance Agency only for so long as Insurance Agent is the
Broker-of-Record for such Contract.
b. CONDITIONS TO COMPENSATION. Broker-Dealer and Insurance Agency
recognize that all compensation payable to them hereunder will be
disbursed by or on behalf of Insurer after Premiums are received and
accepted by Insurer and that no compensation of any kind other than
that described in this Agreement is payable to Insurance Agency for
the performance of its obligations hereunder.
<PAGE>
c. REFUND OF COMPENSATION. No compensation shall be payable, and
Broker-Dealer agrees to reimburse Distributor for any compensation
paid to Broker-Dealer or its Representatives, or Insurance Agency
under each of the following conditions: (i) if Insurer, in its sole
discretion, determines not to issue the Contract applied for; (ii) if
Insurer refunds the Premiums upon the applicant's surrender or
withdrawal pursuant to any "free-look" privilege; (iii) if Insurer
refunds the Premiums paid by applicant as a result of a complaint by
applicant, recognizing that Insurer has sole discretion to refund
Premiums; and (iv) if Insurer determines that any person signing an
application who is required to be licensed or any other person or
entity receiving compensation for soliciting purchase of the Contracts
is not duly licensed to sell the Contracts in the jurisdiction of such
sale or attempted sale.
d. INDEBTEDNESS AND RIGHT OF SETOFF. Nothing contained herein shall be
construed as giving Broker-Dealer or Agent the right to incur any
indebtedness on behalf of Insurer or Distributor. Broker-Dealer
hereby authorizes Insurer and Distributor to set off liabilities of
Broker-Dealer to Insurer and Distributor against any and all amounts
otherwise payable to Broker-Dealer.
e. COMMISSION SHARING. Broker-Dealer and Insurance Agency represent that
no commissions or other compensation will be paid for services
rendered in soliciting the purchase of the contracts by any person or
entity not duly registered or licensed by the required authorities and
appointed by Insurer to sell the Contract in the state in which such
solicitation occurred; provided however, that this provision shall not
prohibit the payment of compensation of the surviving spouse or other
beneficiary of a person entitled to receive such compensation pursuant
to a bona fide contract calling for such payment.
7. INTERESTS IN AGREEMENT. Agents shall have no interest in this Agreement or
right to any commissions to be paid to Insurance Agency hereunder.
Insurance Agency shall be solely responsible for the payment of any
commission or consideration of any kind to Agents. Broker-Dealer and
Insurance Agency shall be solely responsible under applicable tax laws for
the reporting of compensation paid to Agents. Insurance Agency shall have
no right to withhold or deduct any commission from any Premiums in respect
of the Contracts which it may collect, subject to Schedule 2 to this
Agreement. Insurance Agency shall have no interest in any compensation
paid by Insurer to Distributor, now or hereafter, in connection with the
sale of any Contracts hereunder.
8. TERM AND EXCLUSIVITY OF AGREEMENT. This Agreement may not be assigned
except by written mutual consent and shall continue for an indefinite term,
subject to the termination by either party by ten-days' advance written
notice to the other party, except that in the event Distributor or
Broker-Dealer ceases to be a registered broker-dealer or a member of the
NASD, this Agreement shall immediately terminate. Upon its termination,
all authorizations, rights and obligations shall cease, except the
agreements in SECTIONS 5, 8, 11, 12, 14, 15, 18 and the payment of any
accrued but unpaid compensation to Broker-Dealer and Insurance Agent.
<PAGE>
9. COMPLAINTS AND INVESTIGATIONS
a. Distributor, Insurer, Broker-Dealer and Insurance Agency each shall
cooperate fully in any securities or insurance regulatory
investigation or proceeding or judicial proceeding arising in
connection with the Contracts marketed under this Agreement.
Broker-Dealer and Insurance Agency will be notified promptly of any
customer complaint or notice of any regulatory investigation or
proceeding or judicial proceeding received by Distributor or Insurer
with respect to Broker-Dealer, Insurance Agency or any Agent; and
Broker-Dealer and Insurance Agency will promptly notify Distributor
and the Insurer of any written customer complaint or notice of any
regulatory investigation or proceeding or judicial proceeding received
by Broker-Dealer or Insurance Agency with respect to themselves or any
Agent in connection with this Agreement or any Contract.
b. In the case of a customer complaint, Distributor, Insurer,
Broker-Dealer and Insurance Agency will cooperate in investigating
such complaint and any response by Broker-Dealer or Insurance Agency
to such complaint will be sent to Distributor for approval not less
than five business days prior to its being sent to the customer or
regulatory authority, except that if a more prompt response is
required, the proposed response shall be communicated by telephone or
facsimile.
10. MODIFICATION OF AGREEMENT. This Agreement supersedes all prior agreements,
either oral or written, between the parties relating to the Contracts and,
except for any amendment of Schedule 1 pursuant to the terms of Section 2
hereof or Schedule 2 pursuant to the terms of Section 6 hereof, may not be
modified in any way unless by written agreement signed by all of the
parties.
11. INDEMNIFICATION
a. Broker-Dealer and Insurance Agency, jointly and severally, shall
indemnify and hold harmless Distributor and Insurer and each person
who controls or is associated with Distributor or Insurer within the
meaning of such terms under the federal securities laws, and any
officer, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they
or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon:
(1) violation(s) by Broker-Dealer, Insurance Agency, or an Agent of
federal or state securities law or regulation(s), insurance law
or regulation(s), or any rule or requirement of the NASD:
<PAGE>
(2) any unauthorized use of promotional, sales or advertising
material, any oral or written misrepresentations or any unlawful
sales practices concerning the Contracts, by Broker-Dealer,
Insurance Agency or an Agent;
(3) claims by the Agents or other agents or representatives of
Insurance Agency or Broker-Dealer for commissions or other
compensation or remuneration of any type;
(4) any failure on the part of Broker-Dealer, Insurance Agency, or an
Agent to submit Premiums or applications to Insurer, or to submit
the correct amount of a Premium, on a timely basis and in
accordance with this Agreement and the Agents Manual, subject to
applicable law;
(5) any failure on the part of Broker-Dealer, Insurance Agency, or an
Agent to deliver Contracts to purchasers thereof on a timely
basis and in accordance with the Agents Manual; or
(6) a breach by Broker-Dealer or Insurance Agency of any provision of
this Agreement.
(7) any other acts or omission of Broker-Dealer, Insurance Agency or
Agent which results in a claim against Distributor, Insurer their
agents or employees.
This indemnification will be in addition to any liability which
Broker-Dealer and Insurance Agency may otherwise have.
b. Distributor and Insurer, jointly and severally, shall indemnify and
hold harmless Broker-Dealer and Insurance Agency and each person who
controls or is associated with Broker-Dealer or Insurance Agency
within the meaning of such terms under the federal securities laws,
and any officer, director, employee or agent of the foregoing, against
any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they
or any of them may become subject under any statute or regulation,
NASD rule or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or based upon any
breach by Distributor or Insurer of any provision of this Agreement.
This indemnification will be in addition to any liability which
Distributor and Insurer, jointly and severally, may otherwise have.
c. Promptly after receipt by a party entitled to indemnification
("indemnified person") under this Section 11 of notice of the
commencement of any action as to which a claim will be made against
any person obligated to provide indemnification under this Section 11
("indemnifying party"), such indemnified
<PAGE>
person shall notify the indemnifying party in writing of the
commencement thereof as soon as practicable thereafter, but failure to
so notify the indemnifying party shall not relieve the indemnifying
party from any liability which it may have to the indemnified person
otherwise than on account of this Section 11, except to the extent
that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a
result of the failure to give such notice. The indemnifying party
will be entitled to participate in the defense of the indemnified
person but such participation will not relieve such indemnifying party
of the obligation to reimburse the indemnified person for reasonable
legal and other expenses incurred by such indemnified person in
defending himself or itself. The indemnifying party, upon the request
of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i)
the indemnifying party and indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. The indemnifying party
shall not be liable for any settlement of any proceeding effected
without its written consent, but if such proceeding for the plaintiff,
the indemnifying party shall indemnify the indemnified party from and
against any loss or liability by reason of such settlement or
judgement.
The indemnification provisions contained in this Section 11 shall
remain operative in full force and effect, regardless of any
termination of this Agreement. A successor by law of Distributor or
Insurer, as the case may be, shall be entitled to the benefits of the
indemnification provisions contained in this Section 11. After
receipt by a party entitled to indemnification ("indemnified party")
under this Section 11 of notice of the commencement of any action, if
a claim in respect thereof is to be made against any person obligated
to provide indemnification under this Section 11 ("indemnifying
party"), such indemnified party will notify the indemnifying party in
writing of the commencement thereof as soon as practicable thereafter,
provided that the omission so to notify the indemnifying party will
not relieve it from any liability under this Section 11.
12. RIGHTS, REMEDIES, ETC., ARE CUMULATIVE. The rights, remedies and
obligations contained in this Agreement are cumulative and are in addition
to any and all rights, remedies and obligations, at law or in equity, which
the parties hereto are entitled to under state and federal laws. Failure
of a party to insist upon strict compliance with any of the conditions of
this Agreement shall not be construed as a waiver of any of the conditions,
but the same shall remain in full force and effect. No waiver of any of
the provisions of this
<PAGE>
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver.
13. NOTICES. All notices hereunder are to be made in writing and shall be
given:
If to Insurer, to:
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
If to Distributor, to:
EquiTrust Marketing Services, Inc.
5400 University Avenue
West Des Moines, Iowa 50266
If to Broker-Dealer, to:
If to Insurance Agency, to:
such other address as such party may hereafter specify in writing. Each such
notice to a party shall be either hand delivered or transmitted by registered or
certified United States mail with return receipt requested, or by overnight mail
by a nationally recognized courier, and shall be effective upon delivery.
14. INTERPRETATION, JURISDICTION, ETC. This Agreement constitutes the whole
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior oral or written understandings, agreements or
negotiations between the parties with respect to the subject matter hereof. No
prior writings by or between the parties hereto with respect to the subject
matter hereof shall be used by a party in connection with the interpretation of
any provision of this Agreement. This Agreement shall be construed and its
provisions interpreted under and in accordance with the laws of the State of
Iowa without giving effect to principles of conflict of laws.
15. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration in accordance
with the Commercial Arbitration
<PAGE>
Rules of the American Arbitration Association, and judgement upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof.
16. HEADINGS. The headings in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
17. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
18. SEVERABILITY. In the event that any provision of this Agreement would
require a party to take action prohibited by applicable federal or state law or
prohibit a party from taking action required by applicable federal or state law,
then it is the intention of the parties hereto that such provision shall be
enforced to the extent permitted under the law, and, in any event, that all
other provisions of this Agreement shall remain valid and duly enforceable as if
the provision at issue had never been a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
EQUITRUST LIFE INSURANCE COMPANY
By:_____________________________________
Name:___________________________________
Title:____________________________________
EQUITRUST MARKETING SERVICES, INC.
By:_____________________________________
Name:___________________________________
Title:____________________________________
<PAGE>
RETAIL BROKER-DEALER
By:______________________________________
Name:___________________________________
Title:_____________________________________
INSURANCE AGENCY: ________________________
By:_______________________________________
Name:____________________________________
Title:______________________________________
<PAGE>
SCHEDULE 1
CONTRACTS SUBJECT TO THIS AGREEMENT
Effective _________________________, 1998
<PAGE>
Schedule 2
COMPENSATION SCHEDULE
Effective _____________________, 1998
<PAGE>
WHOLESALING AGREEMENT
This Agreement dated this _______ day of ___________________, ________ is
by and among EquiTrust Life Insurance Company, an Iowa corporation ("Insurer"),
EquiTrust Marketing Services, Inc. ("Distributor") a Delaware corporation which
is a registered broker-dealer with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of the National Association of Securities Dealers, Inc. ("NASD");
____________________________________ ("Wholesaler"), also a registered
broker-dealer with the SEC under the Exchange Act and a member of the NASD; and
__________________________________, a licensed insurance agency associated with
Wholesaler ("Agency"); and each additional insurance agency, if any, signatory
hereto (all such insurance agencies referred to collectively as "Agency").
WITNESSETH:
WHEREAS, Insurer has appointed Distributor as the principal underwriter
and distributor of the variable insurance contracts issued by Insurer, and
has agreed with Distributor that Distributor shall be responsible for the
recruitment of third parties who will promote the offer and sale of these
variable contracts; and
WHEREAS, Insurer and Distributor on the one hand, and Wholesaler, on the
other hand, desire to establish an arrangement whereby Wholesaler will
recommend to Distributor and Insurer certain third parties (the "Retailers")
who will promote the offer and sale of the variable life insurance and
variable annuities issued by Insurer (collectively the "Policies").
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. APPOINTMENT OF WHOLESALER
Subject to the terms and conditions of this Agreement, Insurer and
Distributor hereby authorize and appoint Wholesaler, on a non-exclusive
basis, to recommend to Insurer and Distributor Retailers who will promote the
offer and sale of Policies. Wholesaler hereby accepts such authorization and
appointment on a non-exclusive basis and agrees to use its best efforts to
find Retailers acceptable to Insurer who will promote the offer and sale of
Policies. Wholesaler acknowledges that no territory is exclusively assigned
to Wholesaler hereby, and that Distributor and Insurer may enter into
agreements with other third party wholesalers and broker-dealers providing
for the sale of the Policies. Further, Wholesaler acknowledges that Insurer
and Distributor may enter into agreements with other representatives of a
Retailer previously dealing with Wholesaler if such
<PAGE>
representatives are contracted by other third-party Wholesalers. Further,
any compensation as provided for in Section 7 hereof, shall only be based and
paid on those Policies written by Retailers during the period that such
Retailer is recognized by Insurer as appointed through Wholesaler and during
which there is outstanding a valid, binding and enforceable selling agreement
between such Retailer, Distributor and Insurer. Without limiting any
provision otherwise contained in this Agreement, Wholesaler shall conduct its
business in accordance with generally accepted customs and practices of the
life insurance industry.
2. THE POLICIES
The Policies issued by Insurer to which this Agreement applies are listed in
Exhibit A, which by this reference is incorporated herein. Exhibit A may be
amended from time to time by Insurer. Insurer in its sole discretion and
without notice to Wholesaler, may suspend sales of any Policies or may amend
any contracts or policies evidencing such Policies if, in Insurer's opinion,
such suspension or amendment is: (1) necessary for compliance with federal,
state, or local laws, regulations, or administrative order(s); or, (2)
necessary to prevent administrative or financial hardship to Insurer. In all
other situations, Insurer shall provide 30 days notice to Wholesaler prior to
suspending sales of any Policies or amending any contracts or policies
evidencing such Policies.
3. SECURITIES REGISTRATION AND LICENSING
Wholesaler shall, at all times when performing its functions under this
Agreement, be either registered as, or a registered representative in good
standing with, a securities broker-dealer in good standing with the SEC and
NASD and licensed or registered as a securities broker-dealer, or
representative, in the states and other local jurisdictions that require such
licensing or registration in connection with variable insurance contract
sales activities. Any personnel through which Wholesaler acts shall be
registered and licensed individually as required. Wholesaler hereby
represents and warrants to Distributor it is not currently under
investigation, formal or informal, by any securities or insurance regulatory
authority.
4. INSURANCE LICENSING
Wholesaler shall, at all times when performing its functions under this
Agreement, be validly licensed as an insurance agent or agency in the states
and other local jurisdictions that require such licensing or registration in
connection with the Wholesaler's variable life insurance and variable annuity
contract sales activities; or, in those states in which Wholesaler cannot or
does not obtain a corporate agent's license, shall maintain an ownership
interest in, or contractual relationship with, Agency, which shall be validly
licensed as an insurance agency in such jurisdiction or jurisdictions. Such
contractual relationship shall be set forth in an agreement substantially
equivalent to that set forth as Exhibit B. Any personnel through which
Wholesaler acts shall be licensed individually as required. Wholesaler shall
provide Insurer with a list of all licensed insurance agencies
<PAGE>
relied upon by Wholesaler to comply with this paragraph and covenants to
maintain the completeness and accuracy of such list, and to cause each such
agency to become a signatory hereto.
5. RECOMMENDATION AND ACCEPTANCE OF RETAILERS
Wholesaler will recruit and recommend potential Retailers to sell the
Policies. Insurer shall have sole discretion to accept or reject any such
recommendation. Acceptance shall occur only upon and by way of execution of a
selling agreement between Retailer, Distributor and Insurer.
6. WHOLESALING SERVICES
Wholesaler shall use its best efforts to provide certain services and support
to Retailers to facilitate the offering and selling of Policies. Such
activities shall include, but not be limited to, assistance in the
appointment of agents; distribution of sales material, newsletters and field
service bulletins (subject to Section 12, hereof); assistance with the sales
promotional activities with Retailers; and training of sales staff and
registered representatives of Retailers with respect to the features of the
Policies.
7. COMPENSATION
Compensation for the services performed in accordance with Section 6 above,
will be, pursuant to the terms and conditions in Exhibit C, a percentage of
purchase payments made to Insurer on account of Policies issued upon
applications procured through Retailers in accordance with this Agreement.
Compensation shall be paid to Wholesaler unless applicable state insurance
law requires that compensation be paid to Agency. Upon the termination of
this Agreement all compensation payable to Wholesaler hereunder shall cease,
except that compensation will be paid on premiums accompanying applications
obtained by Retailers recruited by Wholesaler and dated prior to such
termination. Exhibit C may be amended by Insurer by providing written notice
to Wholesaler. Such amendment shall apply only to applications dated after
the effective date of such amendment, provided, however, that Insurer
reserves the right to apply such amendment with respect to all subsequent
premiums and renewal premiums received after the effective date of such
amendment. In the event Wholesaler is disqualified from continued
registration with the NASD, Insurer shall not be obligated to pay
commissions, fees or additional compensation pursuant to this Agreement, the
payment of which would represent a violation of NASD rules.
8. SUPERVISION OF REGISTERED REPRESENTATIVES
Wholesaler, and not Distributor, shall have full responsibility for the
training and supervision of all of its own registered persons who are engaged
directly or indirectly in the offer or sale of the variable insurance
contract hereunder, and all such persons shall be subject to the control of
and supervision of Wholesaler with respect to such person's
<PAGE>
securities-regulated activities, and to the control of Agency with respect to
such person's insurance-regulated activities, in connection with the
solicitation and sale of and other communication with respect to variable
insurance and annuity contracts hereunder. Wholesaler and Agency shall not,
solely by virtue of this Agreement, be obligated to supervise the registered
representative of any Retailer.
9. COMPLIANCE WITH NASD CONDUCT RULES AND FEDERAL AND STATE SECURITIES LAWS
Wholesaler shall fully comply with the rules and requirements of the NASD and
of the Exchange Act and all other applicable federal or state laws and will
establish such rules and procedures as may be necessary to cause diligent
supervision of the securities activities of its registered persons. Upon
request by Distributor, Wholesaler shall furnish such appropriate records as
may be necessary to establish such diligent supervision.
10. REGULATIONS
All parties agree to observe and comply with the existing laws and rules or
regulations of applicable local, state, or federal regulatory authorities and
with those which may be enacted or adopted during the term of this Agreement
regulating the business contemplated hereby in any jurisdiction in which the
business described herein is to be transacted, and to provide information or
reports with respect to their duties hereunder pursuant to request by any
regulatory authority having jurisdiction with respect thereto.
11. INVESTIGATIONS; CUSTOMER COMPLAINTS
Wholesaler agrees to fully cooperate in any insurance, securities or other
regulatory or judicial investigation or proceeding arising in connection with
the Policies, Insurer, Distributor, Wholesaler, Agency and/or any of the
Retailers recruited by Wholesaler. Wholesaler and Agency shall permit
appropriate federal and state insurance and other regulatory authorities to
audit their records and shall furnish the foregoing authorities with any
information which such authorities may request in order to ascertain whether
Wholesaler or Agency is complying with all applicable laws and/or
regulations. Wholesaler and Agency agree to cooperate with Insurer in
resolving all customer complaints with respect to the Policies, Wholesaler,
Agency or any Retailer.
12. PROSPECTUSES, SALES PROMOTION MATERIAL AND ADVERTISING
Wholesaler shall be provided, without any expense to Wholesaler, with
prospectuses relating to the Policies ("Prospectuses") and such other
material as Distributor determines to be necessary or desirable for use in
connection with sales of the Policies or the recruitment of Retailers. No
materials or any advertising relating to the recruitment of Retailers, or the
Policies shall be used by Wholesaler unless the specific item has been
approved in writing by Distributor prior to such use. In addition, Wholesaler
shall not print, publish or distribute any advertisement, circular or any
document relating to
<PAGE>
Insurer, Distributor or the Policies unless such advertisement, circular, or
document shall have been approved in writing by Insurer and Distributor prior
to such use. No representations in connection with the recruitment of
Retailers, or the sale of the Policies, other than those contained in the
currently effective registration statements and Prospectuses for the Policies
filed with the SEC, or in the aforesaid approved materials, shall be made by
Wholesaler. Wholesaler shall only recruit Retailers who are licensed in
states where Policies have been approved by state authorities. Upon
termination of this Agreement, all Prospectuses, sales promotion material,
advertising, circulars, and documents relating to the recruitment of
Retailers, or the sales of the Policies shall be promptly turned over to
Insurer free from any claim or retention of rights by the Wholesaler.
13. BOOKS AND RECORDS
Wholesaler shall maintain the books, accounts, and records as required by
applicable laws and regulations. The books, accounts and records of
Wholesaler shall clearly and accurately disclose the nature and details of
Wholesaler's activities related hereto. Wholesaler shall keep confidential
all information obtained pursuant to this Agreement (including, without
limitation, names of purchasers of Policies) and shall disclose such
information only if Insurer has authorized such disclosure in writing, or if
such disclosure is expressly required by applicable federal or state
authorities. Distributor shall have access to all books, accounts and
records of Wholesaler pertaining to the Policies.
14. RIGHT OF OFFSET, LIABILITY OF WHOLESALER, AND LEGAL PROCEEDINGS
Wholesaler hereby authorizes Insurer to set off from all amounts otherwise
payable to Wholesaler all liabilities of Wholesaler or Retailers to Insurer.
Wholesaler shall be jointly and severally liable with Retailers for the
payment of all monies due to Insurer which may arise out of this Agreement or
any other agreement between Wholesaler, Retailer and Insurer including, but
not limited to, any liability for any chargebacks or for any amounts advanced
by or otherwise due Insurer hereunder. The determination of the amount of any
liabilities shall be at the sole discretion of Insurer. The parties agree
Insurer retains the absolute and unilateral right to settle and resolve all
claims or causes of action, in its sole discretion, raised or asserted by any
person concerning the actions of Wholesaler or Retailers. Wholesaler's joint
and several liability shall not be contingent on input by Wholesaler in any
such settlements or resolutions. A first lien is hereby reserved to Insurer
upon any sums due to Wholesaler from Insurer for the satisfaction of any
liability arising pursuant to this Agreement. Insurer and Distributor do not
waive any of its other rights to pursue collection of any indebtedness owed
by Wholesaler or Retailers to Insurer. In the event Insurer initiates legal
action to collect any indebtedness of Wholesaler or Retailers, or their
agents, Wholesaler shall reimburse Insurer for reasonable attorney fees and
expenses in connection therewith. As used in this Section 14, "Insurer"
shall be deemed to refer to, and shall include, all affiliates of Insurer.
<PAGE>
15. INDEMNIFICATION
Insurer and Distributor hereby agrees to indemnify and hold harmless Agency,
Wholesaler and each of its affiliates, officers or directors against any
losses, expenses (including reasonable attorneys' fees), claims, damages or
liabilities to which Agency, Wholesaler or such affiliates, officers or
directors becomes subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
Insurer's performance, non-performance or breach of this Agreement, or are
based upon any untrue statement contained in any registration statement (or
any post-effective amendment thereof) or in the Prospectus or any amendment
or supplement to the Prospectus.
Wholesaler and Agency hereby agree, jointly and severally, to indemnify and
hold harmless Insurer and Distributor and each of their current and former
affiliates, directors and officers and each person, if any, who controls or
has controlled Insurer or Distributor within the meaning of the federal
securities laws, against any losses, expenses (including reasonable
attorneys' fees), claims (including, but not limited to, claims for
commissions or other compensation), damages or liabilities to which Insurer
and Distributor and any such affiliates, director or officer or controlling
person may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
Wholesaler's or Retailer's recruited by Wholesaler, performance,
non-performance, or breach of this Agreement or any other agreement between
Wholesaler, Retailer and Insurer including, but not limited to, any
unauthorized use of sales materials, any misrepresentations, or any sales
practices concerning the Policies.
16. INTEREST
Any unpaid obligation of Wholesaler to Insurer or Distributor under this
Agreement shall accrue interest at the lesser of the rate of fifteen percent
per annum, or the maximum interest rate otherwise permitted by applicable law.
17. LIMITATIONS
Nothing in this Agreement shall be construed as authorizing Wholesaler to
incur any indebtedness on behalf of Insurer or Distributor or any of its
affiliates. No party other than Insurer and Distributor shall have the
authority on behalf of Insurer or Distributor to enter into any selling
agreement, or to make, alter, waive or discharge any policy, contract, or
certificate issued by Insurer, to waive any forfeiture or to grant, permit,
nor extend the time for making any payments nor to guarantee earnings or
rates, nor to alter the forms which Insurer may prescribe or substitute other
forms in place of those prescribed by Insurer, nor to enter into any
proceeding in a court of law or before a regulatory agency in the name of or
on behalf of Insurer.
<PAGE>
18. INDEPENDENT CONTRACTORS
Wholesaler, Agency and Retailers are independent contractors with respect to
Insurer and Distributor. Nothing contained within this Agreement shall be
construed as creating a partnership between the parties hereto. Wholesaler,
Agency and their respective agents, representatives, and employees shall not
at any time hold themselves out to the public to be employees of Insurer or
Distributor.
19. NOTICES
All notices or communications shall be sent to the address shown below or to
such other address as the party may request by giving written notice to the
other parties:
Insurer:
EquiTrust Life Insurance Company
Suite 440
5000 Westown Parkway
West Des Moines, Iowa 50266
Distributor:
EquiTrust Marketing Services, Inc.
5400 University Avenue
West Des Moines IA 50266
Wholesaler:
(b) For purpose of communications pertaining to compliance and
supervision, Wholesaler hereby designates the following person and address to
receive such communications and notices at the following address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
Wholesaler covenants to promptly notify Insurer and Distributor of any change
in such designated person or address.
<PAGE>
20. ENTIRE AGREEMENT
This Agreement is the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings among such parties with respect to such subject
matter. No course of dealing, course of performance and no parole evidence
of any nature shall be used to supplement or modify any terms hereof,
provided, however, any obligation of Wholesaler to Insurer or any of its
affiliates pursuant to a prior agreement of any type shall continue as an
obligation thereunder.
21. SEVERABILITY
Any provision of this Agreement which is found to be invalid, void or illegal
shall in no way affect, impair or invalidate any other provision hereof, and
such other provisions shall remain in full force and effect.
22. AMENDMENT OF AGREEMENT
Insurer and Distributor reserve the right to amend this Agreement at any
time, and the receipt of compensation on any Policy written by any Retailer
recruited by Wholesaler after notice of any such amendment has been sent to
Wholesaler shall constitute the Wholesaler's agreement to any such amendment.
23. ASSIGNMENT
This Agreement may not be assigned except upon the written consent of all
parties; provided, however, that the rights, obligations, duties and
responsibilities of Distributor hereunder may be assigned to a properly
qualified affiliate of Insurer upon the written consent of Insurer and
Distributor.
24. WAIVER
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any of the
conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute
a waiver of any other provisions, whether or not similar, nor shall any
waiver constitute a continuing waiver.
25. BINDING EFFECT
This Agreement shall be binding on and shall inure to the benefit of the
parties to hereto and their respective successors and assigns; provided that
Wholesaler may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Insurer.
<PAGE>
26. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the laws
of the state of Iowa.
27. TERMINATION
This Agreement may be terminated, without cause, by any party upon thirty
(30) days prior written notice; and may be terminated for failure to perform
satisfactorily or other cause by any party immediately; and shall be
terminated if Insurer or Wholesaler shall cease to be broker-dealers, or a
registered representative of such a registered broker-dealer, under the
Exchange Act or members in good standing with the NASD. Without limiting the
foregoing, Insurer or Distributor may terminate this Agreement if it is
determined by Insurer or Distributor, in their sole and absolute discretion,
that Wholesaler is not adequately recruiting Retailers or promoting or
providing services to facilitate the solicitations for and sales of the
Policies. Upon termination of this Agreement, the terms of Sections 8, 11,
12, 13,14, 15, 16, 17 and 26 shall survive and be binding upon the parties
hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
INSURER:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
DISTRIBUTOR:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
WHOLESALER:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
AGENCY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT A
THE POLICIES
EquiTrust Life Annuity Account
EquiTrust Life Variable Account
<PAGE>
EXHIBIT B
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
[INSERT BROKER/DEALER].
AND
[INSERT INSURANCE AGENCY]
This Administrative Services Agreement, made as of the _____
day of __________, 199___, by and between ___________________.
("Broker/Dealer"), a corporation organized and existing under the laws of the
State of ___________, and _________________________. ("Insurance Agency"), a
corporation organized and existing under the laws of the State of ______.
WITNESSETH:
WHEREAS, Broker/Dealer is a broker/dealer registered with the
Securities and Exchange Commission ("SEC");
WHEREAS, Broker/Dealer desires to market variable insurance
product in (_______);
WHEREAS; variable insurance products may be sold in (_______) only
by persons that are licensed insurance agencies;
WHEREAS; (________) imposes requirements relating to domestic
incorporation of insurance agencies that Broker/Dealer cannot satisfy;
WHEREAS; Insurance Agency is a licensed insurance agency and is
associated with Broker/Dealer through stock ownership or contractual
arrangement; and
WHEREAS; Broker/Dealer and Insurance Agency desire to enter
into an arrangement for the offer and sale of variable insurance products
through common employees and representatives of Broker/Dealer and Insurance
Agency that complies with the terms and conditions of the First of America
Brokerage Service, Inc. no-action letter issued by the SEC staff (pub. avail
Sept. 28, 1995) so that neither Insurance Agency nor its unregistered
employees (defined below) will be required to register separately with the
SEC as broker/dealers pursuant to Section 15(b) of the Securities Exchange
Act of 1934 (the "1934 Act");
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties set forth below, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DUAL REPRESENTATIVES. Individuals who are registered principals
or representatives of Broker/Dealer and licensed insurance agents associated
with Insurance Agency.
<PAGE>
1.2 EFFECTIVE DATE. The date as of which this Agreement is executed.
1.3 UNREGISTERED EMPLOYEES. Individuals associated with Broker/Dealer
or Insurance Agency that do not hold all of the required registrations, licenses
and qualifications to sell Variable Products.
1.4 VARIABLE PRODUCTS. The variable life insurance policies and
variable annuity contracts offered from time to time by Broker/Dealer and
Insurance Agency in (__________).
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 ORGANIZATION AND GOOD STANDING. Each party hereto represents and
warrants that it is a corporation duly organized, validly existing and in good
standing under the laws of that jurisdiction set forth on page one (1) of this
Agreement; has all requisite corporate power to carry on its business as it is
now being conducted and is qualified to do business in each jurisdiction in
which such qualification is necessary under applicable law.
2.2 REGISTRATION OF BROKER/DEALER. Broker/Dealer represents and
warrants that, at all times when performing its functions and fulfilling its
obligations under this Agreement, it is or will be registered as a broker/dealer
with the SEC and in each state or other jurisdiction in which Broker/Dealer
intends to perform its functions and fulfill its obligations hereunder, if
required, and is or will be a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD").
2.3 LICENSING AND APPOINTMENT OF INSURANCE AGENCY. Insurance Agency
represents and warrants that, at all times when performing its functions and
fulfilling its obligations under this Agreement, it is or will be: (a) licensed
to sell Variable Products in each state or other jurisdiction in which Insurance
Agency intends to perform its functions and fulfill its obligations hereunder;
and (b) appointed by the insurance company issuing the Variable Products.
2.4 AUTHORIZATION. Each party hereto represents and warrants that the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate action, and when so executed and delivered this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
2.5 NO CONFLICTS. Each party hereto represents and warrants that the
consummation of the transactions contemplated herein, and the fulfillment of the
terms of this Agreement, will not conflict with, result in any breach of any of
the terms and provisions of, or constitute (with or without notice or lapse of
time) a default under, the articles of incorporation or bylaws of such party, or
any indenture, agreement, mortgage, deed of trust, or other instrument to which
such party is a party or by which it is bound, or violate any law, or, to the
best of such party's knowledge, any order, rule or regulation applicable to such
party of any court or of any federal or state regulatory body, administrative
agency or any other governmental instrumental having jurisdiction over such
party or any of its properties.
ARTICLE 3
RESPONSIBILITIES AND OBLIGATIONS OF BROKER/DEALER
3.1 REGISTRATION OF DUAL REPRESENTATIVES: ASSOCIATED PERSONS.
Broker/Dealer shall ensure that each Dual Representative will be registered and
qualified as necessary with the NASD and any appropriate state regulatory
authority, and will be deemed an associated person of Broker/Dealer within the
meaning of Section 3(a)(18) of the 1934 Act.
<PAGE>
3.2 TRAINING AND SUPERVISION. Broker/Dealer, through its designated
principals or members of its staff authorized to supervise employees, shall
train, supervise, control, and assume responsibility for all of the securities
activities of the Dual Representatives in connection with the offer and sale of
Variable Products.
3.3 CONDUCT MANUALS TO UNREGISTERED EMPLOYEES. Broker/Dealer shall
provide conduct manuals to be given to Unregistered Employees of Insurance
Agency that specify the limitations on their permissible activities, as set
forth below in Section 4.4. Insurance Agency shall provide such conduct manuals
to its Unregistered Employees. A form of such manual is attached hereto as
EXHIBIT A.
3.4 SUPERVISORY PROCEDURES TO DUAL REPRESENTATIVES. Broker/Dealer
shall require Dual Representatives to adhere to the policies and procedures
contained in Broker/Dealer's written Supervisory Procedures for registered
representatives, and Broker/Dealer shall monitor their compliance in this
regard.
3.5 COMPLIANCE WITH APPLICABLE LAW. Broker/Dealer shall comply, and
shall require that the Dual Representatives comply, with all applicable
statutory and regulatory requirements of the federal and state securities laws,
rules, regulations and regulatory policies and all applicable NASD rules and
regulatory policies.
3.6 ADVERTISEMENTS AND PROMOTIONAL MATERIALS. Neither Broker/Dealer
nor Insurance Agency shall use any advertisements or promotional materials
unless a designated principal of Broker/Dealer shall have approved such
advertisements and promotional materials prior to their distribution to ensure
that they are in compliance with federal and state securities laws and NASD
rules. Broker/Dealer shall assume full responsibility for all such
advertisements and promotional materials, and all such materials shall be deemed
to be Broker/Dealer's materials.
3.7 MAINTENANCE OF BOOKS AND RECORDS. Broker/Dealer shall maintain
books and records relating to transactions in Variable Products in its home
office in _________________> Where state insurance law mandates, duplicate
books and records relating to the sales of Variable Products may be maintained
by Insurance Agency, as stated below in Section 4.6. Such books and records
will be deemed books and records of Broker/Dealer and will be readily accessible
for examination by the SEC, the NASD, and other self-regulatory organizations of
which Broker/Dealer may become a member and other governmental authorities.
ARTICLE 4
RESPONSIBILITIES AND OBLIGATIONS OF INSURANCE AGENCY
4.1 ASSOCIATED PERSON. Insurance Agency shall be deemed an associated
person of Broker/Dealer within the meaning of Section 3(a)(18) of the 1934 Act.
4.2 DUAL REPRESENTATIVES. All securities services in connection with
the sale of Variable Products will be provided by the Insurance Agency only
through the Dual Representatives. Insurance Agency shall ensure that the Dual
Representatives will effect securities transactions and provide securities
services related to variable insurance products.
4.3 SUSPENSION. Insurance Agency shall terminate or suspend from all
Variable Products activities conducted by Insurance Agency any Dual
Representative whom the SEC, the NASD or any other self-regulatory organization
bars or suspends from association with Broker/Dealer or any other broker/dealer.
4.4 UNREGISTERED EMPLOYEES. Insurance Agency shall ensure that its
Unregistered Employees shall not: (a) engage in any securities activities; or
(b) receive any compensation based on transactions in securities or the
provision of securities advice. Insurance Agency shall further ensure that
<PAGE>
its Unregistered Employees will not recommend any security, give investment
advice with respect to securities, discuss the merits of any security or type of
security, or handle any question that might require familiarity with the
securities industry. Insurance Agency shall require all Unregistered Employees
to refer all Variable Products-related questions to Dual Representatives.
Insurance Agency shall further ensure that Unregistered Employees will not
handle or maintain customer funds in connection with securities transactions
other than providing clerical or ministerial assistance. These obligations
concerning Unregistered Employees are included in Broker/Dealer's conduct manual
for Unregistered Employees, which will be provided to Unregistered Employees of
Insurance Agency, as stated in Sections 3.3 and 4.5, and is attached hereto as
Exhibit A.
4.5 MONITORING UNREGISTERED EMPLOYEES. Insurance Agency shall monitor
the activities of its Unregistered Employees, and ensure their compliance with
the limitations on their permissible activities as set forth in Broker/Dealer's
conduct manual for Unregistered Employees.
4.6 MAINTENANCE OF BOOKS AND RECORDS. Where state insurance law
mandates, duplicates of those books and records maintained by Broker/Dealer
relating to the sales of Variable Products will be maintained by Insurance
Agency, although such books and records will be deemed books and records will be
deemed books and records of Broker/Dealer. Insurance Agency shall ensure that
such books and records will be readily accessible for examination by the SEC,
and NASD, any other self-regulatory organization of which Broker/Dealer may
become a member, and other governmental authorities.
ARTICLE 5
PAYMENTS FOR VARIABLE PRODUCTS
5.1 CUSTOMER CHECKS: HANDLING CUSTOMER FUNDS. Broker/Dealer and
Insurance Agency shall take all necessary and appropriate steps to ensure that
the following procedures are observed:
(a) Initial checks and applications for the purchase of Variable
Products shall be forwarded by Broker/Dealer by noon of the
following business day to the insurance company issuing the
Variable Products and shall bear the initials of a principal of
the Broker/Dealer indicating that the application has been
reviewed by such principal for suitability, completeness and
accuracy;
(b) any subsequent payments will be sent directly by the customer to
the insurance company issuing the Variable Products;
(c) if any checks or applications are received by Broker/Dealer or
Insurance Agency, such checks and applications will be forwarded
to the insurance company issuing the Variable Products by
Broker/Dealer, or its Dual Representatives, by noon of the next
business day following such receipt;
(d) if the insurance company issuing the Variable Products receives
customer checks and applications directly, Broker/Dealer shall
request from such insurance company copies necessary to make any
required suitability determinations; and
(e) only Dual Representatives (and no Unregistered Employees) will:
(i) handle checks routed through Broker/Dealer and Insurance
Agency; and (ii) receive or handle customer funds in connection
with the sale of Variable Products.
Neither Broker/Dealer, Insurance Agency, nor any of their employees shall
cash premium checks, or use any portion of a premium check for a commission,
if any, or for any other purpose other than as a premium.
<PAGE>
ARTICLE 6
COMPENSATION
6.1 COMPENSATION. (INSERT COMPENSATION TERMS OR REFER TO
SCHEDULE.) Insurance Agency shall pay to Broker/Dealer as compensation for
Broker/Dealer's services hereunder one hundred (100) percent of the
compensation it receives for the sale of Variable Products, net of any
payments made to Dual Representatives, so that such compensation can be
included in the revenues of the Broker/Dealer for purposes of complying with
applicable laws, rules, regulations, and regulatory policies. Any
compensation paid to Dual Representatives for securities transactions shall
be determined solely by Broker/Dealer and such payments shall be paid as
directed by, and on behalf of, Broker/Dealer and shall be included in the
revenues of the Broker/Dealer.
ARTICLE 7
GENERAL PROVISIONS
7.1 TERM OF AGREEMENT: TERMINATION. This Agreement will become
effective as of the Effective Date and will remain in effect for a period of one
year, and will automatically continue in effect for one-year periods thereafter.
This Agreement may be terminated earlier by agreement in writing by all the
parties hereto. After termination takes effect, Insurance Agency shall not hold
itself out as being authorized or able to sell Variable Products or as being
associated with Broker/Dealer. Furthermore, upon termination of this Agreement,
all authorizations, rights, and obligations shall cease except: (a) the
agreements contained in Sections 4.6 and 7.10 hereof; and (b) the obligation to
settle accounts hereunder.
7.2 ASSIGNMENT SUCCESSION. This Agreement will not be assignable by
any party hereto except that each party may assign its rights (but not its
obligations) hereunder to any affiliated company, provided that such company is
properly licensed and registered. This Agreement will insure to the benefit of
and be binding upon the parties and each of their successors.
7.3 ENTIRE AGREEMENT: MODIFICATION. This Agreement contains the
entire agreement and understanding of the parties with respect to the subject
matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between the parties, and no waiver,
modification or change of any of its provisions will be valid unless in writing
and signed by the parties hereto, or in the case of a waiver, by the party
waiving compliance.
7.4 WAIVER OF BREACH. Failure of any party to enforce any provision
of this Agreement will not constitute a course of conduct or waiver in the
future of the right to enforce the same or any other provision.
7.5 SEVERABILITY: PARTIAL INVALIDITY. The parties to this Agreement
desire and intend that the terms and conditions of this Agreement be enforced to
the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. The parties agree
specifically that, if any particular term or condition of this Agreement is
adjudicated, or becomes by operation or law, invalid or unenforceable, this
Agreement will be deemed amended to delete the portion that is adjudicated, or
that becomes by operation of law, invalid or unenforceable, the deletion or
reduction to apply only with respect to the operation of the term or condition,
and the remainder of the Agreement to remain in full force and effect. A
deletion or reduction resulting from any adjudication will apply only with
respect to the operation of that term in the particular jurisdiction in which
the adjudication is made.
<PAGE>
7.6 NOTICES. Any notice, request, demand or other communication
required or permitted hereunder will be in writing and will be delivered in one
of the following manners: by personal delivery, which will be effective on the
day so delivered; by registered or certified mail, which will be effective three
days after mailing; by telecopier, which will be effective when receipt is
acknowledged; and by courier guaranteeing next day delivery, which will be
effective on the earlier of the second business day after timely delivery to the
courier or the day of actual delivery by the courier. All notices to a party
will be sent to the following addresses or to such other address or person as
such party may designate by notice to each other party hereunder:
(a) TO BROKER/DEALER:
(b) TO INSURANCE AGENCY:
7.7 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the internal laws of the State of (__________) without regard
to the conflict of law provisions thereof.
7.8 COUNTERPARTS. This Agreement may be executed simultaneously in
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
7.9 HEADINGS. The headings in the sections of this Agreement are
inserted for convenience only and will not constitute a part hereof.
7.10 COMPLAINTS AND INVESTIGATIONS. The parties will notify each other
promptly if either receives any customer complaint or notice of any regulatory
investigation or proceeding or judicial proceeding with respect to their
respective activities or the activities of any Dual Representative. The parties
will cooperate fully in investigating any such complaint and in responding to
any such proceeding.
IN WITNESS HEREOF, the parties hereto have caused this Agreement
to be duly executed as of the date and year first above written.
[Broker/Dealer].
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[Insurance Agency]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT A
CONDUCT MANUAL
CONDUCT MANUAL RELATING TO
ACTIVITIES OF UNREGISTERED EMPLOYEES OF
[INSURANCE AGENCY]
IN CONNECTION WITH THE SALE OF VARIABLE INSURANCE PRODUCTS
Since you are not licensed or qualified to sell variable insurance
products ("Variable Products"), you must be very careful not to perform any
activities or provide any information to customers that could confuse a customer
as to your role in the sale of Variable Products. Under federal and state
securities laws, and state insurance laws, only properly licensed registered,
and qualified persons may solicit customers or recommend or discuss insurance or
investment products with a customer.
In sum, this means that you should provide only "clerical" and
"ministerial" services. The permissible activities for employees of
______________________. ("Insurance Agency") who do not hold all the required
securities registrations and insurance licenses (hereinafter "Unregistered
Employees") shall be limited to:
(a) referring prospective customers to an individual who holds
all the requisite insurance and securities qualifications
(a "Dual Representative");
(b) arranging an appointment with or taking a message for a
Dual Representative if a Dual Representative is absent or
unavailable;
(c) referring telephone calls and other written and oral
communications to a Dual Representative; and
(d) referring all Variable Products-related questions to a Dual
Representative.
When engaging in any of the foregoing permissible activities,
Unregistered Employees shall limit his or her discussion of the Variable
Products to statements advising customers of the availability of information
about the Variable Products from the broker/dealer affiliated with Insurance
Agency, i.e., _________________-, and the referral of such customer to a Dual
Representative. Such Unregistered Employees shall not offer investment advice,
make recommendations, discuss the features, merits, investment options, or
suitability of any Variable Product or handle any question that might require
familiarity with the securities industry. Such Unregistered Employees shall not
handle or maintain customer funds in connection with securities transactions,
handle or maintain securities, or have any involvement in securities
transactions other than providing clerical or ministerial advice. Nothing in
this Conduct Manual shall limit the ability of Insurance Agency or its employees
to provide administrative or clerical services to _________________________.
<PAGE>
EXHIBIT C
COMPENSATION
<PAGE>
NON-PARTICIPATING
FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
DEATH PROCEEDS PAYABLE AT THE INSURED'S DEATH PRIOR TO THE MATURITY DATE.
FLEXIBLE PREMIUMS PAYABLE FOR THE INSURED'S LIFE OR UNTIL THE MATURITY DATE. THE
AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT MAY VARY UNDER
THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT PROVISIONS. THE CASH VALUE IN THE
VARIABLE ACCOUNT IS BASED ON THE INVESTMENT EXPERIENCE OF THAT ACCOUNT AND MAY
INCREASE OR DECREASE DAILY. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT. THE
VARIABLE FEATURES OF THIS POLICY ARE DESCRIBED ON PAGES 13 THROUGH 15.
EquiTrust Life Insurance Company will pay the benefits of this policy subject
to all of its terms.
RIGHT TO EXAMINE POLICY
The owner may cancel this policy by delivering or mailing a written notice or
sending a telegram or fax to the agent through whom it was purchased or the
EquiTrust Life Insurance Company, 5400 University Avenue, West Des Moines,
Iowa 50266-5997 and by returning the policy or contract before midnight of
the twentieth day after the date you receive the policy. Notice given by mail
and return of the policy or contract by mail are effective on being
postmarked, properly addressed and postage prepaid. Farm Bureau Life will
refund within seven days after it receives notice of cancellation and the
returned policy an amount equal to the greater of the premiums paid or the
sum of:
a) the accumulated value of the policy on the date the policy is received at
our home office;
b) any premium expense charges which were deducted from premiums;
c) monthly deductions made on the policy date and any monthly deduction day;
and
d) amounts equal to daily charges against the variable account.
Signed for and on behalf of EquiTrust Life Insurance Company at its home
office at 5400 University Avenue, West Des Moines, Iowa 50266-5997, effective
as of the date of issue of this policy.
/s/ Edward M. Wiederstein /s/ Richard D. Harris
President Secretary
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266-5997
[LOGO]
<PAGE>
This policy is a legal contract between the owner and EquiTrust Life Insurance
Company.
READ YOUR POLICY CAREFULLY
INDEX OF MAJOR POLICY PROVISIONS
POLICY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3
Insured; Insuring Age; Sex; Policy Number; Policy Date; Owner(s); Date of Issue;
Death Benefit Option; Maturity Date; Specified Amount at Issue; Schedule of
Forms and Premiums; Schedule of Current Charges; Schedule of Current Surrender
Charges.
TABLE OF GUARANTEED MAXIMUM MONTHLY INSURANCE RATES PER $1000. . . . . Page 6
SPECIFIED AMOUNT FACTORS . . . . . . . . . . . . . . . . . . . . . . . Page 7
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . Page 8
1.1 You or Your; 1.2 Age; 1.3 Net Accumulated Value; 1.4 Age; 1.5 Attained Age;
1.6 Business Day; 1.7 Declared Interest Option; 1.8 Eligible for Waiver of
Surrender Charge; 1.9 Fund; 1.10 General Account; 1.11 Home Office; 1.12 Monthly
Deduction Day; 1.13 Net Premium; 1.14 Partial Withdrawal Fee; 1.15 Policy
Anniversary; 1.16 Policy Date; 1.17 Policy Year; 1.18 Premium Expense Charge
1.19 Qualified Physician; 1.20 Qualified Nursing Care Center; 1.21 SEC; 1.22
Surrender Charge; 1.23 Surrender Value; 1.24 Net Surrender Value; 1.25 Valuation
Period; 1.26 Variable Account; 1.27 We, Our, Us or the Company.
SECTION 2 - THE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . Page 9
2.1 Death Proceeds 2.2 Death Benefit Options; 2.3 Contract; 2.4 Modification;
2.5 Incontestable Clause; 2.6 Misstatement of Age or Sex; 2.7 Suicide; 2.8
Return of Policy and Policy Settlement; 2.9 Maturity Proceeds; 2.10 Termination;
2-11 Non-Participation.
SECTION 3 - OWNERSHIP AND BENEFICIARIES. . . . . . . . . . . . . . . . Page 11
3.1 Ownership; 3.2 Beneficiary; 3.3 Change of Owner or Beneficiary; 3.4
Assignment.
SECTION 4 - PREMIUMS AND REINSTATEMENT . . . . . . . . . . . . . . . . Page 11
4.1 Premium Payment; 4.2 Payment Frequency; 4.3 Grace Period; 4.4 Reinstatement;
4.5 Unscheduled Premiums; 4.6 Premium Limitations; 4.7 Premium Application; 4.8
Allocation of Premium.
SECTION 5 - POLICY CHANGE. . . . . . . . . . . . . . . . . . . . . . . Page 12
5.1 Change of Specified Amount; 5.2 Specified Amount Decrease; 5.3 Specified
Amount Increase; 5.4 Change of Death Benefit Option; 5.5 Life Insurance
Qualification.
SECTION 6 - VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . Page 13
6.1 Variable Account; 6.2 Subaccounts; 6.3 Fund Portfolios; 6.4 Transfers; 6.5
Special Transfer Privilege.
SECTION 7 - ACCUMULATED VALUE BENEFITS . . . . . . . . . . . . . . . . Page 15
7.1 Accumulated Value Determination; 7.2 Net Accumulated Value Determination;
7.3 Surrender Value; 7.4 Net Surrender Value; 7.5 Variable Accumulated Value;
7.6 Account Units; 7.7 Unit Value; 7.8 Declared Interest Option Accumulated
Value; 7.9 Declared Interest Option Interest; 7.10 Monthly Deduction; 7.11 Cost
of Insurance; 7.12 Cost of Insurance Rate; 7.13 Basis of Values; 7.14 Surrender;
7.15 Waiver of Surrender Charge; 7.16 Partial Withdrawal; 7.17 Use of Payment
Option; 7.18 Delay of Payment; 7.19 Continuance of Insurance; 7.20 Annual
Report.
SECTION 8 - POLICY LOANS . . . . . . . . . . . . . . . . . . . . . . . Page 19
8.1 Cash Loan; 8.2 Loan Value; 8.3 Loan Interest; 8.4 Loan Allocation; 8.5 Loan
Repayment.
SECTION 9 - PAYMENT OF PROCEEDS . . . . . . . . . . . . . . . . . . . Page 20
9.1 Choice of Options; 9.2 Payment Options; 9.3 Interest and Mortality; 9.4
Requirements; 9.5 Effective Date; 9.6 Death of Payee; 9.7 Withdrawal of
Proceeds; 9.8 Claims of Creditors.
PAYMENT OPTION TABLES . . . . . . . . . . . . . . . . . . . . . . . . Page 22
Any additional benefits and endorsements which apply to this policy are listed
on page 3 and are described in the forms which follow page 22 of this policy.
<PAGE>
POLICY DATA
Insured [John Doe]
Insuring Age [35]
Sex [Male]
Policy Number [23456789]
Policy Date [07-01-1998]
Owner(s) [John Doe]
Date of Issue [07-01-1998]
Death Benefit Option [Option A]
Maturity Date [07-01-2078]
Specified Amount at Issue [$1,000,000.00]
Reserve Interest Rate [4.00]
Summary of Current Specified Amount
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Description Specified Amount Effective Date Premium Class
[AT ISSUE $1,000,000.00 07-01-1998 NON-TOBACCO]
(will show if rated)
Schedule of Forms and Premiums
<CAPTION>
<S> <C> <C> <C> <C>
Current
Original Target
Form No. Description Amount or No. of Units Effective Date Premium
[434-114(06-98) Non-Par Flexible $100,000,000.00 07-01-1998 $XXX.XX]
Premium Variable Life
[434-085(06-98) Living Benefit
</TABLE>
3
<PAGE>
POLICY DATA
Schedule of Current Charges
Premium Expense Charge [7% of each premium up to Target Premium]
[2% of each premium over Target Premium]
Policy Expense Charge [$5.00 per month]
First Year Administrative Charge [$5.00 per month, plus
(applies to the first 12 monthly $0.05 per $1,000 of specified amount]
deductions following issue and
the first 12 months following
any increase in specified amount)
Partial Withdrawal Fee [$25 per withdrawal]
Transfer Charge [$25 per transfer]
Mortality and Expense Risk [0.0024548% of the variable cash value per
Charge day (equivalent to 0.90% per year)]
Monthly Deduction Day [20th of each month]
Policy Loan Interest Rate Adjustable Loan Rate (as described
in Section 8.3 of your policy)
SCHEDULE OF INVESTMENT OPTIONS
General Account The general assets of EquiTrust Life Insurance
Company
Separate Account(s) [EquiTrust Life Variable Account II]
Subaccounts Fund
EquiTrust - Value Growth EquiTrust Variable Insurance Series Fund
EquiTrust - High Grade Bond EquiTrust Variable Insurance Series Fund
EquiTrust - High Yield Bond EquiTrust Variable Insurance Series Fund
EquiTrust - Money Market EquiTrust Variable Insurance Series Fund
EquiTrust - Blue Chip EquiTrust Variable Insurance Series Fund
T. Rowe - Intl Stock T. Rowe Price International Series, Inc.
T. Rowe - MidCap Growth T. Rowe Price Equity Series, Inc.
T. Rowe - New America Growth T. Rowe Price Equity Series, Inc.
T. Rowe - Equity Income T. Rowe Price Equity Series, Inc.
T. Rowe - Pers Strategy Bal T. Rowe Price Equity Series, Inc.
Dreyfus - Intl Equity Dreyfus Variable Investment Fund
Dreyfus - Small Cap Dreyfus Variable Investment Fund
Dreyfus - Cap Appreciation Dreyfus Variable Investment Fund
Dreyfus - Discip Stock Dreyfus Variable Investment Fund
Dreyfus - Growth & Income Dreyfus Variable Investment Fund
Net premiums will be allocated to the subaccounts or the declared interest
option in accordance with the net premium allocation percentages shown in the
application or in the most recent written instructions of the owner. For a full
description of the Separate Account and the designated subaccounts, please refer
to the current prospectus.
Form Number 434-114(07-98)
Policy Number 12345678
4
<PAGE>
POLICY DATA
Schedule of Current Surrender Charges
SURRENDER DATE SURRENDER CHARGE
[January 1, 1998-December 31, 1998 $XXXXX
January 1, 1999-December 31, 1999 $XXXXX
January 1, 2000-December 31, 2000 $XXXXX
January 1, 2001-December 21, 2001 $XXXXX
January 1, 2002-December 21, 2002 $XXXXX
January 1, 2003-December 21, 2003 $XXXXX
January 1, 2004-December 21, 2004 $XXXXX
January 1, 2005-December 21, 2005 $XXXXX
January 1, 2006 December 21, 2006 $XXXXX
January 1, 2007-December 21, 2007 $XXXXX
January 1, 2008-December 21, 2008 $00.00]
Form Number 434-114(07-98)
Policy Number 12345678
5
<PAGE>
POLICY DATA
TABLE OF GUARANTEED MAXIMUM MONTHLY INSURANCE RATES
PER $1,000 FOR TOBACCO AND NON-TOBACCO RATE CLASSES
Tobacco Non-Tobacco
------- -----------
Attained Male Female Male Female
Age Rate Rate Rate Rate
0 0.08584 0.07000
1 0.08584 0.07000
2 0.08251 0.06667
3 0.08084 0.06500
4 0.07751 0.06417
5 0.07334 0.06250
6 0.06917 0.06084
7 0.06500 0.05917
8 0.06250 0.05834
9 0.06167 0.05750
10 0.06250 0.05667
11 0.06750 0.05834
12 0.07667 0.06084
13 0.08917 0.06417
14 0.10334 0.06834
15 0.11335 0.07167
16 0.12335 0.07501
17 0.13085 0.07751
18 0.18420 0.09251 0.13585 0.08001
19 0.19004 0.09501 0.13919 0.08251
20 0.19337 0.09751 0.14002 0.08417
21 0.19337 0.09918 0.13835 0.08584
22 0.19004 0.10168 0.13585 0.08667
23 0.18670 0.10418 0.13252 0.08834
24 0.18170 0.10668 0.12918 0.09001
25 0.17586 0.10918 0.12502 0.09168
26 0.17253 0.11335 0.12252 0.09418
27 0.17086 0.11668 0.12085 0.09584
28 0.17086 0.12085 0.12001 0.09834
29 0.17336 0.12585 0.12001 0.10168
30 0.17753 0.13168 0.12085 0.10418
31 0.18337 0.13669 0.12335 0.10751
32 0.19087 0.14252 0.12668 0.11085
33 0.20087 0.15002 0.13168 0.11501
34 0.21255 0.15836 0.13752 0.12001
35 0.22672 0.16753 0.14419 0.12585
36 0.24339 0.18170 0.15169 0.13418
37 0.26424 0.19837 0.16169 0.14419
38 0.28758 0.21755 0.17253 0.15502
39 0.31427 0.23839 0.18420 0.16669
40 0.34512 0.26340 0.19837 0.18087
41 0.37848 0.29008 0.21338 0.19587
42 0.41517 0.31677 0.22922 0.21088
43 0.45521 0.34345 0.24673 0.22588
44 0.49942 0.37014 0.26590 0.24089
45 0.54613 0.39849 0.28758 0.25757
46 0.59452 0.42768 0.31093 0.27508
47 0.64709 0.45771 0.33595 0.29425
48 0.70383 0.49024 0.36347 0.31427
49 0.76559 0.52611 0.39349 0.33678
50 0.83403 0.56449 0.42768 0.36180
51 0.91166 0.60537 0.46688 0.38932
52 0.99933 0.65209 0.51193 0.42101
53 1.09871 0.70383 0.56365 0.45604
54 1.20729 0.75641 0.62122 0.49191
55 1.32342 0.81066 0.68547 0.53028
56 1.44626 0.86408 0.75557 0.56866
57 1.57581 0.91417 0.82985 0.60620
58 1.71209 0.96343 0.91250 0.64375
59 1.85845 1.01603 1.00518 0.68630
60 2.02158 1.07866 1.10873 0.73638
61 2.20569 1.15717 1.22400 0.79814
62 2.41331 1.25825 1.35684 0.87493
63 2.64531 1.38107 1.50727 0.96927
64 2.89921 1.51813 1.67447 1.07532
65 3.16834 1.66276 1.85761 1.18975
66 3.45020 1.80994 2.05588 1.30838
67 3.74229 1.95214 2.26847 1.42954
68 4.04883 2.09605 2.49957 1.55491
69 4.38161 2.25256 2.75591 1.69453
70 4.74911 2.43759 3.04592 1.85845
71 5.16235 2.67212 3.37720 2.05839
72 5.62985 2.95957 3.75992 2.30363
73 6.14841 3.30170 4.19334 2.59756
74 6.71732 3.69191 4.67004 2.93610
75 7.32578 4.11856 5.18003 3.31428
76 7.94851 4.57248 5.71919 3.72382
77 8.57456 5.04701 6.28340 4.16309
78 9.20818 5.54895 6.87612 4.63892
79 9.87149 6.09610 7.51607 5.16656
80 10.58674 6.70972 8.22375 5.76724
81 11.37459 7.40696 9.01810 6.45895
82 12.24906 8.20087 9.91569 7.25729
83 13.19603 9.11907 10.91280 8.15937
84 14.18421 10.11631 11.99040 9.15556
85 15.18033 11.17773 13.12418 10.23537
86 16.16034 12.29517 14.29994 11.39164
87 17.16810 13.45788 15.49991 12.62319
88 18.22020 14.67216 16.71910 13.93142
89 19.26842 15.93752 17.97489 15.32721
90 20.32834 17.34402 19.28574 16.82248
91 21.43307 18.86254 20.68243 18.45266
92 22.71710 20.55222 22.21791 20.28063
93 24.36888 22.54368 24.04369 22.43826
94 26.62992 25.22305 26.50346 25.22305
95 30.20740 29.24956 30.20740 29.24956
96 36.35803 35.72205 36.35803 35.72205
97 47.21180 46.86829 47.21180 46.86829
98 66.20701 66.09429 66.20701 66.09249
99-114 90.90909 90.90909 90.90909 90.90909
6
<PAGE>
POLICY DATA
SPECIFIED AMOUNT FACTORS
Attained Attained Attained
Age At Date Age At Date Age At Date
of Death Factor of Death Factor of Death Factor
0-40 2.50 59 1.34 78 1.05
41 2.43 60 1.30 79 1.05
42 2.36 61 1.28 80 1.05
43 2.29 62 1.26 81 1.05
44 2.22 63 1.24 82 1.05
45 2.15 64 1.22 83 1.05
46 2.09 65 1.20 84 1.05
47 2.03 66 1.19 85 1.05
48 1.97 67 1.18 86 1.05
49 1.91 68 1.17 87 1.05
50 1.85 69 1.16 88 1.05
51 1.78 70 1.15 89 1.05
52 1.71 71 1.13 90 1.05
53 1.64 72 1.11 91 1.04
54 1.57 73 1.09 92 1.03
55 1.50 74 1.07 93 1.02
56 1.46 75 1.05 94 1.01
57 1.42 76 1.05 95-114 1.01
58 1.38 77 1.05 115 1.00
7
<PAGE>
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SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured.
1.2 ACCUMULATED VALUE
means the policy's accumulated value which is calculated as:
a) the variable accumulated value, which is defined in section 7.5; plus
b) the declared interest option accumulated value which is defined in
section 7.8.
1.3 NET ACCUMULATED VALUE
means the policy's net accumulated value which is calculated as:
a) the accumulated value; less
b) the amount of any policy loan; less
c) any policy loan interest due; plus
d) any unearned loan interest.
1.4 AGE
means age at the last birthday.
1.5 ATTAINED AGE means your age at issue plus the number of policy years
since the policy date.
1.6 BUSINESS DAY
means a day when the New York Stock Exchange is open for trading, except for the
day after Thanksgiving, any other designated Company holidays, and any day the
home office is closed because of a weather-related or comparable type of
emergency. Assets are valued at the close of the business day.
1.7 DECLARED INTEREST OPTION
means an option pursuant to which accumulated value accrues interest at a
guaranteed minimum rate. The declared interest option is supported by the
general account.
1.8 ELIGIBLE FOR WAIVER OF SURRENDER CHARGE
means the insured:
a) is diagnosed by a Qualified Physician as having a terminal illness. A
terminal illness is any disease or medical condition which the Qualified
Physician expects will result in death within one year; or
b) stays in a Qualified Nursing Care Center for 90 days.
1.9 FUND
means the investment options shown on the policy data page. 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.
1.10 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 assets of
the general account.
1.11 HOME OFFICE
means EquiTrust Life Insurance Company at 5400 University Avenue, West Des
Moines, Iowa, 50266-5997.
1.12 MONTHLY DEDUCTION DAY
means the same date in each month as the policy date. The charges for this
policy are deducted on the business day on or next following the monthly
deduction day.
1.13 NET PREMIUM
means the amount of premium remaining after the premium expense charge has been
deducted. This amount will be allocated among the subaccounts of the variable
account and the declared interest option according to the allocations shown on
the policy data page or the most recent instructions received from the owner.
1.14 PARTIAL WITHDRAWAL FEE
means a fee of $25 that is applied at the time of any partial withdrawal.
1.15 POLICY ANNIVERSARY
means the same date in each year as the policy date.
1.16 POLICY DATE
means the policy date shown on the policy data page. This date is used to
determine policy years and any policy anniversaries.
1.17 POLICY YEAR
means the 12-month period that begins on the policy date or on a policy
anniversary.
1.18 PREMIUM EXPENSE CHARGE
means the premium expense charge shown on the policy data page. This amount may
go up or down, but is guaranteed to never exceed 7 percent.
8
<PAGE>
1.19 QUALIFIED PHYSICIAN:
means a licensed, medical practitioner performing within the scope of his/her
license. Such person must be someone other than you, the insured, or a member of
the immediate family of either you or the insured.
1.20 QUALIFIED NURSING CARE CENTER:
means a long term care center that is licensed to operate according to the laws
of their location. The following are qualified nursing care centers:
a) Skilled Nursing Center - means a center:
i) That provides skilled nursing care supervised by a licensed
physician;
ii) That provides 24-hour nursing care by, or supervised by, an
R.N.; and
iii) That keeps daily medical record of each patient.
b) Intermediate Care Center - means a center:
i) That provides 24-hour nursing care by, or supervised by an R.N.
or an L.P.N.; and
II) That keeps a daily medical record of each patient.
c) Hospital - means a center:
i) That operates for the care and treatment of sick or injured
persons as inpatients;
ii) That provides 24-hour nursing care by, or supervised by, an R.N.;
iii) That is supervised by a staff of licensed physicians; and
iv) That has medical, diagnostic, and major surgery capabilities or
access to such capabilities.
Qualified Nursing Care Center does not include:
a) Drug or alcohol treatment centers;
b) Home for the aged or mentally ill, community living centers, or places that
primarily provide domiciliary, residency or retirement care;
c) Places owned or operated by a member of the annuitant's immediate family.
1.21 SEC
means the Securities and Exchange Commission, a U.S. government agency.
1.22 SURRENDER CHARGE
means a fee that is applied at the time of a surrender. The surrender charge
will be the amount shown on the policy data page.
A specified amount increase has its own surrender charge period which begins on
the date of the increase. If a specified amount increase is made, the surrender
charges will be a composite of all charges which apply for each year.
1.23 SURRENDER VALUE
means the policy's surrender value which is calculated as:
a) the accumulated value; minus
b) the surrender charge.
1.24 NET SURRENDER VALUE
means the policy's net surrender value which is calculated as:
a) the surrender value; minus
b) any policy loan; minus
c) any policy loan interest due; plus
d) any unearned loan interest.
1.25 VALUATION PERIOD
means the period between the close of business on a business day and the close
of business on the next business day.
1.26 VARIABLE ACCOUNT
means the Separate Account shown on the policy data page. It is a unit
investment trust registered with the SEC under the Investment Company Act of
1940.
1.27 WE, OUR, US OR THE COMPANY
means the EquiTrust Life Insurance Company.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 DEATH PROCEEDS
We will pay the death proceeds to the beneficiary:
a) within seven days after receipt by us of due proof of your death;
b) if the policy is in force on the date of your death; and
c) subject to the terms and conditions of this policy.
The death proceeds will be the sum of:
a) the death benefit; and
b) any premiums paid after the date of death; and
c) any unearned policy loan interest on the date of death;
less:
a) any policy loan; and
9
<PAGE>
b) any policy loan interest due;
plus any interest credited on this amount from the date of death to the date
of payment, the rate to be set by us but not less than 3% per year or any
rate required by law.
2.2 DEATH BENEFIT OPTIONS
The death benefit option in effect for this policy is shown on the policy
data page and is one of the following:
Option A -- The death benefit will be the greater of a) or b) where:
a) is the sum of the specified amount shown on the policy data page and the
accumulated value; and
b) is the accumulated value multiplied by the specified amount factor from the
table on the policy data page for your attained age.
Option B -- The death benefit will be the greater of a) or b) where:
a) is the specified amount shown on the policy data page; and
b) is the accumulated value multiplied by the specified amount factor from the
table on the policy data page for your attained age.
All values are determined as of the end of the business day on or next following
the date of death.
2.3 CONTRACT
This policy is a legal contract. We issue this policy in consideration of the
first premium and the statements in the application. The entire contract
consists of:
a) this basic policy;
b) any endorsements or additional benefit riders;
c) the attached copy of your application; and
d) any amendments, supplemental applications or other attached papers.
We rely on statements made in the application for the policy. These statements
in the absence of fraud are deemed representations and not warranties. No
statement will void this policy or be used in defense of a claim unless:
a) it is contained in the application; and
b) such application is attached to this policy.
2.4 MODIFICATION
No one can change any part of this policy except the owner and one of our
officers. Both must agree to a change, and it must be in writing. No agent may
change this policy or waive any of its provisions.
2.5 INCONTESTABLE CLAUSE
We will not contest payment of the death benefit for any reason other than fraud
after this policy has been in force during your lifetime for two years from the
date of issue shown on the policy data page.
Any requested increase in the specified amount will be incontestable only after
such increase has been in force during your lifetime for two years from the
effective date of such increase.
2.6 MISSTATEMENT OF AGE OR SEX
We have the right to correct benefits for misstated age or sex. In such an
event, benefits will be the amount the premium actually paid would have bought
at the correct age or sex.
2.7 SUICIDE
If, within one year of the policy date, you die by suicide, whether sane or
insane, our liability is limited to the premium paid plus any unearned loan
interest at the date of death, less any policy loan, any loan interest due and
any partial withdrawals.
Any increase in death benefits resulting from a requested increase in specified
amount will not be paid if the insured dies by suicide, while sane or insane,
within one year of the date of such increase. Instead, we will return to the
owner an amount equal to the cost of insurance for such increase in specified
amount.
2.8 RETURN OF POLICY AND POLICY SETTLEMENT
We reserve the right to have this policy sent to us for any:
a) modification; b) death settlement; c) surrender; d) assignment; e) change
of owner or beneficiary; f) election; or g) exercise of any policy privilege.
We will send a payment contract to replace this policy if any payment option is
chosen. All sums to be paid by us under this policy are considered paid when
tendered by us at our home office.
2.9 MATURITY PROCEEDS
If you are living on the maturity date and this policy is in force, we will pay
the proceeds to the owner. Such proceeds will be:
a) the accumulated value; less
b) any policy loan.
The maturity date will be your attained age 115.
10
<PAGE>
All values are determined as of the end of the business day on or next following
the maturity date.
2.10 TERMINATION
This policy ends when any one of the following events occurs:
a) the owner requests that the policy be canceled;
b) you die;
c) the policy matures;
d) the policy is surrendered; or
e) the grace period ends without payment of the premium.
2.11 NON-PARTICIPATION
This policy does not share in the Company's surplus or profits.
- --------------------------------------------------------------------------------
SECTION 3 - OWNERSHIP AND BENEFICIARIES
- --------------------------------------------------------------------------------
3.1 OWNERSHIP
The original owner of this policy is shown on the policy data page. Ownership of
the policy may change according to the provisions indicated in the original
application or by a subsequent endorsement to the policy.
3.2 BENEFICIARY
Beneficiaries are as named in the application, unless changed by the owner. The
interests of any beneficiary in a class who dies before you will pass to any
survivors of the class, unless the policy provides otherwise. Secondary
beneficiaries will have the right to receive the proceeds only if no primary
beneficiary survives. If no beneficiary survives you, we will pay the proceeds
to the owner or the owner's estate.
In finding and identifying beneficiaries we may rely on sworn statements, other
facts, or evidence we deem satisfactory. Any benefits we pay based on such
information will be a valid discharge of our duty up to the amount paid.
3.3 CHANGE OF OWNER OR BENEFICIARY
While you live, a change of owner or beneficiary can be made at any time,
subject to the following rules:
a) the change must be in writing on a form acceptable to us;
b) it must be signed by the owner;
c) the form must be sent to our home office and recorded by us; and
d) the change will take effect on the date signed, but it will not apply to
any payment or action by us before we receive the form.
3.4 ASSIGNMENT
No assignment of this policy will bind us unless:
a) it is in writing on a form acceptable to us;
b) signed by the owner; and
c) received by us at our home office.
We will not be responsible for the validity of an assignment.
- --------------------------------------------------------------------------------
SECTION 4 - PREMIUMS AND REINSTATEMENT
- --------------------------------------------------------------------------------
4.1 PREMIUM PAYMENT
Premium payments are flexible as to both timing and amount. Each premium is to
be paid at our home office.
4.2 PAYMENT FREQUENCY
The first premium is due on or prior to the policy date. We will send periodic
reminder notices to the owner upon request. The minimum amount for which such
notice will be sent will be $100. A reminder notice may be sent for different
periods, which may be 12, 6, 3 or 1 month intervals. The reminder notice period
may be changed upon request.
4.3 GRACE PERIOD
A grace period of 61 days will be allowed for payment of a premium that, when
reduced by the premium expense charge, is at least equal to three times the
monthly deduction charge due on such date. The grace period applies:
a) During the first three policy years, if the net accumulated value is not
large enough on any monthly deduction day to cover the monthly deduction
due; and
b) During the first three policy years, if you have taken out a policy loan
and during this period, the net surrender value is not large enough to
cover the monthly deduction due; and
c) During subsequent years, if the net surrender value is not large enough on
any monthly deduction day to cover the monthly deduction due.
The grace period begins on the date we send the owner of record written notice
of the required
11
<PAGE>
payment. Such premium shall be due on such monthly deduction day and if not
received by us within the grace period, all coverage under this policy will
terminate without value at the end of the 61-day period. If a claim by
death during the grace period becomes payable under the policy, any due and
unpaid monthly deductions will be deducted from the proceeds.
4.4 REINSTATEMENT
Prior to the maturity date, a lapsed policy which has not been surrendered for
its accumulated value may be reinstated at any time within 5 years of the
monthly deduction day immediately preceding the grace period which expired
without payment of the required premium, subject to the following rules:
a) You and the owner must send a written request to us.
b) You must provide proof of your good health and insurability satisfactory to
us.
c) A premium sufficient to keep the policy in force for three months must be
paid.
d) The owner must pay a charge equal to the cost of insurance for the coverage
provided during the 61-day grace period which was in effect prior to the
termination of this policy.
e) The effective date of the reinstated policy will be the monthly deduction
day on or next following the date we approve reinstatement.
4.5 UNSCHEDULED PREMIUMS
Unscheduled premium payments of at least $100 may be made at any time prior to
the maturity date. The Company may, in its discretion, waive the $100 minimum
requirements. The Company reserves the right to limit the number and amount of
unscheduled premium payments.
4.6 PREMIUM LIMITATIONS
The company reserves the right to limit the number and amount of premium
payments in order to maintain this policy's qualifications under federal tax
law. We will refund any portion of a premium payment that would cause the policy
to lose such qualification.
4.7 PREMIUM APPLICATION
While any policy loan is outstanding, unless the owner requests otherwise,
premium payments will be applied as a payment to reduce the outstanding balance
of the loan, When such loan has been repaid, the balance of any premium payment
remaining after payment of the loan, plus any subsequent payments, will be
allocated as described in the following provision.
4.8 ALLOCATION OF PREMIUM
The owner will determine the percentage of net premium that will be allocated to
each subaccount of the variable account and to the declared interest option. The
owner may choose to allocate all the net premium, a percentage or nothing to a
particular subaccount or to the declared interest option. Any allocation must be
for at least 10% of the net premium. A fractional percent may not be chosen.
Net premiums will be allocated to the declared interest option if they are
received either before the date the company obtains a signed notice from the
owner that the policy has been received, or before the end of 25-days after
the delivery date. Upon the earlier of (i) the date the company obtains a
signed notice by the owner that the policy has been received, or (ii) 25 days
after the delivery date, we will transfer part or all of the accumulated
value in the declared interest option to the Subaccounts in accordance with
the owner's allocation instructions. Net premiums received on or after (i)
or (ii) above will be allocated in accordance with the net premium allocation
percentages shown in the application or the most recent written instructions
of the owner.
The owner may change the allocation for future net premiums at any time, subject
to the following rules:
a) the policy must be in force;
b) there must be a net accumulated value;
c) the change must be in writing on a form acceptable to us;
d) the form must be signed by the owner; and
e) the change will take effect on the business day on or next following the
date we receive the signed form at our home office.
- --------------------------------------------------------------------------------
SECTION 5 - POLICY CHANGE
- --------------------------------------------------------------------------------
5.1 CHANGE OF SPECIFIED AMOUNT
The owner may change the specified amount at any time after the policy has been
in effect for one policy year, subject to the following rules:
a) The change must be in writing on a form acceptable to us.
b) It must be signed by the owner.
c) The change will take effect on the monthly deduction day coinciding with or
next following the date the request is approved by us.
12
<PAGE>
d) We will issue a new the policy data page for any change in specified
amount.
5.2 SPECIFIED AMOUNT DECREASE
Any decrease in specified amount will reduce such amount in the following order:
a) the specified amount provided by the most recent increase will be reduced;
then
b) the next most recent increases will be reduced in succession; and
c) the initial specified amount will be reduced last.
A specified amount decrease will not reduce the surrender charge.
The total specified amount which remains in force after a requested decrease may
not be less than the minimum specified amount in effect for the policy on the
date of decrease, as published by us.
5.3 SPECIFIED AMOUNT INCREASE
In addition to the rules for change in specified amount, an increase in
specified amount is subject to the following:
a) proof of insurability acceptable to us; and
b) payment of the first month's cost of insurance or sufficient accumulated
value for deduction of such cost of insurance.
5.4 CHANGE OF DEATH BENEFIT OPTION
The owner may request to change the death benefit option. The change will take
effect on the monthly deduction day coinciding with or next following the date
we approve the request.
If Option A is changed to Option B, the current specified amount will not
change.
If Option B is changed to Option A, the current specified amount will be reduced
by an amount equal to the accumulated value on the effective date of the change.
5.5 LIFE INSURANCE QUALIFICATION
If following a requested change of specified amount or a change of death benefit
option, this policy would no longer qualify as life insurance under federal tax
law, we will limit the change to an amount that would maintain such
qualification. The Company reserves the right to change the policy, in the event
of future changes in the federal tax law, to the extent required to maintain the
policy's qualification as life insurance under federal tax law.
- --------------------------------------------------------------------------------
SECTION 6 - VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
6.1 VARIABLE ACCOUNT
We own the assets of the variable account. We will value the assets of the
variable account each business day. The assets of such account will be kept
separate from the assets of our general account and any other separate accounts.
Income, and realized and unrealized gains or losses from assets in the variable
account will be credited to or charged against such account without regard to
our other income, gains or losses.
That portion of the assets of the variable account which equals the reserves and
other policy liabilities of the policies which are supported by the variable
account will not be charged with liabilities arising from any other business we
conduct. We have the right to transfer to our general account any assets of the
variable account which are in excess of such reserves and other policy
liabilities.
While the variable account is registered with the SEC and thereby subject to SEC
rules and regulations, it is also subject to the laws of the State of Iowa which
regulate the operations of insurance companies incorporated in Iowa. The
investment policy of the variable account will not be changed without the
approval of the Insurance Commissioner of the State of Iowa. The approval
process is on file with the insurance commissioner of the state in which this
policy was delivered.
We also reserve the right to transfer assets of the variable account, which we
determine to be associated with the class of policies to which this policy
belongs, to another separate account. If this type of transfer is made, the term
"variable account," as used in this policy, shall then mean the variable account
to which the assets were transferred.
When permitted by law, we also reserve the right to:
a) deregister the variable account under the Investment Company Act of 1940;
b) manage the variable account under the direction of a committee;
c) restrict or eliminate any voting rights of
13
<PAGE>
owners, or other persons who have voting rights as to the variable account;
and
d) combine the variable account with other separate accounts.
6.2 SUBACCOUNTS
The variable account is divided into subaccounts. The subaccounts are listed on
the policy data page. Subject to obtaining any approvals or consents required by
applicable law, we reserve the right to eliminate or combine any subaccounts and
the right to transfer the assets of one or more subaccounts to any other
subaccount. We also reserve the right to add new subaccounts and make such
subaccounts available to any class or series of policies as we deem appropriate.
Each new subaccount would invest in a new investment option of the Fund, or in
shares of another investment company. The owner will determine the percentage of
net premium that will be allocated to each subaccount in accordance with the
allocation of premium provision.
6.3 FUND INVESTMENT OPTIONS
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 the
policy data page. Net premiums allocated to a subaccount will automatically be
invested in the fund investment option associated with that subaccount. The
owner will share only in the income, gains or losses of the investment option(s)
to which net premiums have been allocated through the subaccounts.
We have the right, subject to compliance with any applicable laws, to make:
a) additions to;
b) deletions from; or
c) substitutions for
the shares of a fund investment option that are held by the variable account
or that the account may purchase.
We also reserve the right to dispose of the shares of a investment option of the
fund listed on the policy data page and to substitute shares of another
investment option of such fund or another mutual fund investment option, if:
a) the shares of the investment option are no longer available for investment;
or
b) if in our judgment further investment in the investment option should
become inappropriate in view of the purposes of the variable account.
In the event of any substitution or change, we may, by appropriate endorsement,
make such changes in this and other policies as may be necessary or appropriate
to reflect the substitution or change.
6.4 TRANSFERS
The owner may transfer all or part of the accumulated value among the
subaccounts of the variable account and between the subaccounts and the declared
interest option, subject to the following rules:
a) The change must be in writing on a form acceptable to us.
b) The form must be signed by the owner.
c) The transfer will take effect as of the end of the valuation period during
which we receive the signed form at our Home Office.
d) The owner may transfer amounts among the subaccounts of the variable
account an unlimited number of times in a policy year.
e) The owner may transfer amounts between the declared interest option and the
variable account only once in a policy year.
f) The first transfer in each policy year will be made without a transfer
charge. Thereafter, each time amounts are transferred a transfer charge
will be imposed. This transfer charge is shown on the policy data page.
g) The accumulated value on the date of the transfer will not be affected by
the transfer except to the extent of the transfer charge. Unless paid in
cash, the transfer charge will be deducted on a pro rata basis from the
declared interest option and/or the subaccounts to which the transfer is
made.
h) The owner must transfer at least:
(1) a total of $100; or
(2) the total accumulated value in the subaccount or the total accumulated
value in the declared interest option less any policy loan, if the
total amount transferred is less than $100.
The following additional rules apply to transfers from the declared interest
option:
a) The accumulated value in the declared interest option after a transfer from
such option must at
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<PAGE>
least equal the amount of all policy loans.
b) No more than 50% of the net accumulated value in the declared interest
option may be transferred unless the balance in the declared interest
option after the transfer, would be less than $1,000. If the balance in
the declared interest option would fall below $1,000, the full net
accumulated value in the declared interest option may be transferred.
6.5 SPECIAL TRANSFER PRIVILEGE
The owner may transfer, at any time, all of the amounts in the subaccounts to
the declared interest option. This policy will then become one in which the
benefits do not vary with the investment performance of the variable account.
The owner must tell us this special transfer privilege is being exercised. We
will then waive the transfer charge. The owner may exercise this special
transfer privilege once per policy year.
If the owner exercises this special transfer privilege, we will automatically
credit all future premium payments to the declared interest option until the
owner requests a change in the allocation. At the time of the transfer, there is
no effect on the policy's death benefit, accumulated value, specified amount, or
net amount at risk, or on your premium class or attained age.
- --------------------------------------------------------------------------------
SECTION 7 - ACCUMULATED VALUE
BENEFITS
- --------------------------------------------------------------------------------
7.1 ACCUMULATED VALUE DETERMINATION
The accumulated value in the policy is equal to:
a) the variable accumulated value; plus
b) the declared interest option accumulated value.
7.2 NET ACCUMULATED VALUE DETERMINATION
The net accumulated value of this policy will be:
a) the accumulated value; less
b) the amount of any policy loan; less
c) any policy loan interest due; plus
d) any unearned loan interest.
7.3 SURRENDER VALUE
The surrender value of this policy will be:
a) the accumulated value; minus
b) the surrender charge.
7.4 NET SURRENDER VALUE
The net surrender value of this policy will be:
a) the surrender value; minus
b) any policy loan; minus
c) any policy loan interest due; plus
d) any unearned loan interest.
7.5 VARIABLE ACCUMULATED VALUE
On the business day on or next following the day we receive notice that the
owner has received and accepted the policy, the variable accumulated value is
the total amount of net premium, if any, credited to the subaccounts of the
variable account, minus the monthly deduction applicable to those subaccounts if
the net premium is allocated on a monthly deduction day. After such date, the
policy's variable accumulated value is equal to the sum of the policy's
accumulated value in each subaccount. The accumulated value in a subaccount is
equal to a) multiplied by b) where:
a) is the current number of account units; and
b) is the current unit value.
The variable accumulated value will vary from business day to business day
reflecting changes in a) and b) above.
7.6 ACCOUNT UNITS
When transactions are made which affect the variable accumulated value, dollar
amounts are converted to account units. The number of account units for a
transaction is found by dividing the dollar amount of the transaction by the
current unit value.
The number of account units for a subaccount
increases when:
a) net premiums are credited to that subaccount; or
b) transfers from the declared interest option or other subaccounts are
credited to that subaccount.
The number of account units for a subaccount
decreases when:
a) the owner takes out a policy loan from that subaccount;
b) the owner makes a surrender or partial withdrawal from that subaccount;
c) we take a portion of the monthly deduction from that subaccount; or
d) transfers are made from that subaccount to the declared interest option or
other subaccounts.
7.7 UNIT VALUE
15
<PAGE>
The unit value for each subaccount was set initially at $10.00 when the
subaccounts first purchased fund shares. The unit value for each subsequent
valuation period is calculated by dividing a) by b), where:
a) is:
(1) the net asset value of the net assets of the subaccount at the end of
the preceding valuation period; plus
(2) the investment income and capital gains, realized or unrealized,
credited to the net assets of that subaccount during the valuation
period for which the unit value is being determined; minus
(3) the capital losses, realized or unrealized, charged against those net
assets during the valuation period; minus
(4) any 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 that subaccount;
minus
(5) the mortality and expense risk charge shown on the policy data page.
This charge may go up or down but will never exceed 0.0028618% of the
daily net assets in that subaccount for each day in the valuation
period. The maximum charge corresponds to a charge of 1.05% per year
of the average daily net assets of the subaccount for mortality and
expense risks.
b) is the number of units outstanding at the end of the preceding valuation
period.
The unit value for a valuation period applies for each day in the period. We
will value the net assets in each subaccount at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
7.8 DECLARED INTEREST OPTION ACCUMULATED VALUE
The declared interest option accumulated value as of the policy date is the net
premium credited to the declared interest option as of that date minus the
monthly deduction applicable to the declared interest option for the first
policy month.
After the policy date, the declared interest option accumulated value is
computed as a) + b) + c) + d) - e) -f), where:
a) is the declared interest option value on the preceding monthly deduction
day plus any interest from the preceding monthly deduction day to the date
of calculation;
b) is the total of net premiums credited to the declared interest option since
the preceding monthly deduction day, plus interest from the date premiums
are credited to the date of calculation;
c) is the total of the transfers from the variable account to the declared
interest option since the preceding monthly deduction day, plus interest
from the date of transfer to the date of calculation;
d) is the total amount transferred from the variable account to the declared
interest option to secure policy loans since the preceding monthly
deduction day, plus interest from the date of transfer to the date of
calculation;
e) is the total of the transfers to the variable account from the declared
interest option since the preceding monthly deduction day, plus interest
from the date of transfer to the date of the calculation; and
f) is the total of surrenders or partial withdrawals from the declared
interest option since the preceding monthly deduction day, plus interest
from the date of surrender to the date of calculation.
If the date of calculation is a monthly deduction day, we also reduce the
declared interest option accumulated value by the applicable monthly deduction
for the policy month following the monthly deduction day.
7.9 DECLARED INTEREST OPTION INTEREST
The minimum interest rate applied to the declared interest option accumulated
value is an effective rate of 4.00% per year. Interest in excess of the minimum
rate may be applied. The amount of the excess interest and the manner in which
it is determined will be set by us.
The interest credited on the portion of the declared interest option accumulated
value which equals any policy loan will be equal to the greater of 4.00% or:
a) the current effective loan interest rate; minus
b) no more than 3.00%.
Interest will be credited to the declared interest
16
<PAGE>
option accumulated value on each monthly deduction day.
7.10 MONTHLY DEDUCTION
The monthly deduction is a charge made each monthly deduction day from the
declared interest option accumulated value and the variable accumulated value on
a proportionate basis as of the close of business on the monthly deduction day.
For the purpose of determining the proportion of the deduction, the declared
interest option accumulated value is reduced by the amount of any policy loans.
We make the deduction from each subaccount of the variable account based on each
subaccount's proportional percentage of the variable accumulated value.
The monthly deduction for a policy month will be computed as a) plus b) plus c)
plus d) plus e), where:
a) is the cost of insurance as described in the cost of insurance provision;
b) is the charge for all additional benefit riders attached to this policy;
c) is the monthly policy expense charge shown on the policy data page. This
amount may go up or down, but is guaranteed never to exceed $7; and
d) is the first year monthly per $1,000 charge shown on the policy data page.
This charge may go up or down, but is guaranteed not to exceed $0.07 per
$1,000.
This charge will be deducted for 12 months following issue of this
policy and during the 12 months following the effective date of an
increase in the specified amount. Should this policy lapse and later be
reinstated, to the extent that the monthly per $1,000 charge was not
deducted for a total of twelve policy months prior to lapse, the charges
will continue to be deducted following reinstatement of the policy until
such charge has been assessed, both before and after the lapse, for a
total of 12 policy months.
e) is the first year monthly policy expense charge shown on the policy data
page. This amount may go up or down, but is guaranteed never to exceed $7
per month.
7.11 COST OF INSURANCE
If the owner chooses death benefit option B, the cost of insurance is computed
as a) multiplied by the result of b) minus c). If death benefit option A is
chosen, the cost of insurance is computed as a) multiplied by b). In either
case:
a) is the cost of insurance rate as described in the cost of insurance rate
provisions, divided by 1000;
b) is the specified amount as described in the death benefit provisions as of
the close of business on the monthly deduction day, divided by 1.0032737;
and
c) is the accumulated value as of the close of business on the monthly
deduction day.
The cost of insurance is determined separately for the initial specified amount
and any increases made later. If the premium class for the initial specified
amount is different from that of any increases, the accumulated value will first
be considered a part of the initial specified amount. If the accumulated value
as of the close of business on the monthly deduction day exceeds the initial
specified amount, it will be considered to be a part of any increase in the
specified amount in the same order as the increases occurred.
7.12 COST OF INSURANCE RATE
The cost of insurance rate is subject to the following rules:
a) The rate for the initial specified amount is based on your sex, premium
class and attained age. For any increase in the specified amount, age will
be determined from your age as of your last birthdate on the effective date
of the increase.
b) The monthly rates will be determined by us based on our expectation as to
future mortality experience.
c) If we change the rates, we will change them for everyone in your premium
class.
d) The monthly guaranteed rates shown on the policy data page are based on the
1980 Commissioners' Standard Ordinary Smoker and Nonsmoker Mortality Table.
The monthly rate will never be more than the rates shown on the policy data
page.
7.13 BASIS OF VALUES
All reserves for the policy are based on the Commissioners' 1980 Standard
Ordinary Smoker and Non-Smoker Mortality Table with interest at the rate shown
on the policy data page.
All of the values are the same or more than the minimums set by the laws of the
state where the policy is delivered. We have filed a detailed
17
<PAGE>
statement of the way these values are determined with the insurance department
in that state. It shows the figures and methods used.
7.14 SURRENDER
While you live and prior to the maturity date, the owner may surrender the
policy subject to the following rules:
a) The request must be in writing to us.
b) The amount of any such surrender may be paid in cash or we will apply
part or all of it under a payment option.
c) We have the right to defer payment of a surrender from the declared
interest option for up to 6 months.
d) A surrender charge may apply. If the surrender charge is not paid in
cash, such charge will be deducted from the amount surrendered.
e) Upon surrender, all insurance in force will terminate.
7.15 WAIVER OF SURRENDER CHARGE
The owner may make a surrender of this policy without incurring a surrender
charge if the insured becomes eligible for waiver of the surrender charge.
The waiver of the surrender charge is subject to the following rules:
a) We must receive a written request on our form signed by the owner.
b) The policy must be in force or not providing benefits under any payment
option.
c) Proof must be provided that the conditions of eligibility requirements for
waiver of the surrender charge have been met, including an attending
physician's statement and any other proof we may require. We reserve
the right to seek a second medical opinion or have an examination
performed at our expense by a physician we choose.
e) The insured must become eligible for waiver of surrender charge after
the first policy year ends.
7.16 PARTIAL WITHDRAWAL
While you live and prior to the maturity date, the owner may obtain a partial
withdrawal of the net surrender value, subject to the following rules:
a) The amount of any partial withdrawal must be at least $500 and may not
exceed the lesser of:
(1) the net surrender value less $500; or
(2) 90% of the net surrender value.
b) The death benefit will be reduced as a result of any partial withdrawal.
c) At the time of the partial withdrawal, if the death benefit option in
effect is:
(1) Option A: there will be no effect on the specified amount.
(2) Option B: the specified amount will be reduced by the amount of
accumulated value surrendered.
d) The specified amount remaining in force after a partial withdrawal may not
be less than the minimum specified amount for the policy in effect on the
date of the partial withdrawal, as published by the Company.
e) The accumulated value will be reduced by the amount of any partial
withdrawal and any partial withdrawal fee. The owner may tell us how to
allocate a partial withdrawal among the subaccounts and the declared
interest option. If the owner does not so instruct, we will allocate
the partial withdrawal among the subaccounts and the declared interest
option in the same proportion that the accumulated value in each of the
subaccounts and the accumulated value of the declared interest option
reduced by any outstanding policy loans bears to the total accumulated
value reduced by any outstanding policy loans on the date we receive
the request.
7.17 USE OF PAYMENT OPTION
If all of the accumulated value is applied under payment option 2, 3, 4 or 5,
the surrender charge will be reduced as follows:
a) if option 3 or 5 is used, the surrender charge will be zero; or
b) if option 2 or 4 is used, the surrender charge will be applied, however,
the surrender charge will be determined by adding the fixed number of years
for which payment will be made to the Surrender Date shown on the Policy
Data Page.
7.18 DELAY OF PAYMENT
Proceeds from surrenders, partial withdrawals, and policy loans will usually
be mailed to the owner within seven days after the owner's signed request is
received in our home office. We will usually mail any death claim proceeds
within seven days after we receive due proof of death. We will usually mail
the maturity proceeds within seven days after the maturity date. We have the
right to delay any payment whenever:
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<PAGE>
a) the New York Stock Exchange is closed other than on customary weekend and a
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 policyowners;
d) as a result of an emergency, as determined by the SEC, it is not reasonably
possible to dispose of securities; or
e) it is not reasonably possible to determine the value of the net assets of
the variable account.
We have the right to defer payment which is derived from any amount paid to
us by check or draft until we are satisfied the check or draft has been paid
by the bank on which it is drawn.
We also have the right to delay making a surrender, partial withdrawal, or
policy loan from the declared interest option for up to six months from the
date we receive the owner's request.
7.19 CONTINUANCE OF INSURANCE
The insurance under this policy will continue until the earlier of:
a) the end of any grace period during which a required premium payment is
not made;
b) the date the owner surrenders this policy for its entire net accumulated
value;
c) the date of your death; or
d) the date the policy matures.
This provision will not continue the policy beyond the maturity date or continue
any rider beyond its termination date as specified in the rider.
7.20 ANNUAL REPORT
At least once each year we will send a report, without charge, to the owner
which shows:
a) all premiums paid and charges made since the last report;
b) the current accumulated value including the value in each subaccount and
the declared interest option;
c) any partial withdrawals since the last report;
d) any policy loans; and
c) the current death benefit.
An illustrative report will be sent to the owner upon request. A fee may be
charged for this report.
- --------------------------------------------------------------------------------
SECTION 8 - POLICY LOANS
- --------------------------------------------------------------------------------
8.1 CASH LOAN
The owner may obtain a cash loan at any time on the sole security of this
policy, if:
a) the policy is in force;
b) there is a net surrender value.
We have the right to delay making a policy loan from the declared interest
option for up to six months from the date we receive the owner's request.
8.2 LOAN VALUE
The total of all loans may not exceed 90% of the net surrender value as of the
date of the most recent loan. For any loan that is made we will deduct interest
in advance on the requested loan to the next policy anniversary.
8.3 LOAN INTEREST
The loan interest rate is an annual rate. We may change this rate at the
beginning of each policy year. The annual loan interest is to be paid in advance
on each policy anniversary. Interest not paid when due will be added to the loan
and will bear interest at the same rate. Any change in the interest rate will
apply to any existing or new policy loans on this policy.
The maximum annual loan interest rate will be the higher of:
a) The Published Monthly Average of the Composite Yield on Seasoned Corporate
Bonds as published by Moody's Investors Service, Inc. or any successor
thereto, for the calendar month ending two months before the date on which
the rate is determined; or
b) 5.50%; but it will never exceed the usury rate, if applicable.
If the Monthly Average is no longer published, we will use a substantially
similar average which will be substituted by the insurance supervisory official
of the state in which this policy was delivered.
We will not make a change of less than 0.5% in this policy's loan interest rate.
We will inform you of the loan interest rate at the time a loan is made. Notice
of any loan interest rate change on existing loans will be made in advance of
the policy anniversary on which the change becomes effective.
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<PAGE>
8.4 LOAN ALLOCATION
When the owner takes out a policy loan, an amount equal to the loan will be
segregated within the declared interest option as security for the loan. Amounts
held as security for the loan will first be allocated to the accumulated value
in the declared interest option. If the accumulated value in the declared
interest option less any existing policy loan is not sufficient to cover the
amount of the policy loan, the balance necessary will be transferred from the
subaccounts on a proportional basis. This transfer is not treated as a transfer
for the purpose of the transfer charge or the limit of one transfer in a policy
year.
A transfer will also be made from the subaccounts on a proportional basis for
any due and unpaid loan interest if the accumulated value in the declared
interest option is not sufficient to cover such interest.
8.5 LOAN REPAYMENT
All or part of any policy loan may be repaid at any time while the policy is
still in force. Loan amounts repaid will be allocated to the declared interest
option. The portion of the accumulated value in the declared interest option
securing the repaid portion of the loan will no longer be segregated within the
declared interest option as security for the loan, but will remain in the
declared interest option until transferred to the subaccounts by the owner.
Any outstanding policy loans will be deducted from the proceeds at death,
maturity or surrender.
- --------------------------------------------------------------------------------
SECTION 9 - PAYMENT OF PROCEEDS
- --------------------------------------------------------------------------------
9.1 CHOICE OF OPTIONS
The owner may choose to have the proceeds of this policy paid under a payment
option. After your death, the beneficiary may choose an option if the owner had
not done so before your death. If no payment option is chosen, we will pay the
proceeds of this policy in one sum. We may also fulfill our obligation under
this policy by paying the proceeds in one sum if:
a) the proceeds are less than $2,000;
b) periodic payments become less than $20; or
c) the payee is an assignee, estate, trustee,
partnership, corporation, or association.
9.2 PAYMENT OPTIONS
The choice of payment options are:
1) INTEREST INCOME -- The proceeds will be left with us to earn interest.
The interest will be paid every 1, 3, 6 or 12 months as the payee
chooses. The rate of interest will be determined by us. The payee may
withdraw all or part of the proceeds at any time.
2) INCOME FOR FIXED TERM -- The proceeds will be paid out in equal
installments for a fixed term of years.
3) LIFE INCOME WITH TERM CERTAIN -- The proceeds will be paid out in
equal installments for as long as the payee lives, but for not less
than a term certain. The owner or payee may choose one of the terms
certain shown in the payment option tables.
4) INCOME FOR FIXED AMOUNT -- The proceeds will be paid out in equal
installments of a specified amount. The payments will continue until
all proceeds plus interest have been paid out.
5) JOINT AND TWO-THIRDS TO SURVIVOR MONTHLY LIFE INCOME -- The proceeds
will be paid out in equal monthly installments for as long as two
joint payees live. When one payee dies, installments of two-thirds of
the first installment will be paid to the surviving payee. Payments
will stop when the surviving payee dies.
The proceeds may be paid in any other manner requested and agreed to by us, or
under any other payment options made available by the Company.
9.3 INTEREST AND MORTALITY
Proceeds applied under a payment option no longer earn interest at the rate
applied to the declared interest option or participate in the investment
experience of the variable account. The minimum interest rate used in computing
any payment option is 3% per year. Higher interest rates may be used on the
effective date of the payment contract. We may at any time declare additional
interest on these funds. The amount of additional interest and how it is
determined will be set by us.
The mortality table which is used for options 3) and 5) is the "1983 Table a"
individual annuity mortality table.
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<PAGE>
9.4 REQUIREMENTS
For the owner to choose or change a payment option:
a) this contract must be in force;
b) the request must be in writing to us at our
home office; and
c) any prior option must be canceled.
After your death, and before this contract is settled, for a beneficiary to
choose or change a payment option:
a) a prior option by the owner cannot be in effect,
b) the request must be in writing to us at our
home office; and
c) any prior option must be canceled.
9.5 EFFECTIVE DATE
If a payment option has been chosen by the owner, it is effective on the date
the proceeds of this policy are due. If a beneficiary chooses a payment option,
it is effective on the date of election. The first payment under options 2, 3,
4, or 5 is due on the effective date. The first payment under payment option 1
is due at the end of the period chosen.
9.6 DEATH OF PAYEE
If a payee dies, any remaining payments will be paid to a contingent payee. If
no payee survives, we will pay the commuted value of any remaining payments to
the last payee's estate.
9.7 WITHDRAWAL OF PROCEEDS
The payee may not withdraw the funds under a payment option unless agreed to in
the payment contract. We have the right to defer a withdrawal for up to 6
months. We may also refuse to allow partial withdrawals of less than $250.
9.8 CLAIMS OF CREDITORS
Payments under any payment option will be exempt from the claims of creditors
to the maximum extent allowed by law.
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Payment Option Tables
(Per $1,000 of proceeds)
- --------------------------------------------------------------------------------
Option 2 - Income for Fixed Term
Installments per $1,000 of Proceeds
- --------------------------------------------------------------------------------
Number of
Years Annual Monthly
- --------- ----------- ------------
5 211.99 17.91
10 113.82 9.61
15 81.33 6.87
20 65.26 5.51
25 55.76 4.71
30 49.53 4.18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Guaranteed Settlement Option 5
Joint and Two-thirds to Survivor Monthly Life Income
Monthly Installments per $1,000 of Proceeds
- --------------------------------------------------------------------------------
Female Age
Male
Age 55 60 62 65 70
- ------ -----------------------------------------------------------------------
60 4.44 4.71 4.82 5.01 5.34
62 4.53 4.81 4.93 5.13 5.50
65 4.65 4.97 5.11 5.33 5.75
70 4.88 5.24 5.41 5.68 6.20
75 5.11 5.52 5.71 6.04 6.68
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GURANTEED SETTLEMENT OPTION 3
LIFE INCOME WITH TERM CERTAIN
MONTHLY INSTALLMENTS PER $1,000 PROCEEDS
- --------------------------------------------------------------------------------
MALE FEMALE
- --------------------------------------------------------------------------------
YEARS CERTAIN YEARS CERTAIN
Age 0 5 10 15 20 0 5 10 15 20
- --- ------------------------------------ -------------------------------------
55 $4.70 4.68 4.62 4.53 4.39 4.25 4.25 4.22 4.18 4.11
56 4.80 4.78 4.72 4.61 4.45 4.34 4.33 4.30 4.25 4.17
57 4.91 4.89 4.82 4.69 4.51 4.42 4.41 4.38 4.32 4.23
58 5.03 5.00 4.92 4.78 4.58 4.52 4.50 4.47 4.40 4.30
59 5.15 5.12 5.03 4.87 4.64 4.61 4.60 4.56 4.48 4.37
60 5.28 5.25 5.14 4.96 4.71 4.72 4.70 4.66 4.57 4.44
- --- ------------------------------------ -------------------------------------
61 5.42 5.39 5.26 5.06 4.78 4.83 4.81 4.76 4.66 4.51
62 5.57 5.53 5.39 5.16 4.84 4.95 4.93 4.86 4.75 4.58
63 5.74 5.69 5.52 5.26 4.90 5.07 5.05 4.98 4.85 4.65
64 5.91 5.85 5.66 5.36 4.96 5.21 5.18 5.10 4.95 4.72
65 6.10 6.03 5.81 5.46 5.02 5.35 5.32 5.22 5.05 4.79
- --- ------------------------------------ -------------------------------------
66 6.29 6.21 5.96 5.56 5.08 5.51 5.47 5.36 5.16 4.86
67 6.50 6.41 6.11 5.66 5.13 5.67 5.63 5.50 5.26 4.93
68 6.73 6.62 6.28 5.76 5.18 5.85 5.80 5.65 5.37 5.00
69 6.97 6.84 6.44 5.86 5.23 6.04 5.98 5.80 5.49 5.06
70 7.23 7.07 6.61 5.96 5.27 6.25 6.18 5.96 5.60 5.12
- --- ------------------------------------ -------------------------------------
71 7.51 7.32 6.78 6.05 5.31 6.47 6.39 6.14 5.71 5.18
72 7.80 7.58 6.96 6.14 5.34 6.71 6.62 6.31 5.83 5.23
73 8.12 7.85 7.14 6.23 5.37 6.97 6.86 6.50 5.94 5.28
74 8.45 8.14 7.32 6.31 5.40 7.26 7.12 6.69 6.04 5.32
75 8.82 8.44 7.49 6.38 5.42 7.56 7.39 6.89 6.14 5.35
- --------------------------------------------------------------------------------
22
<PAGE>
NON-PARTICIPATING
FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
If you have any questions concerning this policy or if anyone
suggests that you change or replace this policy, please contact
your EquiTrust Life agent or our home office. (515-225-5400)
EQUITRUST LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266-5997
- --------------------------------------------------------------------------------
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
WAIVER OF CHARGES RIDER
This rider is part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 EFFECTIVE DATE
means the date shown for this rider on the policy data page of the policy.
1.3 TOTAL DISABILITY
means continuous total disability caused by injury or sickness which:
a) starts after the effective date of this rider and while this rider is in
force;
b) starts before the policy anniversary on which you are age 65 while this
rider is in force; and
c) prevents you from engaging in the substantial and material duties of an
occupation:
i) For the first 24 months of such total disability, occupation means
your occupation at the time such total disability began.
ii) After 24 months of such total disability, occupation means any gainful
occupation for which you are reasonably fitted by education, training
or experience.
To be considered disabled you must be under the care of a physician and
receiving appropriate treatment. You will not be considered totally disabled
for any period during which you are engaged in any occupation for wage or
profit or for any period that you are not under the care of a physician.
1.4 WAITING PERIOD
means the number of days at the beginning of a period of total disability before
benefit payments begin.
1.5 COMPLICATIONS OF PREGNANCY
mean conditions whose diagnoses are distinct from normal pregnancy but are
adversely affected by pregnancy or are caused by pregnancy. These include,
but are not limited to acute nephritis, cardiac decompensation, toxemia,
eclampsia, non-elective abortion, caesarean section and ectopic pregnancy
which is terminated.
Complications of pregnancy do not include false labor, occasional spotting, rest
prescribed by a doctor, morning sickness, pre-eclampsia, or similar conditions
which make a pregnancy difficult but do not constitute a medically distinct
pregnancy complication. Elective induced abortion is also not a complication of
pregnancy.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 DISABILITY BENEFIT
We will waive the payment of monthly deductions under the policy during your
continuous total disability:
a) if the policy and this rider are in force on the date you become totally
disabled with all monthly deductions are paid;
b) upon receipt by us of due proof of your total disability;
c) after a 90 day period; and
d) subject to the terms and conditions of the policy and this rider.
2.2 AMOUNTS TO BE WAIVED
The waiting period begins on the date that you become totally disabled.
Monthly deductions falling due after the waiting period will be waived during
the insured's continuous total disability. After the waiting period is
satisfied, monthly deductions that were due and paid during the waiting
period will be refunded. Monthly deductions are waived until total disability
ends. If a monthly deduction is in default, benefits will be allowed if:
a) your total disability began before the due date or during the grace period
of the monthly deduction in default;
b) notice of claim was given within one year after such due date; and
<PAGE>
c) the first monthly deduction in default is paid with interest not to exceed
6% per year if your total disability began during the grace period of such
monthly deduction.
2.3 CLAIM PROCEDURES
Before any monthly deduction is waived, written notice of claim and proof of
total disability must be received by us:
a) while you live;
b) while your total disability continues; and
c) no later than one year after this rider terminates.
Waiver of any monthly deduction will be subject to the following rules:
a) We may require a medical examination by a physician of our choice, at our
expense.
b) If you fail to give us notice and proof of your total disability on time,
your rights to benefits will not be impaired if you prove you complied as
soon as reasonably possible.
2.4 PROOF OF CONTINUING DISABILITY
You must furnish proof, as often as we request, that your total disability
continues. We may require a medical examination by a physician of our choice,
at our expense, as part of such proof.
2.5 RISKS NOT ASSUMED
No monthly deduction will be waived if your disability results from:
a) suicide or any attempt at suicide, whether sane or insane, or any
intentionally self-inflicted injury;
b) war or any act of war, whether declared or undeclared;
c) committing or trying to commit a felonious act;
d) service while a member of any armed forces; or
e) pregnancy or childbirth except complications of pregnancy.
2.6 TERMINATION
All rights and benefits under this rider will terminate on the earliest of:
a) the policy anniversary on which you are age 65 (but this will not affect a
claim which began before such date);
b) the owner requests that the policy or this rider be cancelled;
c) the grace period specified in the policy ends without payment of the
monthly deductions, except as provided in the amounts to be waived
provision;
d) the continuation of the policy in force under a cash value option; or
e) conversion, expiry, maturity or termination of the policy.
2.7 POLICY PROVISIONS APPLY
The incontestable clause and cash value benefits provision of the policy, if
any, will not apply to this rider. All other provisions of the policy not in
conflict with this rider will apply to this rider. In the event of a conflict
between the provisions of the policy and this rider, the provisions of this
rider will prevail.
- --------------------------------------------------------------------------------
SECTION 3 - MONTHLY DEDUCTIONS AND
REINSTATEMENT
- --------------------------------------------------------------------------------
3.1 MONTHLY DEDUCTIONS
The table of percentages of monthly deductions for this rider as shown herein
are to be deducted on the same dates, in the same manner, and under the same
conditions as monthly deductions for the policy to which this rider is attached.
Monthly deductions for this rider are due until this rider terminates. The
monthly deductions for this rider are based on your attained age at the
beginning of each policy year. Any monthly deductions deducted after
termination, as provided in this rider, will not continue this rider in force
and will be refunded. The table on the following page shows the monthly
deduction as a percentage of the cost of insurance and charges for all
additional benefit riders attached to this policy
3.2 REINSTATEMENT
This rider may be reinstated along with the policy subject to the requirements
of the policy and the following:
a) You must provide proof of your good health and insurability satisfactory to
us.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
/s/ Edward M. Wiederstein
President
<PAGE>
TABLE OF PERCENTAGES OF
MONTHLY DEDUCTIONS FOR WAIVER OF CHARGES
FOR STANDARD RATE CLASS
(APPLIES ONLY IF WAIVER OF CHARGES RIDER IS ATTACHED TO THE POLICY.
FOR SUBSTANDARD CLASSES TAKE RATING ON POLICY DATA PAGE TIMES THE PREMIUM
OBTAINED BY USING PERCENTAGES BELOW.)
<TABLE>
<CAPTION>
Male Male Female Female Male Male Female Female
Non- Non- Non- Non-
Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco Tobacco
Age Rate Rate Rate Rate Age Rate Rate Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
18 4.6% 6.1% 9.3% 12.6% 42 6.5% 8.9% 11.3% 15.4%
19 4.6 6.1 9.3 12.6 43 6.9 9.3 11.5 15.6
20 4.6 6.1 9.3 12.6 44 7.2 9.7 11.8 16.1
21 4.6 6.1 9.3 12.6 45 7.5 10.1 12.2 16.6
22 4.6 6.1 9.3 12.6 46 7.8 10.5 12.6 17.0
23 4.6 6.1 9.3 12.6 47 8.1 10.9 12.9 17.6
24 4.6 6.1 9.3 12.6 48 8.4 11.3 13.3 18.1
25 4.6 6.1 9.3 12.6 49 8.7 11.8 13.7 18.6
26 4.8 6.5 9.3 12.6 50 9.1 12.2 14.1 19.2
27 4.8 6.5 9.3 12.8 51 9.4 12.7 14.6 19.8
28 4.8 6.5 9.5 13.0 52 9.8 13.2 15.0 20.4
29 4.8 6.5 9.5 13.0 53 10.2 13.8 15.5 21.0
30 4.8 6.5 9.8 13.2 54 10.6 14.3 15.9 21.6
31 5.0 6.7 9.8 13.2 55 11.0 14.9 16.4 22.2
32 5.0 6.7 9.8 13.2 56 11.5 15.5 16.9 22.9
33 5.2 6.9 10.2 13.7 57 11.9 16.1 17.4 23.6
34 5.2 7.2 10.2 13.7 58 12.4 16.7 17.9 24.3
35 5.4 7.4 10.2 13.7 59 12.9 17.4 18.5 25.0
36 5.4 7.4 10.2 13.9 60 13.4 18.1 19.0 25.8
37 5.6 7.6 10.2 13.9 61 14.0 18.8 19.6 26.6
38 5.6 7.6 10.4 14.1 62 14.5 19.6 20.2 27.4
39 6.1 8.0 10.6 14.3 63 15.1 20.4 20.8 28.2
40 6.1 8.0 10.8 14.5 64 15.7 21.2 21.4 29.0
41 6.1 8.5 11.1 14.7
</TABLE>
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
LIVING BENEFIT RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 POLICY BENEFIT
means the amount of death benefits we would pay to your beneficiaries upon your
death if this endorsement were not a part of the policy. It includes:
a) the death benefit of the policy;
b) any insurance provided by paid-up additions;
c) the amount of any one-year term insurance purchased with dividends; and
d) the face amount of any term insurance riders which cover you and are
attached to the policy.
It does not include the amount of any accidental death benefit rider that may be
attached to the policy or any death benefit from any rider that covers another
person or another family member.
1.3 LIVING BENEFIT
means the portion of the policy benefit we will pay the owner under this
endorsement if we receive proof that the insured is eligible for such benefit.
1.4 TERMINALLY ILL
means having a life expectancy of 12 months or less as certified by a physician.
1.5 PHYSICIAN
means a licensed medical practitioner performing within the scope of his/her
license. Such person must be someone other than you, the owner, or a member of
the immediate family of either you or the owner.
- --------------------------------------------------------------------------------
SECTION 2 - GENERAL PROVISIONS
- --------------------------------------------------------------------------------
2.1 LIVING BENEFIT PAYMENT
We will pay a living benefit in a lump sum to the owner if you are terminally
ill. We may make payments other than as a lump sum in any manner requested by
the owner and agreed to by us, except an option involving life contingencies.
2.2 AMOUNT OF LIVING BENEFIT
The maximum amount you may request for a living benefit is the lessor of:
a) the policy benefit; or
b) $250,000.
The $250,000 maximum will be applied in sum to all the policies under which you
are insured with us.
The amount requested for the living benefit will be adjusted as follows:
a) A 12 month discount will be applied which reflects the early payment of
amounts held under your policy. The discount will be based on the policy's
loan interest rate. If a loan interest rate provision is not included in
your policy, the discount will be based on an annual interest rate of 7.40%
in advance. The policy's loan interest rate will be multiplied by the
benefit amount to determine the amount of discount.
b) If there is an existing policy loan on your policy on the date you request
a living benefit, the living benefit payment will be reduced. The purpose
of this reduction is to repay a portion of the policy loan. The deduction
will be computed as follows:
Amount of Reduction = Existing Policy Loan X Requested Portion Of Policy Benefit
----------------------------------------------------------
Policy Benefit
The actual amount of living benefit paid to the owner will be equal to the
requested amount minus the 12 month discount and the reduction for existing
policy loans. This is the living benefit payment.
<PAGE>
If the requested amount of living benefit is less than the policy benefit, the
policy will remain in force. To remain in force, the face amount of the policy
after the living benefit has been paid must be greater than or equal to the
minimum issue limits for the plan of insurance on the date of the living benefit
request. The premiums due under the policy, all remaining values and policy
benefits will be reduced proportionately.
2.3 BENEFIT CONDITIONS
Payment of the living benefit is subject to the following rules:
a) We must receive a written request on our form signed by you and the owner.
b) The policy must be in force other than as extended term insurance.
c) The policy or an eligible term rider must not be within five years of
expiration or endowment at the time a living benefit is requested.
d) The living benefit is not available for any last
survivor life insurance policy.
e) If there is an irrevocable beneficiary or assignee, they must consent in
writing to payment of the benefit.
f) We reserve the right to require you or any beneficiary, a spouse, assignee,
or any other party in interest to consent to the payment of the living
benefit if, in our discretion, such agreement is needed to protect our
interests.
g) Your policy is not eligible for this benefit if:
i) you or the owner are required by law to use this endorsement to meet
the claims of creditors, whether in bankruptcy or otherwise; or
ii) you are required by a government agency to use this endorsement to
apply for, obtain, or keep a government benefit or entitlement.
h) You must provide proof that you meet conditions under the living benefit
provision, including an attending physician's statement and any other proof
we may require. We reserve the right to seek a second medical opinion or
have you examined at our expense by a physician we choose.
2.4 TERMINATION
All rights and benefits under this endorsement will end when any one of the
following events occurs:
a) the owner requests that the policy or this rider be cancelled;
b) the grace period ends without payment of the premium; or
c) conversion, expiry, maturity or termination of the policy.
2.5 POLICY PROVISIONS APPLY
The policy is modified to add the provisions of this rider. All provisions of
the policy not in conflict with this rider will apply to this rider. In the
event of a conflict between the provisions of the policy and this rider, the
provisions of the rider will prevail.
/s/ Edward M. Wiederstein
President
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
LIVING BENEFIT RIDER
DISCLOSURE STATEMENT
1. This Living Benefit Rider is NOT a long term care policy. The amount this
rider pays may not be enough to cover nursing home or other bills. The
owner may use the money received from this rider for any purpose.
2. Benefits payable under this rider MAY be taxable. We make no
representations concerning any potential tax consequences of this
endorsement. You should consult your personal tax adviser.
3. This rider MAY affect Medicaid eligibility. If you use the endorsement
benefit, you MAY be required to spend all of the available funds to become
eligible for Medicaid or other government assistance programs.
4. Payment of the accelerated benefit will be allowed if you are determined to
have a terminal illness. This means you have a life expectancy of 12 months
or less as certified by a physician.
5. The maximum amount you may request for an accelerated benefit is the lesser
of the policy benefit, or $250,000. The $250,000 maximum will be applied in
sum to all the policies under which you are insured with us.
6. The amount requested for the accelerated benefit will be reduced by a 12
month discount which reflects the early payment of amounts held under your
policy. The discount will be based on the policy's loan interest rate, or
7.4% for policies not having a loan provision. There will be no other
administrative charge.
7. The amount requested will also be reduced if there is an existing policy
loan on your policy on the date you request an accelerated benefit. The
purpose of this reduction is to repay a portion of the policy loan.
8. Payment of the accelerated benefit may decrease or eliminate the death
benefit your beneficiary will receive by the amount of the accelerated
benefit requested. If a portion of the policy remains in force following
payment of the accelerated benefit, the premiums due under the policy, all
remaining values and policy benefits, including any policy loans will be
reduced proportionately.
- ---------------------------------- ----------------------------
Policyowner's Signature Agent's Signature
- ---------------------------------- ----------------------------
Date Date
First copy - Home Office Second Copy - Owner/Insured
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
COST OF LIVING INCREASE RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 -DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 EFFECTIVE DATE
means the date shown for this rider on policy data page.
1.3 CONSUMER PRICE INDEX
means the Consumer Price Index For All Urban Consumers, U.S. City Average, All
Items (CPI) as published by the U.S. Department of Labor.
1.4 CPI FACTOR
The CPI Factor is calculated as follows:
(a)-(b) where:
-------
(b)
a) is the CPI 6 months prior to the increase date;
and
b) is the CPI 42 months prior to the increase date.
We reserve the right to use some other similar measurement if the U.S.
Department of Labor changes or stops publishing the CPI.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 INCREASE BENEFIT
The specified amount on your life will increase automatically every third policy
anniversary without proof of insurability. Such increase will be subject to the
following rules:
a) The policy and this rider must be in force with all needed monthly
deductions paid.
b) The increase will take place every third policy anniversary after the
policy date. Such anniversary will be the effective date of the increase.
c) The increase amount will be the lessor of:
i) the initial specified amount plus any prior increases under this rider
multiplied by the CPI Factor;
ii) 20% of the initial specified amount; or
iii) $25,000.
d) The minimum increase amount is $2,000
e) The total amount of all increases under this rider will be the lessor of:
i) four times the initial specified amount on this policy; or
ii) $200,000.
f) The cost of insurance rate for the increase will be based on your sex,
attained age and rate class at the time of increase.
g) We will send the owner a new policy data policy data page showing the new
specified amount following an increase.
h) Any increase will be subject to per $1,000 charges shown in the policy.
i) The increase will not be allowed if your mortality class is other than
standard.
2.2 REJECTION OF INCREASE
We will mail you a new policy data page on the effective date of any increase.
Acceptance is automatic. You may reject the cost of living increase by notice to
us and return of the new policy data page within 30 days of the increase date.
2.3 TERMINATION
All rights and benefits under this rider will terminate when any of the
following occur:
a) any automatic cost of living increase is rejected;
b) the later of:
<PAGE>
i) the policy anniversary on which you are age 65; or
ii) the 10th policy anniversary;
c) the owner requests that the policy or this rider be canceled;
d) the grace period specified in the policy ends without payment of the
monthly deductions; or
e) conversion, expiry, maturity or termination of the policy.
2.4 POLICY PROVISIONS APPLY
All provisions of the policy not in conflict with this rider will apply to this
rider. In the event of a conflict between the provisions of the policy and this
rider, the provisions of this rider will prevail.
- --------------------------------------------------------------------------------
SECTION 3 - MONTHLY DEDUCTIONS AND REINSTATEMENT
- --------------------------------------------------------------------------------
3.1 MONTHLY DEDUCTIONS
The monthly deduction for this rider will be deducted on the same dates, in the
same manner and under the same conditions as the monthly deductions for the
policy to which this rider is attached. Monthly deductions for this rider are
due until the rider terminates. Any monthly deductions deducted after
termination, as provided in this rider, will not continue this rider in force
and will be refunded.
The current monthly deduction rates for this rider will be determined by us. If
we change the rates, we will change them for everyone in your premium class. The
current monthly deduction rates for this rider will never be more than 6% of the
guaranteed maximum monthly insurance rates shown on the policy data page.
3.2 REINSTATEMENT
This rider may be reinstated along with the policy subject to the requirements
of the policy and the following:
a) You must provide proof of your good health and insurability satisfactory to
us.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
/s/ Edward M. Wiederstein
President
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
GUARANTEED INSURABILITY OPTION RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 EFFECTIVE DATE
means the date shown for this rider on page 3 of the policy.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 OPTION BENEFIT
The owner may increase the specified amount of insurance on your life without
proof of insurability on each of the option dates, if the policy and this rider
are in force with all needed monthly deductions paid.
Such purchase is subject to the following rules:
a) The owner must send us a written request, on our form and pay the monthly
deductions on or before the option date.
b) The policy date of the increase will be the option date.
c) In no event will the increase in specified amount become effective unless
you are living on the option date.
d) The increase in specified amount will not exceed the basic amount of this
rider.
e) Each Option will expire if not used on or before its option date. The
expiration will not affect future options.
f) The monthly deductions for the increased amount will be based on your sex,
attained ago and rate class on the option date.
g) The increased amount will be subject to the same exceptions, exclusions and
restrictions, if any, as this policy.
h) The increased amount will not be effective unless the net cash value on the
option date is sufficient to pay monthly deductions for the policy plus the
increased amount.
i) We will send the owner a new policy data page 3 showing the new specified
amount following exercise of an option.
j) The increased amount will be subject to the first year per $1,000 charges
shown in the policy.
2.2 AMOUNT OF THIS RIDER
The amount of this rider is shown on page 3 of the policy.
2.3 OPTION DATES
Option dates will be the policy anniversaries on which your age is 22, 25, 28,
31, 34, 37 and 40. Use of the advance purchase option will cancel the next
unused option.
2.4 ADVANCE PURCHASE OPTION
If the policy and this rider are in force with all needed deductions paid, the
owner may make immediate use of the next unused option within 60 days of the
following:
a) your marriage;
b) the birth of each living child to you during your lifetime; or
c) upon your legal adoption of a child.
Use of the advance purchase option is subject to the same rules which apply to
any other option benefit plus the following:
a) The next option date will be cancelled.
b) In the event of a multiple birth, the specified amount of the new policy
may be increased to an amount equal to the amount of this rider times the
number of live children born.
c) You must send us proof of such marriage, birth or adoption.
<PAGE>
d) The increased amount under this option will not be effective unless the net
cash value on the effective date of such increase is sufficient to pay
monthly deductions for the policy plus the amount of the increase resulting
from the exercise of this option.
e) The effective date of the increase will be the monthly deduction day
coinciding with or next following the date the signed request was received
in the Home Office.
If you die without using an advance purchase option during the 60 days it is
available, a death benefit will be paid equal to the amount that would have been
paid had the owner exercised such option.
2.5 TERMINATION
All rights and benefits under this rider will terminate on the earliest of:
a) the policy anniversary on which you are age 40;
b) you die;
c) the owner requests that the policy or rider be cancelled;
d) the grace period specified in the policy ends without payment of the
monthly deductions;
e) the continuation of the policy in force under a cash value option; or
f) conversion, expiry, maturity or termination of the policy.
2.6 POLICY PROVISIONS APPLY
All provisions of the policy not in conflict with this rider will apply to this
rider. In the event of a conflict between the provisions of the policy and this
rider, the provisions of this rider will prevail.
- --------------------------------------------------------------------------------
SECTION 3 - MONTHLY DEDUCTIONS AND REINSTATEMENT
- --------------------------------------------------------------------------------
3.1 MONTHLY DEDUCTIONS
The monthly deductions for this rider as shown herein are to be deducted on the
same dates, in the same manner, and under the same conditions as the monthly
deductions for the policy to which this rider is attached. Monthly deductions
for this rider are due until this rider terminates. Any monthly deductions
deducted after termination, as provided in this rider, will not continue this
rider in force and will be refunded.
The monthly deductions for this rider are based on your attained age at the
beginning of each policy year. The table on the following page shows the monthly
deduction per $1,000 of rider amount based on your attained age at the beginning
of each policy year.
3.2 REINSTATEMENT
This rider my be reinstated along with the policy subject to the requirements of
the policy and the following:
a) You must provide proof of your good health and insurability satisfactory to
us.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
/s/ Edward M. Wiederstein
President
<PAGE>
TABLE OF GUARANTEED INSURABILITY OPTION
MONTHLY DEDUCTION RATES PER $1,000
FOR STANDARD CLASS
Attained Male Female Attained Male Female
Age Rate Rate Age Rate Rate
0 .01 .01 20 .06 .04
1 .02 .02 21 .06 .04
2 .02 .02 22 .06 .04
3 .02 .02 23 .07 .05
4 .02 .02 24 .07 .05
5 .02 .02 25 .07 .06
6 .02 .02 26 .08 .06
7 .03 .02 27 .08 .06
8 .03 .02 28 .08 .06
9 .03 .02 29 .08 .07
10 .03 .02 30 .08 .07
11 .03 .02 31 .08 .07
12 .03 .02 32 .09 .07
13 .04 .02 33 .09 .08
14 .04 .03 34 .09 .08
15 .04 .03 35 .09 .08
16 .04 .03 36 .09 .09
17 .04 .03 37 .10 .10
18 .05 .03 38 .12 .12
19 .05 .03 39 .14 .13
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
CHILDREN'S TERM LIFE INSURANCE RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 COVERED CHILD
means your child, your stepchild or your legally adopted child, who:
a) is named in the application for this rider and who is less than age 18 on
the date of such application; or
b) after the date of such application, is born to you or legally adopted by
you before such child is age 18.
1.3 EFFECTIVE DATE
means the date shown for this rider on the policy data page.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 DEATH BENEFIT
We will pay the amount of this rider to the beneficiary of this rider.
a) within two months after receipt by us of due proof of a covered child's
death;
b) if a covered child dies:
i) after such covered child is 7 days old; and
ii) before such covered child's 23rd birthday;
c) if the policy and this rider are in force on the date of a covered child's
death with all needed monthly deductions paid; and
d) subject to the terms and conditions of the policy and this rider.
2.2 AMOUNT OF THIS RIDER
The amount of term insurance under this rider is shown on the policy data page.
2.3 DEATH BENEFIT CHANGES
The owner may change the amount of this rider at any time after the first policy
year subject to the following rules:
a) The change must be in writing in a form acceptable to us.
b) It must be signed by the owner.
c) The form must be sent to us and, if proof of insurability is required, such
proof must be acceptable to us.
d) We will issue a new policy data page for any change in amount of this
rider.
Any decrease will be effective on the monthly deduction day coinciding with or
next following our receipt of the request. Any reduction will be in the
following order:
a) against the most recent increase in insurance;
b) against the next most recent increases reduced in succession;
c) against the initial amount.
In no event will the current amount of this rider be more than the specified
amount of the policy. Any decrease is also subject to a minimum amount remaining
of $10,000.
Any increase will require proof of insurability. An approved increase will have
an effective date as shown on the new policy data page.
2.4 INCONTESTABLE CLAUSE
We will not contest payment of this rider for any reason other than fraud after
this rider has been in force during such covered child's lifetime for two years
from the effective date.
We will not contest payment of any increases in the amount of this rider for any
reason other than fraud after the increases have been in force during such
covered child's lifetime for two years from the effective date of each increase.
2.5 MISSTATEMENT OF AGE OR SEX
We have the right to correct benefits for misstated age or sex. In such an
event, benefits will be the amount the monthly deduction actually made would
have bought at the correct age or sex.
<PAGE>
2.6 SUICIDE
If, within one year of the effective date, a covered child dies by suicide,
whether sane or insane, our liability is limited to the monthly deductions paid
for this rider.
Any increase in death benefits resulting from an increase in the amount of this
rider will not be paid if a covered child dies from suicide, while sane or
insane, within one year of the date of such increase. Instead, we will return an
amount equal to the cost of insurance for such increase in the amount of this
rider.
2.7 TERMINATION
All rights and benefits under this rider will end when any one of the following
events occurs:
a) the owner requests that the policy or rider be cancelled or fully
converted;
b) the grace period specified in the policy ends without payment of the
monthly deductions; or
c) conversion, expiry, maturity or termination of the policy.
2.8 POLICY PROVISIONS APPLY
The cash value and policy loan provisions of the policy, if any, will not apply
to this rider. All other provisions not in conflict with this rider will apply
to this rider. In the event of a conflict between the provisions of the policy
and this rider, the provisions of this rider will prevail.
- --------------------------------------------------------------------------------
SECTION 3 - OWNERSHIP AND BENEFICIARY
- --------------------------------------------------------------------------------
3.1 OWNERSHIP
The owner of the policy will be the owner of this rider.
3.2 BENEFICIARY
Beneficiaries for this rider are as named in the application, unless changed by
the owner. The rider's beneficiaries may be different from the policy's
beneficiaries.
- --------------------------------------------------------------------------------
SECTION 4 - MONTHLY DEDUCTIONS AND REINSTATEMENT
- --------------------------------------------------------------------------------
4.1 MONTHLY DEDUCTIONS
The monthly deductions for this rider are to be paid on the same dates, in the
same manner, and under the same conditions as the monthly deductions for
the policy to which this rider is attached. Monthly deductions for this rider
are due until this rider terminates. The monthly deduction for this rider will
be $0.25 per $1,000 of coverage under this rider.
4.2 REINSTATEMENT
This rider may be reinstated along with the policy subject to the requirements
of the policy and the following:
a) You must provide proof of good health and insurability satisfactory to us
for each covered child who would be insured under this rider upon such
reinstatement.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
- --------------------------------------------------------------------------------
SECTION 5 - CONVERSION
- --------------------------------------------------------------------------------
5.1 CONVERSION PRIVILEGE
The owner may convert coverage under this rider to a new policy on any covered
child without proof of insurability if the policy and this rider are in force
with all needed monthly deductions paid. Application for conversion must be made
during such child's conversion period and before termination of this policy and
rider.
5.2 CONVERSION PERIOD
The conversion period for each covered child expires on the earlier of:
a) such covered child's 23rd birthday; or
b) 60 days after your death.
5.3 CONVERSION REQUIREMENTS
Such conversion is subject to the following rules:
a) The owner must send us a written request, on our form.
b) The owner must pay the first premium on the new policy.
c) The policy date of the new policy will be the date of termination of the
covered child's coverage under this rider.
d) In no event will the new policy become effective, unless such covered child
is living on the policy date of the new policy.
e) The face amount of the new policy may not exceed the face amount of this
rider in effect on the date of the request.
f) The new policy must comply with our published rules in effect on the date
of issue of the new policy.
<PAGE>
g) The premium for the new policy will be our rate for such covered child's
age on the policy date of the new policy for the same premium class as this
rider.
h) The new policy will be subject to the same exceptions, exclusions and
restrictions, if any, as this rider.
i) The new policy may be any form of single-life permanent life insurance
policy then being offered by us.
j) Our consent and proof of such covered child's insurability are required to
add any other benefit riders to the new policy, including the waiver of
charges rider.
/s/ Edward M. Wiederstein
President
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE, WEST DES MOINES, IOWA 50266-5997
OTHER ADULT UNIVERSAL LIFE INSURANCE RIDER
This rider is a part of the policy to which it is attached.
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the person whose life is insured under the policy.
1.2 COVERED ADULT
means the person whose life is insured under this rider and who is age 18 or
older.
1.3 AGE
means age at the last birthday.
1.4 ATTAINED AGE
means the covered adult's age on the effective date plus the number of policy
years since the effective date.
1.5 EFFECTIVE DATE
means the effective date of this rider shown on the policy data page.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 DEATH BENEFIT
We will pay the amount of this rider to the beneficiary of this rider:
a) within two months after receipt by us of due proof of the covered adult's
death;
b) if the policy and this rider are in force on the date of the covered
adult's death with all needed monthly deductions paid; and
c) subject to the terms and conditions of the policy and this rider.
2.2 AMOUNT OF THIS RIDER
The amount of insurance under this rider is shown on the policy data page.
2.3 DEATH BENEFIT CHANGES
The owner may change the amount of this rider at any time after the first policy
year subject to the following rules:
a) The change must be in writing in a form acceptable to us.
b) It must be signed by the owner.
c) The form must be sent to us and, if proof of insurability is required, such
proof must be acceptable to us.
d) We will issue a new policy data page for any change in the amount of this
rider.
Any decrease will be effective on the monthly deduction day coinciding with or
next following our receipt of the request. Any reduction will be in the
following order:
a) against the most recent increase in insurance;
b) against the next most recent increases reduced in succession;
c) against the initial amount.
In no event will the current amount of this rider be more than the specified
amount of the policy. Any decrease is also subject to a minimum amount remaining
of $50,000.
Any increase will require proof of insurability. An approved increase will have
an effective date as shown on the new policy data page.
2.4 INCONTESTABLE CLAUSE
We will not contest payment of this rider for any reason other than fraud after
this rider has been in force during the covered adult's lifetime for two years
from the effective date of this rider.
We will not contest payment of any increases in the amount of this rider for any
reason other than fraud after the increases have been in force during the
covered adult's lifetime for two years from the effective date of each increase.
2.5 MISSTATEMENT OF AGE OR SEX
We have the right to correct benefits for misstated
<PAGE>
age or sex. In such an event, benefits will be the amount the monthly deductions
actually paid would have bought at the correct age or sex.
2.6 SUICIDE
If, within one year of the effective date, the covered adult dies by suicide,
whether sane or insane, our liability is limited to the monthly deductions paid
for this rider.
Any increase in death benefits resulting from an increase in the amount of this
rider will not be paid if a covered adult dies from suicide, while sane or
insane, within one year of the date of such increase. Instead, we will return an
amount equal to the cost of insurance for such increase in the amount of this
rider.
2.7 TERMINATION
All rights and benefits under this rider will end when any one of the following
events occurs:
a) the earlier of the policy anniversary on which you are age 115 or the
policy anniversary on which the covered adult is age 115;
b) the covered adult dies;
c) the owner requests that the policy or rider be cancelled or fully
converted;
d) the grace period specified in the policy ends without payment of the
monthly deductions; or
e) conversion, expiry, maturity or termination of the policy.
2.8 POLICY PROVISIONS APPLY
The accumulated value benefits and policy loan provisions of the policy, if any,
will not apply to this rider. All other provisions not in conflict with this
rider will apply to this rider. In the event of a conflict between the
provisions of the policy and this rider, the provisions of this rider will
prevail.
- --------------------------------------------------------------------------------
SECTION 3 - OWNERSHIP AND BENEFICIARY
- --------------------------------------------------------------------------------
3.1 OWNERSHIP
The owner of the policy will be the owner of this rider.
3.2 BENEFICIARY
Beneficiaries for this rider are as named in the application, unless changed by
the owner. The rider's beneficiaries may be different from the policy's
beneficiaries.
- --------------------------------------------------------------------------------
SECTION 4 - MONTHLY DEDUCTIONS AND REINSTATEMENT
- --------------------------------------------------------------------------------
4.1 MONTHLY DEDUCTIONS
The monthly deductions for this rider are to be paid on the same dates, in
the same manner, and under the same conditions as the monthly deductions for
the policy to which this rider is attached. Monthly deductions for this rider
are due until the rider terminates. The monthly deduction for this rider is
computed as the sum of a) plus b), where:
a) is the cost of insurance rate (as defined in section 4.2) multiplied by the
amount of the rider; and
b) is the monthly per $1,000 charge from the policy data page, multiplied by
the current amount or the amount of any increase in the amount of this
rider. This charge applies only during the first policy year or during the
12 months following an increase in the amount of this rider.
4.2 COST OF INSURANCE RATE
The cost of insurance rate is subject to the following rules:
a) The rate is based on the covered adult's sex, rate class and attained age.
For any increase in the specified amount, the attained age will be the
covered adult's age on the effective date of the increase.
b) The monthly rates will be determined by us based on our expectation as to
future mortality experience.
c) If we change the rates, we will change them for everyone in a rate class.
d) The monthly guaranteed rates shown in the policy are based on the 1980
Commissioner's Standard Ordinary Mortality Table, Age Last Birthday. The
monthly rate will never be more than these rates.
4.3 REINSTATEMENT
This rider may be reinstated along with the policy subject to the requirements
of the policy and the following:
<PAGE>
a) You must provide proof of good health and insurability satisfactory to us
for the covered adult who would be insured under this rider upon such
reinstatement.
b) All unpaid monthly deductions must be paid with interest. We will set the
interest rate, but it will not exceed 6% per year.
- --------------------------------------------------------------------------------
SECTION 6 - CONVERSION
- --------------------------------------------------------------------------------
6.1 CONVERSION PRIVILEGE
The owner may convert this rider to a new policy on the covered adult without
proof of insurability if the policy and this rider are in force with all needed
monthly deductions paid. Application for conversion must be made before
termination of the policy and rider and before the covered adult's 75th
birthday, or within 60 days after your death.
6.2 CONVERSION REQUIREMENTS
Such conversion is subject to the following rules:
a) The owner must send us a written request, on our form.
b) The owner must pay the first premium on the new policy.
c) The policy date of the new policy will be the date of termination of
this rider.
d) In no event will the new policy become effective, unless the covered
adult is living on the policy date of the new policy.
e) The face amount of the new policy may not exceed the face amount of
this rider in effect on the date of the request.
f) The new policy must comply with our published rules in effect on the
date of issue of the new policy.
g) The premium for the new policy will be our rate for the covered
adult's age on the policy date of the new policy for the same premium
class as this rider.
h) The new policy will be subject to the same exceptions, exclusions and
restrictions, if any, as this rider.
i) The new policy may be any form of single-life permanent life insurance
policy then being offered by us.
j) Our consent and proof of the covered adult's insurability are required
to add any other benefit riders to the new policy, including the
waiver of charges rider.
/s/ Edward M. Wiederstein
President
<PAGE>
APPLICATION
FOR VARIABLE
UNIVERSAL LIFE INSURANCE
EQUITRUST LIFE
INSURANCE COMPANY
PO BOX 9353
DES MOINES, IA 50306-9353
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
(PLEASE DIRECT ALL CORRESPONDENCE TO THE POST OFFICE BOX)
<PAGE>
CHECK LIST
/ / PROSPECTUS
----------
Did you give the applicant a prospectus?
/ / NOTICE
------
Did you detach Notice to Applicant section and give it to the applicant?
/ / ANSWER ALL QUESTIONS
--------------------
Did you answer all questions and provide details as requested?
/ / DID YOU HAVE THE APPLICANT COMPLETE AND SIGN THE SUITABILITY QUESTIONNAIRE?
---------------------------------------------------------------------------
/ / SIGNATURES
----------
Are all forms properly signed?
- Proposed insured
- Applicant, owner(s), if other than proposed insured (where required)
- Spouse, if proposed for coverage
- Parent or court appointed legal guardian for child below age 15
- Agent/Broker/Registered Representative
/ / BLOOD CONSENT FORMS
-------------------
Did you get the appropriate required blood consent form signed and sent to
us (if required)?
See agent packet for list of required blood consent forms.
/ / REPLACEMENT FORMS
-----------------
Is existing coverage being replaced? If so, did you get required
replacement forms signed? Did you leave one copy with the applicant (if
required)?
/ / REQUIRED LICENSE
----------------
Do you have required agent license for the state in which the application
is signed? Have you been appointed as a registered representative to market
variable products for the broker-dealer?
/ / EFT AUTHORIZATION
-----------------
Did the applicant choose Electronic Funds Transfer (EFT)? If so, did you
fill out the EFT form and send it and a voided check to us?
/ / TEMPORARY INSURANCE AGREEMENT
-----------------------------
Have you explained the limits described in the Temporary Life Insurance
Agreement?
/ / CHECK
-----
Please enclose a check payable to EquiTrust Life Insurance Company.
/ / AGENT/BROKER/REGISTERED REPRESENTATIVE'S CERTIFICATE
----------------------------------------------------
Complete the certificate following the application.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION A - APPLICANT INFORMATION
PROPOSED PRIMARY INSURED
------------------------
COMPLETE THIS SECTION FOR ALL POLICIES:
1. Insured Date of Birth Age
------------------------------------------------- ----------------------- --------------------------
2. / / Male / / Female State of Birth Social Sec. No. (SSN) State/Co.Code
-------------------- ---------------- ---------------
3. Drivers License No. (if different than SSN) Drivers License State
-------------------------------------- ------------------
4. Insured's Current Address
-------------------------------------------------------------------------------------------------
5. Phone Number Home Business
------------------------------------- ----------------------
6. Best time to reach by phone AM PM
---------------------- ----------------------
7. Occupation
----------------------------------------------------------------------------------------------------------------
8. Duties
--------------------------------------------------------------------------------------------------------------------
9. Employer Business Address
------------------------------------------------ --------------------------------------------------
10. Do you have any other occupation?
-----------------------------------------------------------------------------------------
11. Any change in occupation contemplated?
--------------------------------------------
12. Height(ft) (in) Weight
------------- ------------ -----------
13. Second proposed insured's occupation (if applying for coverage)
-----------------------------------------------------------
Payor Name
---------------------------------------------------------------------------------------------------------------------
Billing Address
----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION B - POLICY INFORMATION
COMPLETE THIS SECTION FOR ALL POLICIES:
Policy Number (home office use only)
---------------------
-------------------------------------------------------------------------------------------------------------------------------
1. Life Insurance Plan Face Amount
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
1a. Death Benefit Option................................... / / A (increasing) / / B (level)
2. Tobacco User................................................ / / Yes / / No
3. Riders
/ / Other Adult $ Tobacco User................ / / Yes / / No
---------------
/ / Children's Term $
--------------
/ / Guaranteed Insurability Option $
-----------------
/ / Cost of Living Increase
/ / Waiver of Charges
/ / Other
4. Is this application for an increase on an existing
variable universal life policy?............................ / / Yes / / No
Policy Number
------------------------
Amount of Increase $
-----------------
5. Premium Payable.................. / / Annually / / Semi-annually / / Quarterly / / EFT / / Other
Billed Premium Amount $ EFT Start Date
---------------------- --------------
6. Submitted Premium $ Transfer of Funds $
(not including transfer)--------------------- -------------------
- ------------------------------------------------------------------------------------------------------------------------------------
REGISTERED REPRESENTATIVE INFORMATION
--------------------------------------------------- ----------------------------- -----------------------------------------
Registered Representative Name Phone First Name
-------------------------------- -------------------------------------------------------------------------------------------
Branch or Agency Number Branch or Agency Address, City, State, Zip
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION C - EXISTING LIFE INSURANCE
COMPLETE THIS SECTION FOR ALL POLICIES:
1. Life Insurance In Force (if none, state "none")
-------------------------------------------------------------------------------------------------------------------------------
Company Amount
-------------------------------------------------------------------------------------------------------------------------------
2. Is the policy applied for replacing or likely to replace any existing life or annuity plan? / / Yes / / No
If yes, indicate the amount, company name, give termination date and complete appropriate replacement forms.
-----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION D - OTHER PROPOSED INSURED'S INFORMATION
COMPLETE THIS SECTION IF OTHERS ARE TO BE INCLUDED FOR COVERAGE:
1. Names of all other persons proposed for insurance
-------------------------------------------------------------------------------------------------------------------------------
Last First Middle Sex Relationship Date of Age State of Height Weight Amount of
Initial Birth Birth Life Insurance
In Force
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Yes No
2. Are all children listed the natural or legally adopted children of the proposed insured or spouse? / / / /
3. Has each child eligible for coverage been included? / / / /
4. Is the proposed insured's residence the permanent residence of all children listed? / / / /
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION E - OWNER AND BENEFICIARY INFORMATION
COMPLETE THIS SECTION FOR ALL POLICIES:
I. Owner (if other than proposed insured)
1. Ownership to be vested in Social Security Number/Tax I.D. Number
Name
---------------------------------------------------------- --------------------------------
Address
-----------------------------------------------------------------------------------------
2. Contingent Owner, if any Social Security Number/Tax I.D. Number
Name
---------------------------------------------------------- --------------------------------
Address
-----------------------------------------------------------------------------------------
II. Beneficiary as to proceeds at death of insured
Survivors within a class (primary or secondary) entitled to the proceeds shall share equally unless otherwise specified.
1. Primary Beneficiary Name
------------------------------------------------------------------------
Relationship Social Security Number
-------------------------------------- ----------------------
Address
-----------------------------------------------------------------------------------------
2. Secondary Beneficiary Name
----------------------------------------------------------------------
Relationship Social Security Number
-------------------------------------- ----------------------
Address
-----------------------------------------------------------------------------------------
/ / Children born to or adopted by the proposed insured and______________ (including any named above). The
beneficiary as to proceeds at death of any person other than the insured shall be as stated in the applicable
benefit provision.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SECTION F - MEDICAL HISTORY
HAS ANY PERSON PROPOSED FOR COVERAGE EVER HAD OR BEEN TOLD THEY HAD:
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Epilepsy, fainting spells, convulsions, nervous Yes / / No / / INDICATE QUESTION # - IDENTIFY PERSON
or mental condition, stroke, paralysis or any Circle specific condition, give date
disorder of the brain or nervous system? and severity of symptoms, type of
surgery, remaining effects, names &
addresses of physicians & hospitals.
- -------------------------------------------------------------------------------
2. Heart attack, heart murmur, high blood Yes / / No / /
pressure, shortness of breath, pain or pressure
in the chest, palpitation, or any disorder of
the heart, blood or blood vessels?
- -------------------------------------------------------------------------------
3. Tuberculosis, asthma, spitting of blood, or Yes / / No / /
any disorder of the lungs, bronchial tubes,
throat or respiratory system?
- -------------------------------------------------------------------------------
4. Ulcer, indigestion, colitis, chronic diarrhea, Yes / / No / /
hepatitis, gallstones, hernia, passing blood, or
any disorder of the stomach, intestines, rectum,
appendix, gallbladder or liver?
- -------------------------------------------------------------------------------
5. Nephritis, sugar, albumin, pus or blood in the Yes / / No / /
urine, syphilis, kidney stone, or any disorder of
the kidneys, urinary system or female or male
organs including the prostate?
- -------------------------------------------------------------------------------
6. Diabetes, gout, or any disorder of the thyroid or Yes / / No / /
other glands?
- -------------------------------------------------------------------------------
7. Immune system disorder? Yes / / No / /
- -------------------------------------------------------------------------------
8. Rheumatic fever, arthritis, back trouble, or any Yes / / No / /
disorder of the joints, muscles or bones?
- -------------------------------------------------------------------------------
9. Any disorder of the eyes, ears or skin? Yes / / No / /
- -------------------------------------------------------------------------------
10. Cancer, tumor or lymph node enlargement? Yes / / No / /
- -------------------------------------------------------------------------------
11. Any physical deformity or defect? Yes / / No / /
- -------------------------------------------------------------------------------
12. Any injury, disease, recurrent infection, Yes / / No / /
condition or disorder not indicated above?
- -------------------------------------------------------------------------------
HAS ANY PERSON PROPOSED FOR COVERAGE:
- -------------------------------------------------------------------------------
13. Gained or lost weight in the past year? (If yes, Yes / / No / /
give pounds gained or lost and reason)
- -------------------------------------------------------------------------------
14. Used drugs for high blood pressure or presently Yes / / No / /
taking medication of any type? (If yes,
show drugs, dosage and duration taken)
- -------------------------------------------------------------------------------
15. Been advised to have or now contemplate Yes / / No / /
an operation, surgical procedure or biopsy?
- --------------------------------------------------------------------------------
16. Used nicotine or tobacco in any form within Yes / / No / /
the last 3 years?
If yes:
/ / Current use: Form and amount/day ____________
/ / Not current but within past 3 years:
Date of most recent use ____________
Form and amount/day ____________
- -------------------------------------------------------------------------------
DURING THE PAST FIVE YEARS HAS ANY PERSON PROPOSED FOR
COVERAGE:
- -------------------------------------------------------------------------------
17. Been examined or had a physical check-up? Yes / / No / /
- -------------------------------------------------------------------------------
18. Had an x-ray, electrocardiogram, blood Yes / / No / /
studies, any other laboratory test or study?
- -------------------------------------------------------------------------------------------------------------------
19. Give details to "yes" answers to questions 17 & 18 regarding check-ups, electrocardiograms, x-rays, blood
studies or other tests.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUESTION NAME WHAT TEST WAS DATE REASON FOR TEST WHAT WAS FOUND NAME AND ADDRESS OF
# DONE DOCTORS/HOSPITALS.
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SECTION G - GENERAL QUESTIONS
HAS ANY PERSON PROPOSED FOR COVERAGE:
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Made any aerial flights in the past two years or Yes / / No / / INDICATE QUESTION # - IDENTIFY PERSON
contemplate such flights in the future, other than Give Details
as a civilian passenger? (If yes, complete Section K)
- -----------------------------------------------------------------------------
2. Volunteered for military service, been alerted, or Yes / / No / /
ordered to report for active duty? (If currently
in active military service or a reserve
component of the armed service or national guard,
complete Section L)
- -----------------------------------------------------------------------------
3. Engaged in, or intend to engage in hazardous sports, Yes / / No / /
or travel outside the U.S. and Canada? If yes for
Hazardous Sports, complete Section M)
- -----------------------------------------------------------------------------
4. Been treated for alcoholism or any drug habit; Yes / / No / /
used or taken narcotics, marijuana, LSD,
amphetamines or barbiturates on a regular basis?
(If yes, complete Section N)
- -----------------------------------------------------------------------------
5. Been rejected for or received a Medical Discharge Yes / / No / /
or Disability Benefits from Military Service?
- -----------------------------------------------------------------------------
6. A pending application for or reinstatement Yes / / No / /
of insurance in this or any other company?
- -----------------------------------------------------------------------------
7. Ever had an application for insurance or Yes / / No / /
reinstatement declined, postponed, rated
up or limited?
- -----------------------------------------------------------------------------
8. Had any case of stroke, heart attack, Yes / / No / /
cancer, diabetes, insanity, suicide,
tuberculosis or inheritable disorders
in their family?
- -----------------------------------------------------------------------------
9. Applied for a pension, disability or medical Yes / / No / /
expense payments from any source?
- -----------------------------------------------------------------------------
10. Had a moving traffic violation in the past Yes / / No / /
3 years? Give the specific details of each
violation.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION H - SPECIAL REQUESTS, REMARKS AND CORRECTIONS OR ENDORSEMENTS
Unless otherwise indicated, these options apply:
I request the adjustable policy loan interest rate.
I request the automatic premium loan privilege, if available.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SECTION I - ALLOCATION OF FUNDS
<S> <C> <C>
Yes No
Did you receive the current prospectus for the contract? ....................... / / / /
Do you believe that this contract will meet your insurance needs
and financial objectives? ...................................................... / / / /
- ----------------------------------------------------------------------------------------------
The net premium payments (as described in the prospectus) are to be allocated to the
appropriate subaccounts as follows:
</TABLE>
SUBACCOUNT ALLOCATION*
<TABLE>
<CAPTION>
<S> <C>
[EquiTrust Value Growth %
-------------------
EquiTrust High Grade Bond %
-------------------
EquiTrust High Yield Bond %
-------------------
EquiTrust Money Market %
-------------------
EquiTrust Blue Chip %
-------------------
T. Rowe Price International Stock %
-------------------
T. Rowe Price Mid-Cap Growth %
-------------------
T. Rowe Price New America Growth %
-------------------
T. Rowe Price Equity Income %
-------------------
T. Rowe Price Personal Strategy Balanced %
-------------------
Dreyfus International Equity %
-------------------
Dreyfus Small Cap Stock %
-------------------
Dreyfus Capital Appreciation %
-------------------
Dreyfus Disciplined Stock %
-------------------
Dreyfus Growth and Income %
-------------------
Declared Interest Option %]
-------------------
</TABLE>
* If any portion of a net premium is allocated to a particular subaccount,
that portion must be at least 10% on the date the allocation takes effect.
All percentage allocations must be in whole numbers (e.g. 33% can be
selected, but 33 1/3% cannot).
Net premiums will be allocated to the declared interest option if they are
received either before the date the company obtains a signed notice from the
owner that the policy has been received, or before the end of 25-days after
the delivery date. Upon the earlier of (i) the date the company obtains a
signed notice by the owner that the policy has been received, or (ii) 25 days
after the delivery date, we will transfer part or all of the accumulated
value in the declared interest option to the Subaccounts in accordance with
the owner's allocation instructions.
TRANSFER BETWEEN PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C>
I authorize transfers between the subaccounts upon instruction from any person by telephone. Yes No
If neither box is checked, the telephone privilege will be provided ......................... / / / /
</TABLE>
The first transfer in each policy year will be made without charge;
subsequent transfers in a policy year will be assessed a transfer charge of $25.
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
SECTION J - SUITABILITY QUESTIONNAIRE
PLEASE COMPLETE THE FOLLOWING QUESTIONS:
The following information is to be provided by the applicant/owner:
1. Total face amount of life insurance in force is less than or equal
to $50,000
-----
$50,000-$100,000
-----
$100,001-$250,000
-----
$250,001-$500,000
-----
$500,001 or more
-----
2. Existing life insurance policies currently in force are (check all those
that apply)
Term Whole Universal Variable/Variable Universal Life
----- ----- ----- ------
Second/First to Die Other
----- -----
3. Please provide the applicant/owner's a) Annual earnings $
-----
b) Estimated net worth $
-----
4. The best way to describe my investment strategy is (check those most
appropriate)
Long-term capital appreciation
-----
Income with some capital appreciation
-----
Income
-----
Liquidity and stability of principal
-----
Other (please specify)
----- ------------------------------------------
5. Tolerance for subaccount volatility
LOW-I am willing to accept minimal volatility with the accumulated
value in the subaccounts.
-----
MEDIUM-I am willing to accept some volatility with the accumulated
value in the subaccounts.
-----
HIGH-I am willing to accept greater volatility with the accumulated
value in the subaccounts.
-----
6. YES / / The concept of a variable universal life insurance policy and
its non-guaranteed elements has been explained to my
satisfaction.
NO / /
7. What was the gross rate of return shown to you on the variable universal
life illustration? %.
-----
- -------------------------------------------------------------------------------
Applicant/Owner's Name (please print)
-------------------------------------
Applicant/Owner's Signature Date
-------------------------------- -------
Registered Representative's Signature Date
---------------------- -------
<PAGE>
- -------------------------------------------------------------------------------
SECTION K - AVIATION SUPPLEMENT
PLEASE COMPLETE THE FOLLOWING QUESTIONS IF REQUIRED:
1. Total hours flown as a pilot? As a crew member?
------------ ---------
2. Date of last flight as a pilot? As a crew member?
---------- ---------
3. If pilot, give class of certificate Date of issue?
------ ------------
(Student, Private, Commercial, IFR, ATR, Other)
4. Check type of civilian aircraft currently being most frequently flown:
/ /Conventional / /Helicopter / /Jet or turbo-jet / /Turbo-prop
/ /Glider / /Other
----------------------------------
5. Are you connected in any way with any military organization?
/ /Yes / /No If yes, check below:
/ /Air Force / /Army / /Navy / /National Guard / /Reserves
/ /Other
------------------------------
Check type of aircraft currently being most frequently flown: If Navy,
is aircraft carrier based?
-----------------------------
/ /Fighter / /Bomber / /Transport / /Reconnaissance
/ /Helicopter / /Other
------------------------------
6. Do you plan to own or pilot any type of aircraft in the future?
-----
7. In the event that my aviation activity (past, present, or future) does
not permit the issuance of standard, unrestricted coverage and a choice
is available to me, I prefer a policy issued:
/ /With extra premium / /With aviation exclusion rider
8. Hours flown as pilot, crew member or as passenger having duties aboard
aircraft:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Type of flying Year Last Year Last
(List hours in each category. Before 12 Next Before 12 Next
No duplication) Last Months Year Type of Flying Last Months Year
----------------------------------------------------------------------------------------------------------------------------
As a student pilot Scheduled airline
----------------------------------------------------------------------------------------------------------------------------
Private plane Chartered, sightseeing trips
----------------------------------------------------------------------------------------------------------------------------
Full-Time company pilot Instructing students
----------------------------------------------------------------------------------------------------------------------------
Military-active duty Aerial application (crop dusting, etc.)
----------------------------------------------------------------------------------------------------------------------------
Reserve or National Guard Other (explain below)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
9. Total hours flown year before last? Last year?
-------------- -----------
10. Additional details
-------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECTION L - MILITARY SUPPLEMENT
TO BE ANSWERED BY THOSE ON ACTIVE DUTY:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. a. What Branch? 1. a. / /Coast Guard / /Marines / /Army / /Navy / /Air Forces
b. What is your rank and serial number? b.
c. Primary occupation job title? c.
-------------------------------------------------------------------------------------------------------------------------------
2. a. Are you a part of any Special Forces group? 2. a.
b. Are you now, have you ever been or do you expect b.
to be on flying status? If so, complete Aviation
Supplement.
-------------------------------------------------------------------------------------------------------------------------------
3. a. When will you complete present tour of duty? 3. a.
b. Do you intend to re-enlist upon completion of b.
present tour of duty?
c. To the best of your knowledge, is an overseas c.
assignment probable in next 12 months?
If so, where do you expect to go?
-------------------------------------------------------------------------------------------------------------------------------
TO BE ANSWERED BY THOSE NOT ON ACTIVE DUTY
4. a. Have you any intention of enlisting or making 4. a.
application for military service?
If so, when and with which branch?
b. If you are in ROTC, date you expect commission? b.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
SECTION M - HAZARDOUS SPORTS SUPPLEMENT
CHECK TYPE OF HAZARDOUS SPORT AND ANSWER QUESTIONS TO THE RIGHT:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
/ / Stock car racing 1. How many times have you participated in past 12 months?
-----------------------------------------
/ / Modified stock car racing One to two years ago? Intend to in the next 12 months?
---------------------- ------------------
/ / Drag racing 2. Date of last race?
------------------------------------------------------------------------------
/ / Sports car racing 3. Make and type of auto or other vehicle?
---------------------------------------------------------
/ / Midget racing 4. Top speed?
--------------------------------------------------------------------------------------
/ / Go-kart racing 5. Do you compete for cash prizes?
-----------------------------------------------------------------
/ / Motorcycle racing 6. Do you race only in your home town or do you compete in various localities?
---------------------
/ / Motorcycle hill climbing Give details
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
/ / Sports car rallies 7. Have you ever done or do you intend to do any other type of racing?
-----------------------------
/ / Motor boat racing Give details
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
/ / Skin diving 1. How many times have you participated in skin diving in past 12 months?
--------------------------
One to two years ago? Intend to in the next 12 months?
------------------------ ----------------
2. Date of last dive?
---------------------------
3. How deep do you usually dive? What is the deepest you have ever dived?
---------------- --------
4. Do you dive in an ocean? Lake? River?
--------------- --------------- --------------------------
5. How many years have you been skin diving?
-------------------------------------------------------
6. Any formal course of instruction? What?
------------------ -------------------------------------
------------------------------------------------------------------------------------------------
7. Briefly describe type of equipment used
---------------------------------------------------------
------------------------------------------------------------------------------------------------
8. Have you ever received pay for work done that involved diving?
----------------------------------
Give details
------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
/ / Sky diving 1. How many jumps have you made in past 12 months? One to two years ago?
---------------- ---------
Lifetime? Intend to in next 12 months?
------------- ------------------------
2. Date of last jump?
----------------------------------
3. Do you use a reserve chute when jumping?
------------------------------------
4. What is minimum height at which your chute has opened?
-------------------------------------------
5. Do you belong to a national sky diving organization? If so, what is
name of organization? ----------------------------
------------------------------------------------------------------------------
6. Class of license?
-----------------
- ---------------------------------------------------------------------------------------------------------------------------------
/ / Any other hazardous 1. What type? Give full details
sports, avocation or --------------------------------------------------------------------
hobby
------------------------------------------------------------------------------------------------
/ / Rodeo 2. How many times have you participated in past 12 months?
-----------------------------------------
One to two years ago? Intend to in the next 12 months?
--------------------- -------------------
3. Date of last participation?
---------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------------------
SECTION N - ALCOHOL AND DRUG QUESTIONNAIRE
COMPLETE THIS SECTION IF REQUIRED:
ALCOHOL QUESTIONNAIRE
- -----------------------------------------------------------------------------------------------------------------------------------
1. Degree and frequency of use at present or within one year
a. Current Daily Use -- Number of drinks per day
/ / None / / 1-3 / / 4 / / 5 / / 6 / / 7 / / 8 or more
b. Current Non-Daily Use
/ / Mild intoxication more than six times per year (not more than six drinks on any one occasion)
/ / Usage less than above? Describe _____________________________________________________________________________________
/ / Usage more than above? Describe _____________________________________________________________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
2. Did you ever drink more than you do at present? If "yes," dates
/ / Yes / / No From ____________ To ____________
- -----------------------------------------------------------------------------------------------------------------------------------
3. Degree and frequency of past use
a. Past Daily Use -- Number of drinks per day
/ / 1-3 / / 4 / / 5 / / 6 / / 7 / / 8 or more
b. Past Non-Daily Use
/ / Mild intoxication more than six times per year (not more than six drinks on any one occasion)
/ / Usage less than above? Describe _____________________________________________________________________________________
/ / Usage more than above? Describe _____________________________________________________________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
4. Have you ever stopped drinking? When? Why?
/ / Yes / / No
- -----------------------------------------------------------------------------------------------------------------------------------
5. Have you ever stopped and When? Why?
relapsed? / / Yes / / No
- -----------------------------------------------------------------------------------------------------------------------------------
6. Have you ever consulted a doctor or received treatment or counseling because of your alcohol use?
/ / Yes / / No
If yes, name and address of doctor, hospital or treatment center and dates:
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
7. Are you now or have you ever been a member of Alcoholics Anonymous or any similar organization?
/ / Yes / / No (If "yes," complete questions below)
- -----------------------------------------------------------------------------------------------------------------------------------
a. Date joined? b. Presently active? / / Yes / / No c. How long active?
- -----------------------------------------------------------------------------------------------------------------------------------
d. Have any "slips" occurred? / / Yes / / No e. If "yes," when?
- -----------------------------------------------------------------------------------------------------------------------------------
DRUG QUESTIONNAIRE
- -----------------------------------------------------------------------------------------------------------------------------------
1. Check any drugs used within the past 10 years
/ / Narcotics / / Stimulants / / Sedatives / / Hallucinogenics
2. Details
- -----------------------------------------------------------------------------------------------------------------------------------
How Often Dosage or Dates Used
Type of Drug Used Amount Used -------------------------------------------------------
From To
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
3. Name and address of physician, therapist, counselor or facility by whom treatment or counseling was provided
------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SECTION O - REPRESENTATION, AUTHORIZATION AND ACKNOWLEDGEMENT STATEMENT
I represent that the statements and answers in all parts of this
application and supplements thereto are true and complete to the best of my
knowledge and belief. It is agreed that: (1) All such statements and
answers shall be the basis of any insurance issued; (2) Except as provided
in the Temporary Life Insurance Agreement attached hereto, no insurance
shall take effect unless and until the following conditions are met: a) the
policy as applied for has been approved by the company in its home office;
or if the policy is issued other than as applied for, the policy has been
physically received and accepted by the applicant; b) the entire first
premium has been paid; and c) no change in the health and insurability of
any persons proposed for coverage has occurred to the best of applicant's
knowledge; (3) No agent or medical examiner is authorized to pass on
acceptability for insurance or to make, modify or discharge any contract of
insurance or waive any of the company's rights or requirements; (4) The
right to change any beneficiary is reserved to the owner unless otherwise
requested; (5) All changes on the application must be subject to written
ratification by the proposed insured or owner.
STATEMENT regarding payment made with application: I have paid
$ __________ with this application for life insurance and I accept the
terms of the Temporary Life Insurance Agreement.
I hereby authorize any licensed physician, medical practitioner,
hospital, clinic or other medical or medically related facility,
insurance company, the Medical Information Bureau, or other
organization, institution or person that has any records or knowledge of
me or my health or the health of my dependent, to give to the EquiTrust
Life Insurance Company, or its reinsurers any such information. This
authorization shall remain valid for two and 1/2 years.
I UNDERSTAND THAT THE ACCUMULATED VALUE OF THE POLICY MAY GO UP OR
DOWN DEPENDING ON THE POLICY'S INVESTMENT EXPERIENCE AND THAT THERE IS
NO GUARANTEED MINIMUM ACCUMULATED VALUE. I ALSO UNDERSTAND THAT THE
AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT MAY
VARY UNDER THE CONDITIONS DESCRIBED IN THE DEATH BENEFIT PROVISION OF
THE CONTRACT.
I also acknowledge receipt of the NOTICE TO APPLICANT relating to
information obtained by inspection companies and Medical Information
Bureau. A photographic copy of this authorization shall be as valid as
the original.
<TABLE>
<CAPTION>
<S> <C>
Dated at ____________________________________________ Date Signed ________________________________
Signature of Witness ________________________________ Signature of Proposed Insured ___________________________________
Signature of Applicant Owner (if other than Proposed Insured) Signature of 2nd Proposed Insured (If applying for
coverage) or Parent if a child under age 15
_____________________________________________________________ __________________________________________________
Signature of Registered Representative ____________________________________________________
Broker-Dealer Identification ______________________________________________________________
</TABLE>
<PAGE>
EQUITRUST LIFE FOR HOME OFFICE USE
INSURANCE COMPANY
Home Office ---------------------
P.O. Box 9353 CONTROL/POLICY NUMBER
Des Moines IA 50306-9353
---------------------
AUTHORIZATION FOR CHECK WRITING DAY
ELECTRONIC FUNDS TRANSFER
PAYMENT PLAN
I (we) request and authorize you to automatically make a withdrawal each
month from my financial institution to pay premiums and loans for insurance
policies from the account identified on the attached check, by electronic or
other method. Please do this until you have had reasonable opportunity to
act upon my written request to terminate this service.
Account type: / / Checking / / Savings
Preferred withdrawal date: _____________________________________
This request shall apply to the following policies or new applications:
- --------------------------------------------------------------------------------
Policy No. or Policy No. or
Application Date Name of Insured Application Date Name of Insured
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Indicate the start date and amount of premium __________________________________
- ---------------------------------------------------- --------------------------
Signature of Bank Account Owner Date
- ---------------------------------------------------- --------------------------
Signature of Bank Account Owner Date
- ---------------------------------------------------- --------------------------
Signature of Agent/Broker/Registered Representative Agent/Agency/Branch Number
Do you want us to change your address as shown below? __________________________
- --------------------------------------------------------------------------------
PLEASE ATTACH VOIDED CHECK HERE.
<PAGE>
1. The company shall not be required to give notice of premium becoming
due. Your bank statement will show a deduction and will constitute the
premium receipt. The company shall incur no liability by reason of
dishonor of any such withdrawal.
2. This payment plan may be discontinued (a) by the company if any draft is
not paid upon presentation (b) by the undersigned or the company upon
thirty days written notice. If the policy(ies) is discontinued for any
reason, including death, any premiums then past due and all subsequent
premiums shall be payable as provided in the policy.
3. This payment plan shall not be construed as a modification of any of the
provisions of the policy, except that so long as the payment plan is in
effect, premiums may be paid monthly at the premium rate applicable
under the payment plan and any "cash loan provision", requiring that
"any premiums necessary to complete premium payments for the current policy
year will be deducted from the amount of said loan", will be waived.
<PAGE>
AGENT/BROKER/REGISTERED REPRESENTATIVE CERTIFICATE
Was a blood profile ordered? Yes / / No / /
Was an examination ordered? Yes / / No / / (Indicate the "key" letter used for
medical requirements.)__________
Will this plan replace any other? Yes / / No / /
If yes, have replacement forms been submitted? Yes / / No / /
Did you give Notice to Applicant form to applicant? Yes / / No / /
Did you see all persons proposed for insurance? Yes / / No / /
(if no - explain)
Applicant/proposed insured's
maiden/previous married name(s):
------------------------------------------------
Spouse's name and amount of life insurance in force?
----------------------------
Estate Planning: Attach copy of your program or give full details.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Business Insurance: Give full reason for this insurance and nature of
applicant's interest.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The answers to each question of this application were recorded in my presence
exactly as given. I know nothing detrimental to the risk that is not recorded in
these papers. I have rechecked all answers and calculations for correctness.
- ----------------------------------------------------------
Signature of Agent/Broker/Registered Representative
<PAGE>
NOTICE TO APPLICANT - (MEDICAL INFORMATION BUREAU)
Information regarding your insurability will be treated as confidential.
EquiTrust Life Insurance Company, or its reinsurers may, however, make a
brief report thereon to the Medical Information Bureau, a non-profit
membership organization of life insurance companies, which operates an
information exchange on behalf of its members. If you apply to another
Medical Information Bureau member company for life or health insurance
coverage, or a claim for benefits is submitted to such a company, the Medical
Information Bureau, upon request, will supply such company with the
information in its file.
Upon receipt of a request from you, the Medical Information Bureau will arrange
disclosure of any information it may have in your file. (Medical information
will be disclosed only to your attending physician.) If you question the
accuracy of information in the Medical Information Bureau's file, you may
contact the Medical Information Bureau and seek a correction in accordance with
the procedures set forth in the Federal Fair Credit Reporting Act. The address
of the Medical Information Bureau's information office is Post Office Box 105,
Essex Station, Boston, Massachusetts 02112, telephone number (617)426-3660.
EquiTrust Life Insurance Company or its reinsurers may also release information
in its file to other life insurance companies to whom you may apply for life or
health insurance, or to whom a claim for benefits may be submitted.
NOTICE TO APPLICANT - (FAIR CREDIT REPORTING ACT)
Federal law requires that notice of investigation be given to persons applying
for insurance.
In making this application for insurance to EquiTrust Life Insurance Company or
its reinsurers it is understood that an investigative consumer report may be
prepared whereby information obtained through personal interviews with your
neighbors, friends or others with whom you are acquainted. This inquiry may
include questions regarding your character, general reputation, personal
characteristics and mode of living. You have the right to make a written request
within a reasonable period of time to receive additional, detailed information
about the nature and scope of this investigation. You also have the right to
receive, upon request, a summary of your rights under the Fair Credit Reporting
Act.
AUTHORIZATION FOR RELEASE OF MEDICAL INFORMATION
(COPY FOR APPLICANT'S FILES)
I hereby authorize any licensed physician, medical practitioner, hospital,
clinic or other medical or medically related facility, insurance company, the
Medical Information Bureau, or other organization, institution or person,
that has any records or knowledge of me or my health or the health of my
dependent, to give to the EquiTrust Life Insurance Company or its reinsurers
any such information. This authorization shall remain valid for two and 1/2
years.
THIS SECTION TO BE REMOVED AND LEFT WITH APPLICANT.
<PAGE>
TEMPORARY LIFE INSURANCE AGREEMENT
This agreement provides a limited amount of life insurance coverage, for a
limited period of time, subject to the terms of this agreement. NO INSURANCE is
provided unless all the CONDITIONS AND LIMITATIONS of this agreement are met.
HEALTH QUESTIONS
Has the proposed insured:
1. Within the past 90 days been admitted to a hospital or other medical
facility, been advised to be admitted, or had surgery performed or
recommended? Yes / / No / /
2. Within the past 2 years, been treated for heart trouble, stroke, or cancer,
or had such treatment recommended by a physician or other practitioner?
Yes / / No / /
If either of the above questions is answered "YES" or LEFT BLANK, no
representative of the company is authorized to accept money and NO COVERAGE will
take effect under this agreement.
CONDITIONS AND LIMITATIONS
AMOUNT OF COVERAGE - $150,000 MAXIMUM FOR ALL APPLICATIONS OR AGREEMENTS
If the company accepts money as advance payment of premium with an
application for life insurance, and the proposed insured dies while this
Temporary Life Insurance Agreement is in effect, the company will pay to the
designated beneficiary in the application the lesser of (a) the amount of all
death benefits applied for, or (b) $150,000. For purposes of this Temporary
Life Insurance Agreement, "designated beneficiary" shall mean the beneficiary
as determined in accordance with the provisions of the policy applied for.
The total benefit limit is the total of the company's liability without
regard to the amount of insurance applied for under this application or any
other pending applications with the company and, in the event any other
temporary insurance agreements are in existence at the time of the proposed
insured's death, $150,000 is the aggregate liability under all Temporary
Insurance Agreements for life insurance.
Except as provided in this Temporary Life Insurance Agreement, no insurance
shall take effect unless and until the following conditions are met: (a) the
policy as applied for has been approved by the company in its home office; or if
the policy is issued other than as applied for, the policy has been physically
received and accepted by the applicant; (b) the entire first premium has been
paid; and (c) no change in the health and insurability of any persons proposed
for coverage has occurred to the best of the applicant's knowledge.
DATE COVERAGE BEGINS
Temporary life insurance under this agreement begins on the date of this
agreement subject to the following conditions: (a) the application has been
completed on or before the date of this agreement, and (b) the above health
questions are both answered "NO."
DATE COVERAGE TERMINATES - 90 DAY MAXIMUM
Temporary life insurance under this agreement terminates automatically on the
earliest of:
1. 90 days from the date of this agreement, or
2. the date insurance takes effect under the policy applied for, or
3. the date a policy, other than applied for, is offered to and accepted by
the applicant, or
4. the date the company mails notice of termination of coverage and refunds
the advance payment to the applicant at the address designated in Section A
of the application. The company may terminate this coverage at any time.
LIMITATIONS
1. This agreement does not provide benefits for waiver of charges.
2. Fraud or material misrepresentation in the application or in the answers to
the health questions of this agreement invalidate this agreement and the
application, and the company's only liability is for refund of any payment
made.
3. No one is authorized to accept money on proposed insureds under 15 days of
age or over age 80 (last birthday) on the date of this agreement, nor will
any coverage take effect.
4. There is no insurance coverage under this agreement if the proposed insured
dies by suicide. The company's liability is limited to a refund of any
payment made.
5. There is no coverage under this agreement if the check submitted as
payments is not honored by the financial institution on first presentation.
6. No one is authorized to waive or modify any of the provisions of this
agreement.
Make all premium checks payable to EquiTrust Life Insurance Company. Do not make
checks payable to the agent/broker/registered representative or leave the payee
blank.
An advance payment of $_________ has been paid. Additional premium may be
required upon policy delivery.
I have read and received a copy of this agreement and declare that the answers
are true to the best of my knowledge and belief. I understand and agree to all
of its terms.
Signed on (Date) In (City, State)
---------------------- ------------------------
Signature of Proposed Insured Signature of Applicant
--------- (If not Proposed Insured)---------------
Signature of Agent/Broker/Registered Representative
-----------------------------
Original - Return to home office Copy - Leave with applicant
<PAGE>
CERTIFICATE OF APPROVAL
ATTORNEY GENERAL
Pursuant to provisions of the Iowa Code, the undersigned approves the
Articles of Amendment (adopted December 31, 1997) to the Articles of
Incorporation for Continental Western Life Insurance Company and finds them
in conformance with the laws of the United States and with the laws and
Constitution of the State of Iowa.
THOMAS J. MILLER
Attorney General of Iowa
12-31-97 /s/ Scott M. Galenbeck
- -------- -----------------------
Date By: SCOTT M. GALENBECK
Assistant Attorney General
CERTIFICATE OF APPROVAL
COMMISSIONER OF INSURANCE
Pursuant to provisions of the Iowa Code, the undersigned approves the
Articles of Amendment (adopted December 31, 1997) to the Articles of
Incorporation for Continental Western Life Insurance Company.
THERESE M. VAUGHAN
Commissioner of Insurance
12-31-97 /s/ Robert L. Howe
- -------- -----------------------
Date By: ROBERT L. HOWE
Deputy Commissioner of Insurance
<PAGE>
ARTICLES OF AMENDMENT
0F
CONTINENTAL WESTERN LIFE INSURANCE COMPANY
TO THE SECRETARY OF STATE OF THE STATE OF IOWA:
Pursuant to Section 1006 of the Iowa Business Corporation Act, the
undersigned corporation adopts the following amendment to the corporation's
Articles of Incorporation.
1. The name of the corporation is Continental Western Life Insurance Company.
2. The text of the amendment to the Articles of Incorporation affected
hereby is as follows:
Article I of the Articles of Incorporation is hereby amended by deleting
it in its entirety and substituting the following in lieu thereof:
ARTICLE I
NAME AND ADDRESS OF COMPANY
---------------------------
The name of the Corporation is EquiTrust Life Insurance Company and
its principal place of business is 5400 University Avenue, West Des Moines,
Iowa 50266.
ARTICLE IX of the Articles of Incorporation is hereby amended by
deleting it in its entirety and substituting the following in lieu thereof:
ARTICLE IX
REGISTERED OFFICE AND REGISTERED AGENT
--------------------------------------
The address of the registered office of the Corporation is 5400
University Avenue, West Des Moines, Iowa 50266, and the name of its
registered agent at such address is Stephen M. Morain, General Counsel.
3. The date of adoption of this amendment was December 31, 1997.
4. The amendment was approved by the shareholders. The designation, number
of outstanding shares, number of votes entitled to be cast by each voting
group entitled
<PAGE>
to vote separately on the amendment, and the number of votes of each
voting group indisputably represented at the meeting is as follows:
VOTES VOTES
DESIGNATION SHARES ENTITLED REPRESENTED
OF GROUP OUTSTANDING TO BE CAST AT MEETING
------------ ------------ ----------- -----------
Common Stock 2,000 2,000 2,000
5. The total number of votes cast for and against the amendment was as follows:
VOTES VOTES
FOR AGAINST
----- -------
2,000 0
6. The number of votes cast for the amendment was sufficient for approval.
7. The effective date and time of this document is the 31st day of December,
1997 at 11:30 a.m.
CONTINENTAL WESTERN LIFE
INSURANCE COMPANY
Dated: December 31, 1997 By: /s/ Richard D. Harris
--------------------------------
Richard D. Harris, Senior Vice
President and Secretary-Treasurer
2
<PAGE>
- ------------------------------------------------------------------------------
STATE OF IOWA
INSURANCE DIVISION
CERTIFICATE OF SIMILARITY
I, THERESE M. VAUGHAN, COMMISSIONER OF INSURANCE DO HEREBY CERTIFY THAT
I AM THE OFFICIAL CHARGED WITH THE GENERAL CONTROL, SUPERVISION AND DIRECTION
OF ALL INSURANCE BUSINESS TRANSACTED IN THE STATE OF IOWA, AND CHARGED WITH
THE EXECUTION OF THE LAWS RELATING TO INSURANCE IN SAID JURISDICTION. AS SUCH
OFFICIAL, I AM CUSTODIAN OF THE RECORDS PERTAINING TO THE INSURANCE DIVISION
OF IOWA. I FURTHER CERTIFY THAT THE ATTACHED INSTRUMENT IS A TRUE AND CORRECT
COPY OF THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
CONTINENTAL WESTERN LIFE INSURANCE COMPANY
FILED OCTOBER 3, 1994
AS THE SAME APPEARS OF RECORD IN THIS DIVISION.
IN WITNESS WHEREOF, I HAVE
HEREUNTO SET MY HAND AND CAUSED
MY OFFICIAL SEAL TO BE AFFIXED
AT THE CITY OF DES MOINES THIS
24TH DAY OF NOVEMBER, A.D. 1997.
/s/ THERESE M. VAUGHAN
--------------------------------
COMMISSIONER OF INSURANCE
- ------------------------------------------------------------------------------
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CONTINENTAL WESTERN LIFE INSURANCE COMPANY
Article I
NAME AND ADDRESS OF COMPANY
----------------------------
The name of the Corporation is Continental Western Life Insurance Company and
its principal place of business is Continental Plaza, 1601 - 74th Street,
West Des Moines, Iowa 50265.
Article II
DURATION
--------
The period of its duration is perpetual.
Article III
PURPOSE
-------
The purpose for which this Corporation is organized is to engage in any
lawful activity within the purposes for which insurance corporations may be
organized under the provisions of Chapters 490 and 508 and any predecessor
statutes of the Iowa Code.
Article IV
CAPITALIZATION
--------------
The aggregate number of shares which the Corporation has authority to issue
is 2,500, par value $1,500 per share.
Article V
DIRECTORS
---------
The governing body of the Corporation is the Board of Directors, elected
annually by the shareholders. The number of Directors is required to be at
least five, the maximum to be fixed by the By-laws. The Directors need not
own shares of the Corporation. Their terms and the manner of their election
shall be as provided in the By-laws. The Board of Directors may make and
amend the By-laws of the Corporation.
Article VI
STOCK PLAN
----------
The Corporation shall operate on the Stock Plan.
<PAGE>
Article VII
INDEMNITY
---------
Any Director, Officer or Employee of the Corporation who is made a party to
any civil or criminal action by reason of his position with the Corporation
may be indemnified by the Corporation to the extent permitted by law.
Article VIII
FISCAL YEAR
-----------
The Corporation's fiscal year shall begin on January 1 of each year and end
on December 31 of each year.
Article IX
REGISTERED OFFICE AND REGISTERED AGENT
--------------------------------------
The address of the registered office of the Corporation is Continental Plaza,
1601 - 74th Street, West Des Moines, Iowa, 50265, and the name of its
registered agent at such address is Valerie Davenport.
Article X
AMENDMENT
---------
These Articles may be amended at any meeting of shareholders by the
affirmative note of a majority of the shareholders present, in person or by
proxy.
These restated Articles of Incorporation were approved to be effective August
21, 1994 by the shareholders of Continental Western Life Insurance Company on
August 21, 1994, and supersede the Corporation's Original Articles of
Incorporation and all amendments thereto.
IN WITNESS WHEREOF, these Amended and Restated Articles of Incorporation are
executed on behalf of Continental Western Life Insurance Company.
Dated this 21st day of August, 1994.
By: /s/ Ken L. Evason
--------------------------------
Ken L. Evason, President
By: /s/ Guy R. Montag
--------------------------------
Guy R. Montag, Secretary
<PAGE>
CERTIFICATE RELATING TO ATTACHED
BYLAWS OF
CONTINENTAL WESTERN LIFE INSURANCE COMPANY
I, Guy R. Montag, hereby certify that I am the Secretary of Continental
Western Life Insurance Company ("Continental Western Life"), an Iowa
corporation, and further confirm that the attached Bylaws of Continental Western
Life are complete and correct. I also affirm that the same have not been
modified, amended or rescinded, but remain in full force and effect on the date
hereof.
IN WITNESS WHEREOF, I have executed and delivered this Certificate this
30th day of December, 1997.
By: /s/ Guy R. Montag
-------------------------
Guy R. Montag
Secretary
(SEAL)
<PAGE>
BY-LAWS
OF
CONTINENTAL WESTERN LIFE INSURANCE COMPANY
(an Iowa corporation)
Amended Through August 21, 1994
ARTICLE I. OFFICES
1.01. PRINCIPAL AND BUSINESS OFFICES. The corporation may have such
principal and other business offices, either within or without the State of
Iowa, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02. REGISTERED OFFICE. The registered office of the corporation
required by the Iowa Business Corporation Act to be maintained in the State of
Iowa may be, but need not be, identical with the principal office in the State
of Iowa, and the address of the registered office may be changed from time to
time by the Board of Directors. The business office of the registered agent of
the corporation shall be identical to such registered office.
ARTICLE II. SHAREHOLDERS
2.01. ANNUAL MEETING. The annual meeting of the shareholders shall be
held on such date as may be fixed by or under the authority of the Board of
Directors, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting.
2.02. SPECIAL MEETING. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chairman, the President, or the Board of Directors or by the person
designated in the written request of the holders of not less than one-tenth of
all shares of the corporation entitled to vote at the meeting.
2.03. PLACE OF MEETING. The Board of Directors may designate any place,
either within or without the State of Iowa, as the place of meeting for any
annual meeting or for any special meeting. A waiver of notice signed by all
shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Iowa, as the place for the holding of such
meeting. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal business office of the
corporation in the State of Iowa or such other suitable place in the county of
such principal office as may be designated by the person calling such meeting,
but any meeting may be adjourned to reconvene at any place designated by vote of
a majority of the shares represented thereat.
2.04. NOTICE OF MEETING. Written notice stating the place, day and hour
of the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called shall be delivered not less than three (3) days
(unless a longer period is required by law) nor more than ten days before the
date of the meeting, either personally or by mail, by or at the
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direction of the Chairman, the President, or the Secretary, or other officer or
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at their
address as it appears on the stock record books of the corporation, with postage
thereon prepaid.
2.05. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, fifty days. If the stock transfer books shall be closed
for the purpose of determining shareholders entitled to notice of or to vote at
a meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than fifty days and, in the case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the close of business on the date on
which notice of the meeting is mailed or on the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall be applied
to any adjournment thereof except where the determination has been made through
the closing of the stock transfer books and the stated period of closing has
expired.
2.06. VOTING RECORDS. The officer or agent having charge of the stock
transfer books for shares of the corporation shall, before each meeting of
shareholders, make a complete record of the shareholders entitled to vote at
such meeting, or any adjournment thereof, with the address of and the number of
shares held by each. Such record shall be produced and kept open at the time
and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting for the purposes of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such record or transfer books or to
vote at any meeting of shareholders. Failure to comply with the requirements of
this section shall not affect the validity of any action taken at such meeting.
2.07. QUORUM. Except as otherwise expressly required by law, a
majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders. If a quorum is present,
the affirmative vote of the majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the shareholders
unless the vote of a greater number is required by law. Though less than a
quorum of the outstanding shares are represented at a meeting, a majority of the
shares so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
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2.08. CONDUCT OF MEETINGS. The Chairman, and in his or her absence, the
President, or a Vice-President in the order provided under Section 4.07, and in
their absence, any person chosen by the shareholders present shall call the
meeting of the shareholders to order and shall act as chairman of the meeting,
and the Secretary of the corporation shall act as secretary of all meetings of
the shareholders, but, in the absence of the Secretary the presiding officer may
appoint any other person to act as secretary of the meeting.
2.09. PROXIES. At all meetings of shareholders, a shareholder entitled
to vote may vote in person or by proxy appointed in writing by the shareholder
or by his duly authorized attorney-in-fact. Such proxy shall be filed with the
Secretary of the corporation before or at the time of the meeting. Unless
otherwise provided in the proxy, a proxy may be revoked at any time before it is
voted, either by written notice filed with the Secretary or the acting Secretary
of the meeting or by oral notice given by the shareholder or the presiding
officer during the meeting. The presence of a shareholder who has filed his or
her proxy shall not of itself constitute a revocation. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the proxy. The Board of Directors shall have the power and authority to make
rules establishing presumptions as to the validity and sufficiency of proxies.
2.10. VOTING OF SHARES. Each outstanding share shall be entitled to one
vote upon each matter submitted to a vote at a meeting of shareholders.
2.11 VOTING OF SHARES BY CERTAIN HOLDERS.
(a) OTHER CORPORATIONS. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the President of
such corporation or any other officer appointed by such President. A proxy
executed by any principal officer of such other corporation or assistant
thereto shall be conclusive evidence of the signer's authority of this act,
in the absence of express notice to this corporation, given in writing to the
Secretary of this corporation, of the designation of some other person by the
Board of Directors or the by-laws of such other corporation.
(b) LEGAL REPRESENTATIVES AND FIDUCIARIES. Shares held by an
administrator, executor, guardian, conservator, trustee in bankruptcy, receiver,
or assignee for creditors may be voted by them, either in person or by proxy,
without a transfer of such shares into their name, provided that there is filed
with the Secretary before or at the time of meeting proper evidence of their
incumbency and the number of shares held. Shares standing in the name of a
fiduciary may be voted by them, either in person or by proxy. A proxy executed
by a fiduciary, shall be conclusive evidence of the signer's authority to act,
in the absence of express notice to this corporation, given in writing to the
Secretary of this corporation, that such manner of voting is expressly
prohibited or otherwise directed by the document creating the fiduciary
relationship.
(c) PLEDGES. A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(d) TREASURY STOCK AND SUBSIDIARIES. Neither treasury shares, nor shares
held by another corporation if a majority of the shares entitled to vote for the
election of directors of such
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other corporation is held by this corporation, shall be voted at any meeting or
counted in determining the total number of outstanding shares entitled to vote,
but shares of its own issue held by this corporation in a fiduciary capacity, or
held by such other corporation in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares entitled to vote.
2.12. WAIVER OF NOTICE BY SHAREHOLDERS. Whenever any notice whatever is
required to be given to any shareholder of the corporation under the articles of
incorporation or by-laws or any provision of law, a waiver thereof in writing,
signed at any time, whether before or after the time of the meeting, by the
shareholder entitled to such notice, shall be deemed equivalent to the giving of
such notice; provided that such waiver in respect to any matter of which notice
is required under any provision of the Iowa Business Corporation Act shall
contain the same information as would have been required to be included in such
notice, except the time and place of meeting.
2.13. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or
permitted by the articles of incorporation or by-laws or any provision of law to
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III. BOARD OF DIRECTORS
3.01. GENERAL POWERS AND NUMBER. The business and affairs of the
corporation shall be managed by its Board of Directors. The number of directors
of the corporation shall be no less than five (5) and no more than sixteen (16).
3.02. TENURE AND QUALIFICATIONS. Each director shall hold office until
the next annual meeting of shareholders and until their successor shall have
been elected, or until their prior death, resignation or removal. A director
may be removed from office by affirmative vote for the election of such
director, taken at a meeting of shareholders called for that purpose. A
director may resign at any time by filing their written resignation with the
Secretary of the corporation. Except as may be otherwise required by applicable
law, directors need not be residents of the State of Iowa or shareholders of the
corporation.
3.03. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice that this by-law as soon as practical after
the annual meeting of shareholders, and each adjourned session thereof. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Iowa, for the holding of regular meetings without other
notice than such resolution.
3.04. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman, President, or Secretary or any
two directors. The Chairman, President or Secretary calling any special meeting
of the Board of Directors may fix any place, either within or without the State
of Iowa, as the place for holding any special meeting of the Board of Directors
called by them, and if no other place is fixed, the place of the meeting shall
be the principal business office of the corporation in the State of Iowa.
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3.05. NOTICE; WAIVER. Notice of each meeting of the Board of Directors
(unless otherwise provided in or pursuant to Section 3.03) shall be given by
written notice delivered personally or mailed or given by telegram to each
director at their business address or at such other address as such director
shall have designated in writing filed with the Secretary. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram,
such notice shall be deemed to be delivered when the telegram is delivered to
the telegraph company. Whenever any notice whatever is required to be given to
any director of the corporation under the articles of incorporation or by-laws
or any provision of law, a waiver thereof in writing, signed at any time,
whether before or after the time of meeting, by the director entitled to such
notice, shall be deemed equivalent to the giving of such notice. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting and objects thereat to the transaction
of any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
3.06. QUORUM. Except as otherwise provided by law or these by-laws, a
majority of the number of directors as provided in Section 3.01 shall constitute
a quorum for the transaction of business at any meeting of the Board of
Directors, but a majority of the directors present (though less than such
quorum) may adjourn the meeting from time to time without further notice.
3.07. MANNER OF ACTING. The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless the act of a greater number is required by law or these
by-laws.
3.08. CONDUCT OF MEETINGS. The Chairman, and in his or her absence, the
President, shall call meetings of the Board of Directors to order and shall act
as chairman of the meeting. The Secretary of the corporation shall act as
secretary of all meetings of the Board of Directors, but in the absence of the
Secretary, the presiding officer may appoint any Assistant Secretary or any
director or other person present to act as secretary of the meeting.
A board meeting may be conducted by:
a) A conference among directors using any means of communication through
which the directors may simultaneously hear each other during the conference
constitutes a board meeting, if the same notice is given of the conference as
would be required by the by-laws for a meeting, and if the number of directors
participating in the conference would be sufficient to constitute a quorum at a
meeting. Participation in a meeting by that means constitutes presence in
person at the meeting; or
b) Any means of communication through which the director, other directors
so participating, and all directors physically present at the meeting may
simultaneously hear such other during the meeting. Participation in a meeting
by that means constitutes presence in person at the meeting.
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3.09. VACANCIES. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled until the next succeeding annual election by the affirmative vote of a
majority of directors then in office, though less than a quorum of the Board of
Directors; provided, that in case of a vacancy created by the removal of a
director by vote of the shareholders, the shareholders shall have the right to
fill such vacancy at the same meeting or any adjournment thereof.
3.10. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the Board of Directors or a committee thereof of which
he or she is a member at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his or her dissent shall be
entered in the minutes of the meeting or unless he or she shall file his or her
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
3.11. COMMITTEES. The Board of Directors by resolution adopted by the
affirmative vote of a majority of the number of directors as provided in Section
3.01 may designate one or more committees elected by the Board of Directors,
which to the extent provided in said resolution as initially adopted, and as
thereafter supplemented or amended by further resolution adopted by a like vote,
and subject to Section 490.825 of the Iowa Business Corporation Act, shall have
and may exercise, when the Board of Directors is not in session, the powers of
the Board of Directors in the management of the business and affairs of the
corporation, except action in respect to dividends to shareholders, election of
the principal officers or the filling of vacancies in the Board of Directors or
committees created pursuant to this section. The Board of Directors may elect
one or more of its members as alternate members of any such committee who may
take the place of any absent member or members at any meeting of such committee,
upon request by the Chairman or President or upon request by the chairman of
such meeting. Each such committee shall fix its own rules governing the conduct
of its activities and shall make such reports to the Board of Directors of its
activities as the Board of Directors may request.
3.12. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or
permitted by the articles of incorporation or by-laws or any provision of law to
be taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors then in office.
ARTICLE IV. OFFICERS
4.01. NUMBER. The principal officers of the corporation shall be a
Chairman, a President, one or more Vice-Presidents, one or more of which may be
designated Executive or Senior Vice Presidents, a Secretary and a Treasurer,
each of whom shall be elected or appointed by the Board of Directors. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board of Directors. Any two or more offices may be held by
the same person, except the offices of President and Secretary and the offices
of President and Vice-President.
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4.02. ELECTION AND TERM OF OFFICE. The officers of the corporation to be
elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers is not held at such
meeting, such election shall be held as soon thereafter as conveniently may be.
Each officer shall hold office until his or her successor has been duly elected
or until his or her prior death, resignation or removal.
4.03. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment shall not of
itself create contract rights.
4.04. VACANCIES. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
4.05. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, when
present, preside at all meetings of the shareholders and of the Board of
Directors. He or she shall have such power and duties as may be from time to
time prescribed by the by-laws or by resolution of the Board of Directors.
4.06. PRESIDENT. The President shall be the principal operating officer
of the corporation subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
corporation. He or she shall have authority subject to such rules as may be
prescribed by the Board of Directors, to appoint such agents and employees of
the corporation as he or she shall deem necessary, to prescribe their powers,
duties and compensation, and to delegate authority to them. Such agents and
employees shall hold office at the discretion of the President. He or she shall
have authority to sign, execute and acknowledge, on behalf of the corporation,
all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and
all other documents or instruments necessary or proper to be executed in the
course of the corporation's regular business, or which shall be authorized by
resolution of the Board of Directors; and, except as otherwise provided by law
or the Board of Directors, he or she may authorize any Vice-President or other
officer or agent of the corporation to sign, execute and acknowledge such
documents or instruments in his place and stead. In general he or she shall
perform all duties incident to the office of President and such other duties as
may be prescribed by the Board of Directors from time to time. The President
shall be a member of the Board of Directors.
4.07. THE VICE-PRESIDENTS. In the absence of the President or in the
event of his or her death, inability or refusal to act, or in the event for any
reason it shall be impractical for the President to act personally, the
Vice-President (or in the event there be more than one Vice-President, the
Vice-Presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any Vice-President
may sign, with the Secretary or Assistant Secretary, certificates for shares of
the corporation; and shall perform such other duties and have such authority as
from time to time may be delegated or assigned to them by the President or by
the Board of Directors.
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The execution of any instrument of the corporation by any Vice-President shall
be conclusive evidence, as to third parties, of their authority to act in stead
of the President.
4.08. THE SECRETARY. The Secretary shall: (a) keep the minutes of the
meetings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d)
keep or arrange for the keeping of a register of the post office address of
each shareholder which shall be furnished to the Secretary by such
shareholder; (e) sign with the President, or a Vice-President, certificates
for shares of the corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the corporation; and (g) in general perform
all duties incident to the office of Secretary and have such other duties and
exercise such authority as from time to time may be delegated or assigned
to him or her by the President or by the Board of Directors.
4.09. THE TREASURER. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; (b) receive
and give receipts for monies due and payable to the corporation from any source
whatsoever, and deposit all such monies in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Section 5.04, and (c) in general perform all of the
duties incident to the office of Treasurer and have such other duties and
exercise such other authority as from time to time may be delegated or assigned
to him or her by the President or by the Board of Directors. If required by the
Board of Directors, the Treasurer shall give a bond for the faithful discharge
of his or her duties in such sum and with such surety or sureties as the Board
of Directors shall determine.
4.10. ADDITIONAL OFFICERS. The Board of Directors may appoint Assistant
Treasurers, Assistant Secretaries and such other officers and agents as it may
deem appropriate, and such other officers and agents shall hold their offices
for such terms and shall exercise such powers and perform such duties as may be
determined from time to time by the Board of Directors, the Chairman or the
President. The Board of Directors from time to time may delegate to any officer
or agent the power to appoint subordinate officers or agents and to prescribe
their respective rights, terms of office, authorities and duties.
4.11. SALARIES. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such salary by reason of the fact that they are also a director
of the corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS:
SPECIAL CORPORATE ACTS
5.01. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of or on behalf of the corporation, and such
authorization may be general or confined to specific instances. In
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the absence of other designation, all deeds, mortgages and instruments of
assignment or pledge made by the corporation shall be executed in the name of
the corporation by the Chairman, the President or one of the Vice-Presidents
and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant
Treasurer; the Secretary or an Assistant Secretary, when necessary or
required, shall affix the corporate seal thereto; and when so executed no
other party to such instrument or any third party shall be required to make
any inquiry into the authority of the signing officer or officers.
5.02. LOANS. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.
5.03. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
or under the authority of a resolution of the Board of Directors.
5.04. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as may be selected by or under the
authority of a resolution of the Board of Directors.
5.05. VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject always
to the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders by the Chairman,
the President or any Vice-President of this corporation who may be present,
and (b) whenever, in the judgment of the Chairman or the President, or in the
absence of any Vice-President, it is desirable for this corporation to
execute a proxy or written consent in respect to any shares or other
securities issued by any other corporation and owned by this corporation, such
proxy or consent shall be executed in the name of this corporation by the
Chairman, President or one of the Vice-Presidents of this corporation,
without necessity of any authorization by the Board of Directors, affixation
of corporate seal, countersignature or attestation by another officer. Any
person or persons designated in the manner above stated as the proxy or
proxies of this corporation shall have full right, power and authority to
vote the shares or other securities issued by such other corporation and
owned by this corporation the same as such shares or other securities might
be voted by this corporation.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.01. CERTIFICATES OF SHARES. Certificates representing shares of the
corporation shall be in such form, consistent with Section 490.625 of the Iowa
Business Corporation Act, as shall be determined by the Board of Directors.
Such certificates shall be signed by the President or a Vice-President and by
the Secretary or an Assistant Secretary. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the
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corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except as provided in Section 6.06.
6.02. FACSIMILE SIGNATURES AND SEAL. The seal of the corporation on any
certificates for shares may be a facsimile. The signatures of the President or
Vice-President and the Secretary or Assistant Secretary upon a certificate may
be facsimiles if the certificate is manually signed on behalf of a transfer
agent, or a registrar, other than the corporation itself or an employee of the
corporation.
6.03. SIGNATURE BY FORMER OFFICERS. In case any officer who has signed or
whose facsimile signature has been placed upon any certificate for shares, shall
have ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he or she were such officer
at the date of its issue.
6.04. TRANSFER OF SHARES. Prior to due presentment of a certificate for
shares for registration of transfer the corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notification and otherwise to have and exercise all the rights and power of an
owner. Where a certificate for shares is presented to the corporation with a
request to register for transfer, the corporation shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the necessary
endorsements, and (b) the corporation had no duty to inquire into adverse claims
or has discharged any such duty. The corporation may require reasonable
assurance that said endorsements are genuine and effective and in compliance
with such other regulations as may be prescribed by or under the authority of
the Board of Directors.
6.05. RESTRICTIONS ON TRANSFER. The face or reverse side of each
certificate representing shares shall bear conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
6.06. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner claims
that his or her certificates for shares has been lost, destroyed or wrongfully
taken, a new certificate shall be issued in place thereof if the owner (a) so
requests before the corporation has notice that such shares have been acquired
by a bona fide purchaser, and (b) files with the corporation a sufficient
indemnity bond, and (c) satisfies such other reasonable requirements as may be
prescribed by or under the authority of the Board of Directors.
6.07. CONSIDERATION FOR SHARES. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors, provided that any shares having a par value shall not be issued
for consideration less than the par value thereof. The consideration to be paid
for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
corporation. When payment of the consideration for which shares are to be
issued has been received by the corporation, such shares shall be deemed to be
fully paid and nonassessable by the corporation. No certificates shall be
issued for any share until such share is fully paid.
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6.08. STOCK REGULATIONS. The Board of Directors shall have the power and
authority to make all such further rules and regulations not inconsistent with
the statutes of the State of Iowa as it may deem expedient concerning the issue,
transfer and registration of certificates representing shares of the
corporation.
ARTICLE VII. SEAL
7.01. CORPORATE SEAL. The Board of Directors shall provide a corporate
seal which shall be circular in form and shall have inscribed thereon the name
of the corporation and the state of incorporation or "Corporate Seal."
ARTICLE VIII. AMENDMENTS
8.01. BY SHAREHOLDERS. These by-laws may be altered, amended or repealed
and new by-laws may be adopted by the shareholders by affirmative vote of not
less than a majority of the shares present or represented at any annual or
special meeting of the shareholders at which a quorum is in attendance.
8.02. BY DIRECTORS. These by-laws may also be altered, amended or
repealed and new by-laws may be adopted by the Board of Directors by affirmative
vote of a majority of the number of directors present at any meeting at which a
quorum is in attendance; but no by-law adopted by the shareholders shall be
amended or repealed by the Board of Directors if the by-law so adopted so
provides.
8.03. IMPLIED AMENDMENTS. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
by-laws then in effect but is taken or authorized by affirmative vote of not
less than the number of shares or the number of directors required to amend the
by-laws so that the by-laws would be consistent with such action, shall be given
the same effect as though the by-laws had been temporarily amended or suspended
so far, but only so far as is necessary to permit the specific action so taken
or authorized.
ARTICLE IX. INDEMNIFICATION
9.01. GENERAL INDEMNIFICATION. Each director, officer and employee,
and former director, officer and employee shall be indemnified to the extent
permitted by law against any and all personal liability for damages and
expenses reasonably incurred in connection with any action, suit, proceeding
or claim or liability, civil, criminal or administrative, to which such
person may be a party by reason of the lawful discharge of his or her past or
present duties on behalf of the Company, or any of the Company's Employee
Benefit plans. The Company shall defend each such person in all actions,
suits or proceedings which may arise. This right of indemnification shall
not be exclusive of any other rights to which the person may be entitled by
law or agreement, and shall be in addition to any liability coverage
purchased by the Company. It shall take effect after such coverage, if any,
is exhausted.
No such indemnification shall be made with respect to any matter as to
which the person shall have been finally adjudged to be liable for gross
negligence or misconduct in the performance of his or her duty to the Company.
11
<PAGE>
PARTICIPATION AGREEMENT
AMONG
EQUITRUST VARIABLE INSURANCE SERIES FUND,
EQUITRUST INVESTMENT MANAGEMENT SERVICES, INC.,
AND
EQUITRUST LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 5th day of June, 1998
by and among EquiTrust Life Insurance Company (hereinafter, the "Company"),
an Iowa insurance company, on its own behalf and on behalf of each segregated
asset account of the Company set forth on Schedule A hereto as may be amended
from time to time (each account hereinafter referred to as the "Account"),
and the undersigned fund, a business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter referred to as the "Fund") and
EquiTrust Investment Management Services, Inc. (hereinafter the
"Underwriter"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(l5) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933,
<PAGE>
2
as amended (hereinafter the "1933 Act"); and
WHEREAS, EquiTrust Investment Management Services, Inc. (hereinafter
referred to as the "Adviser") is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use its best efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Trustees of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or
<PAGE>
3
suspend or terminate the offering of shares of any Designated Portfolio if such
action is required by law or by regulatory authorities having jurisdiction, or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Designated Portfolios will be sold to the general public. The Fund and
the Underwriter will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles I, III and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee
of the Fund for receipt of purchase and redemption orders from the Account, and
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order by 3:00 p.m. central time and the Fund receives
notice of such order by 9:30 a.m. central time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt of
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. central time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. central time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For purposes
of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock
<PAGE>
4
certificates will not be issued to the Company or any Account. Shares ordered
from the Fund will be recorded in an appropriate title for each Account or the
appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 5:30
p.m. central time) and shall use its best efforts to make such net asset value
per share available by 6:00 p.m. central time. If the net asset value is
materially incorrect through no fault of the Company, the Company on behalf of
each Account, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value in accordance with
Fund procedures. Any material error in the net asset value shall be reported to
the Company promptly upon discovery. Any administrative or other costs or losses
incurred for correcting underlying Contract owner accounts shall be at Company's
expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Iowa insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws of the state of Iowa and all applicable
federal and state securities laws and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration
<PAGE>
5
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Iowa to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Iowa and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $2.5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any
<PAGE>
6
amounts received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund if, and when, applicable. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies. The Company
agrees to exercise its best efforts to ensure that other individuals/entities
not employed or controlled by the Company and dealing with the money and/or
securities of the Fund maintain a similar bond or coverage in a reasonable
amount.
ARTICLE III. PROSPECTUSES. STATEMENTS OF ADDITIONAL INFORMATION. AND PROXY
STATEMENTS: VOTING
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and semi-
annual reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or on diskette) and other assistance as
is reasonably necessary in order for the Company (at the Company's expense) to
print such shareholder communications for distribution to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from
<PAGE>
7
Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Designated Portfolio for which instructions have been
received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least ten calendar days prior to
its use. No such material shall be used if the Fund or its designee reasonably
object to such use within ten calendar days after receipt of such material. The
Fund or its designee reserves the right to reasonably object to the continued
use of such material, and no such material shall be used if the Fund or its
designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be
<PAGE>
8
used if the Company reasonably objects to such use within ten calendar days
after receipt of such material. The Company reserves the right to reasonably
object to the continued use of such material and no such material shall be used
if the Company so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, within a reasonable time
after the filing of such document(s) with the SEC or other regulatory
authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(I.E., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-l to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise
<PAGE>
9
payable to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's prospectus
(in accordance with 3.1) and of distributing the Fund's prospectus, proxy
materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity, endowment, or
life insurance contracts, whichever is appropriate, under the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations issued thereunder (or
any successor provisions). Without limiting the scope of the foregoing, each
Designated Portfolio of the Fund will comply with Section 817(h) of the Code and
Treasury Regulation SECTION 1.817-5, and any Treasury interpretations thereof,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts, and any amendments or other modifications or successor
provisions to such Section or Regulations. In the event of a breach of this
Article VI by the Fund, it will take all reasonable steps (a) to notify the
Company of such breach and (b) to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified
<PAGE>
10
endowment contract" as that term is defined in Section 7702A of the Code (or any
successor or similar provision), shall identify such contract as a modified
endowment contract.
ARTICLE VII. POTENTIAL CONFLICTS.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to
the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be
<PAGE>
11
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the company for the purchase (and redemption) of shares of
the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
<PAGE>
12
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus, or statement of
additional information ("SAI") for the Contracts or
contained in the Contracts or sales literature or other
promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company
by or on behalf of the Fund for use in the Registration
Statement, prospectus or SAI for the Contracts or in the
Contracts or sales literature or other promotional material
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature or
other promotional material of the Fund not supplied by the
Company or persons under its control) or wrongful conduct of
the Company or persons under its authorization or control,
with respect to the sale or distribution of the Contracts or
Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, SAI, or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf
<PAGE>
13
of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the qualification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
<PAGE>
14
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or SAI or sales
literature or other promotional material of the Fund (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales
literature or other promotional material (or any amendment
or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature or other promotional material for the
Contracts not supplied by the Underwriter or persons under
its control) or wrongful conduct of the Fund or
Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, SAI, or sales literature or other
promotional material of the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission
<PAGE>
15
was made in reliance upon information furnished to the
Company by or on behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
<PAGE>
16
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own
<PAGE>
17
expense, in the defense thereof. The Fund also shall be entitled to assume the
expense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct. After
notice from the Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Iowa.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to some
or all Designated Portfolios, by six (6) months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based
upon the Company's determination that shares of the Fund are
not reasonably available to meet the requirements of the
Contracts; provided that such termination shall apply only to
the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the
use of such shares as the underlying
<PAGE>
18
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of any Account, or
the purchase of the Fund shares; provided, however, that the
Fund or Underwriter determines in its sole judgment exercised
in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Company
to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in
the event that such Designated Portfolio ceases to qualify as
a Regulated Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification requirements
specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify
or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the
qualifications specified in Section 6.3 hereof; or if the Fund
or Underwriter reasonably believes that such Contracts may
fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund or the
Underwriter has suffered a
<PAGE>
19
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund and
the Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
EquiTrust Variable Insurance Series Fund
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
<PAGE>
20
If to the Company:
EquiTrust Life Insurance Company
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
If to Underwriter:
EquiTrust Investment Management Services, Inc.
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
ARTICLE XII. MISCELLANEOUS
12.1 All references herein to the Adviser relate solely to the Adviser of
such individual Fund, as appropriate. All persons dealing with a Fund must look
solely to the property of such Fund, and in the case of a series company, the
respective Designated Portfolio listed on Schedule A hereto as though such
Designated Portfolio had separately contracted with the Company and the
Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
<PAGE>
21
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Iowa Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Iowa
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or its
designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year.
(b) the Company's quarterly statements (statutory) (and GAAP, if any), as
soon as practical and in any event within 45 days after the end of
each quarterly period.
<PAGE>
22
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: EquiTrust Life Insurance Company
By its authorized officer
By: /s/ William J. Oddy
Title: Executive Vice President, General
Manager & Director
Date: June 5, 1998.
FUND: EquiTrust Variable Insurance Series Fund
By its authorized officer
By: /s/ Richard D. Harris
Title: Senior Vice President Secretary -
Treasurer & Trustee
Date: June 5, 1998.
UNDERWRITER: EquiTrust Investment Management Services, Inc.
By its authorized officer
By: /s/ William J. Oddy
Title: President
Date: June 5, 1998.
<PAGE>
23
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE ESTABLISHED BY BOARD OF DIRECTORS
EquiTrust Life Variable Account 1/6/98
EquiTrust Life Annuity Account 1/6/98
EquiTrust Life Variable Account II 1/6/98
EquiTrust Life Annuity Account II 1/6/98
CONTRACTS FUNDED BY SEPARATE ACCOUNT
Flexible Premium Variable Life Insurance Policies
Flexible Premium Deferred Variable Annuity Contracts
DESIGNATED PORTFOLIOS
Value Growth Portfolio
High Grade Bond Portfolio
High Yield Bond Portfolio
Money Market Portfolio
Blue Chip Portfolio
<PAGE>
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 8th day of June, 1998, between
EquiTrust Life Insurance Company, a life insurance company organized under the
laws of the State of Iowa ("Insurance Company"), and each of DREYFUS VARIABLE
INVESTMENT FUND; THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; DREYFUS
LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND); AND
DREYFUS INVESTMENT PORTFOLIOS (each a "Fund").
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may
be, of a Fund, which has the responsibility for management and control of
the Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying
investment medium. Individuals who participate under a group Contract
are "Participants".
1.6 "Contractholder" shall mean any entity that is a party to a Contract with
a Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as
defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
- 1 -
<PAGE>
1.10 "Participating Fund" shall mean each Fund, including, as applicable, any
series thereof, specified in Exhibit A, as such Exhibit may be amended
from time to time by agreement of the parties hereto, the shares of which
are available to serve as the underlying investment medium for the
aforesaid Contracts.
1.11 "Prospectus" shall mean the current prospectus and statement of
additional information of a Fund, as most recently filed with the
Commission.
1.12 "Separate Account" shall mean EquiTrust Life Annuity Account and
EquiTrust Life Variable Account, individually, each a separate account
established by Insurance Company in accordance with the laws of the State
of Iowa.
1.13 "Software "Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations
where the Lion System or any other Software Program used by a Fund is not
available, such information may be provided by telephone. The Lion
System shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates that invest in a Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to the
Iowa Insurance Code for the purpose of offering to the public certain
individual and group variable annuity and life insurance contracts; (c)
it has registered the Separate Account as a unit investment trust under
the Act to serve as the segregated investment account for the Contracts;
and (d) the Separate Account is eligible to invest in shares of each
Participating Fund without such investment disqualifying any
Participating Fund as an investment medium for insurance company separate
accounts supporting variable annuity contracts or variable life insurance
contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to notify each Participating Fund promptly of any
investment restrictions, of which Insurance Company has knowledge,
imposed by state insurance law and applicable to the Participating Fund.
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2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without regard to other
income, gains or losses from assets allocated to any other accounts of
Insurance Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate from
Insurance Company's General Account and any other separate accounts
Insurance Company may have, and will not be charged with liabilities from
any business that Insurance Company may conduct or the liabilities of any
companies affiliated with Insurance Company.
2.4 Each Participating Fund represents that it is registered with the
Commission under the Act as an open-end, management investment company
and possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating Fund
to operate and offer its shares as an underlying investment medium for
Participating Companies.
2.5 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every effort
to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company immediately
upon having a reasonable basis for believing that it has ceased to so
qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies
or annuity contracts, whichever is appropriate, under applicable
provisions of the Code, and that it will make every effort to maintain
such treatment and that it will notify each Participating Fund and
Dreyfus immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future. Insurance Company agrees that any prospectus
offering a Contract that is a "modified endowment contract," as that term
is defined in Section 7702A of the Code, will identify such Contract as a
modified endowment contract (or policy).
2.7 Each Participating Fund agrees that its assets shall be managed and
invested in a manner that complies with the requirements of Section
817(h) of the Code.
2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares
available to other Participating Companies and Contractholders.
2.9 Each Participating Fund represents and warrants that any of its
directors, trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the
Participating Fund are and shall continue to be at all times
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covered by a blanket fidelity bond or similar coverage for the benefit of
the Participating Fund in an amount not less than that required by Rule
17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than $2.5 million.
The aforesaid Bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for purchase
at the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, each Participating Fund may
refuse to sell its shares to any person, or suspend or terminate the
offering of its shares, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion
of its Board, acting in good faith and in light of its fiduciary duties
under federal and any applicable state laws, necessary and in the
best interests of the Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund will
be sold only to (a) Participating Companies and their separate accounts
or (b) "qualified pension or retirement plans" as determined under
Section 817(h)(4) of the Code. Except as otherwise set forth in this
Section 3.3, no shares of any Participating Fund will be sold to the
general public.
3.4 Each Participating Fund shall use its best efforts to provide closing net
asset value, dividend and capital gain information on a per-share basis
to Insurance Company by 6:00 p.m. Eastern time on each Business Day. Any
material errors in the calculation of net asset value, dividend and
capital gain information shall be reported immediately upon discovery to
Insurance Company. Non-material errors will be corrected in the next
Business Day's net asset value per share.
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3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the unit values
of the Separate Account for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received by
it by the close of the trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar
amount of each Participating Fund's shares that will be purchased or
redeemed at that day's closing net asset value per share. The net
purchase or redemption orders will be transmitted to each Participating
Fund by Insurance Company by 11:00 a.m. Eastern time on the Business Day
next following Insurance Company's receipt of that information. Subject
to Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of each Participating Fund next calculated after receipt of the
order by the Participating Fund or its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such
orders by Insurance Company acting as agent ("effective trade date"),
provided that the Participating Fund receives notice of such orders by
11:00 a.m. Eastern time on the next following Business Day and, if such
orders request the purchase of Participating Fund shares, the conditions
specified in Section 3.8, as applicable, are satisfied. A redemption or
purchase request that does not satisfy the conditions specified above and
in Section 3.8, as applicable, will be effected at the net asset value
per share computed on the Business Day immediately preceding the next
following Business Day upon which such conditions have been satisfied in
accordance with the requirements of this Section and Section 3.8.
Insurance Company represents and warrants that all orders submitted by
the Insurance Company for execution on the effective trade date shall
represent purchase or redemption orders received from Contractholders
prior to the close of trading on the New York Stock Exchange on the
effective trade date.
3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any unusually large purchase or
redemption orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall
make all reasonable efforts to transmit to the applicable Participating
Fund payment in Federal Funds by 12:00 noon Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
Section 3.5. Each applicable Participating Fund will execute such orders
at the applicable net asset value per share determined as of the close of
trading on the effective trade date if the Participating Fund receives
payment in Federal Funds by 12:00 midnight Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
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Section 3.5. If payment in Federal Funds for any purchase is not
received or is received by a Participating Fund after 12:00 noon Eastern
time on such Business Day, Insurance Company shall promptly, upon each
applicable Participating Fund's request, reimburse the respective
Participating Fund for any charges, costs, fees, interest or other
expenses incurred by the Participating Fund in connection with any
advances to, or borrowings or overdrafts by, the Participating Fund, or
any similar expenses incurred by the Participating Fund, as a result of
portfolio transactions effected by the Participating Fund based upon such
purchase request. If Insurance Company's order requests the redemption
of any Participating Fund's shares valued at or greater than $1 million
dollars, the Participating Fund will wire such amount to Insurance
Company within seven days of the order.
3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times.
3.10 Each Participating Fund will confirm each purchase or redemption order
made by Insurance Company. Transfer of Participating Fund shares will be
by book entry only. No share certificates will be issued to Insurance
Company. Insurance Company will record shares ordered from a
Participating Fund in an appropriate title for the corresponding account.
3.11 Each Participating Fund shall credit Insurance Company with the
appropriate number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business
Day, on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital gain,
if any, per share. All dividends and capital gains shall be
automatically reinvested in additional shares of the applicable
Participating Fund at the net asset value per share on the ex-dividend
date. Each Participating Fund shall, on the day after the ex-dividend
date or, if not on a Business Day, on the first Business Day thereafter,
notify Insurance Company of the number of shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as of
the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of
the Participating Fund's Prospectuses, proxy materials, notices, periodic
reports and other printed materials (which the Participating Fund
customarily provides to its shareholders) in quantities as
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Insurance Company may reasonably request for distribution to each
Contractholder and Participant.
4.3 Each Participating Fund will provide to Insurance Company at least
one complete copy of all registration statements, Prospectuses,
reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to
the Participating Fund or its shares, contemporaneously with the
filing of such document with the Commission or other regulatory
authorities.
4.4 Insurance Company will provide to each Participating Fund at least one
copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the
Separate Account, contemporaneously with the filing of such document
with the Commission.
ARTICLE V
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be made in
the determination of the Participating Fund's daily net asset value per
share.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of any Participating Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the following
expenses or costs:
a. Such amount of the production expenses of any Participating
Fund materials, including the cost of printing a Participating
Fund's Prospectus, or marketing materials for prospective
Insurance Company Contractholders and Participants as Dreyfus and
Insurance Company shall agree from time to time.
b. Distribution expenses of say Participating Fund materials or
marketing materials for prospective Insurance Company
Contractholders and Participants.
c. Distribution expenses of any Participating Fund materials or
marketing materials for Insurance Company Contractholders and
Participants.
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Except as provided herein, all other expenses of each Participating Fund
shall not be borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of (i) the amended order dated
December 31, 1997 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to Dreyfus Variable Investment Fund
and Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order dated
February 5, 1998 of the Securities and Exchange Commission under Section
6(c) of the Act with respect to The Dreyfus Socially Responsible Growth
Fund, Inc. and Dreyfus Investment Portfolios, and, in particular, has
reviewed the conditions to the relief set forth in each related Notice.
As set forth therein, if Dreyfus Variable Investment Fund, Dreyfus Life
and Annuity Index Fund, Inc., The Dreyfus Socially Responsible Growth
Fund, Inc. or Dreyfus Investment Portfolios is a Participating Fund,
Insurance Company agrees, as applicable, to report any potential or
existing conflicts promptly to the respective Board of Dreyfus Variable
Investment Fund, Dreyfus Life and Annuity Index Fund, Inc., The Dreyfus
Socially Responsible Growth Fund, Inc. and/or Dreyfus Investment
Portfolios, and, in particular, whenever contract voting instructions
are disregarded, and recognizes that it will be responsible for
assisting each applicable Board in carrying out its responsibilities
under such application. Insurance Company agrees to carry out such
responsibilities with a view to the interests of existing
Contractholders.
6.2 If a majority of the board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in a Participating Fund, the Board
Shall give prompt notice to all Participating Companies and any other
Participating Fund. If the Board determines that Insurance Company is
responsible for causing or creating said conflict, Insurance Company
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Board
Members), take such action as is necessary to remedy or eliminate
the irreconcilable material conflict. Such necessary action may
include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of all affected contractholders;
and/or
b. Establishing a new registered management investment company.
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6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions and
said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in a
Participating Fund, Insurance Company may be required, at the Board's
election, to withdraw the investments of the Separate Account in that
Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a new
funding medium for any Contract. Insurance Company shall not be required
by this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result
of any act or failure to act by Insurance Company pursuant to this
Article VI, shall relieve Insurance Company of its obligations under,
or otherwise affect the operation of, Article V, VOTING OF PARTICIPATING
FUND SHARES.
ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at
no cost to Insurance Company, of the Participating Fund's proxy
material, reports to shareholders and other communications to
shareholders in such quantity as Insurance Company shall reasonably
require for distributing to Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants
on a timely basis and in accordance with applicable law;
(b) vote the Participating Fund shares in accordance with
instructions received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no instructions have
been received in the same proportion as Participating Fund shares
for which instructions have been received.
Insurance Company agrees at all times to vote its General Account shares
in the same proportion as the Participating Fund shares for which
instructions have been received from Contractholders or Participants.
Insurance Company further agrees to be
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responsible for assuring that voting the Participating Fund shares for
the Separate Account is conducted in a manner consistent with other
Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of each applicable Participating Fund and Dreyfus, solicit, induce
or encourage Contractholders to (a) change or supplement the
Participating Fund's current investment adviser or (b) change, modify,
substitute, add to or delete from the current investment media for the
Contracts.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as
Insurance Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne by Insurance
Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating Fund,
its investment adviser or the administrator is named, at least fifteen
Business Days prior to its use. No such material shall be used unless the
Participating Fund or its designee approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. Each
applicable Participating Fund or its designee, as the case may be, shall
use all reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Prospectus of, as may be amended or
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supplemented from time to time, or in reports or proxy statements for,
the applicable Participating Fund, or in sales literature or other
promotional material approved by the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of the Participating Fund's sales
literature or other promotional material in which Insurance Company or
the Separate Account is named, at least fifteen Business Days prior to
its use. No such material shall be used unless Insurance Company approves
such material. Such approval (if given) must be in writing and shall be
presumed not given if not received within ten Business Days after receipt
of such material. Insurance Company shall use all reasonable efforts to
respond within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any
representations on behalf of Insurance Company or concerning insurance
company, the Separate Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented from time
to time, or in published reports for the Separate Account that are in the
public domain or approved by Insurance Company for distribution to
Contractholders or Participants, or in sales literature or other
promotional material approved by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, or reprints or excerpts of
any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or
made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information,
shareholder reports and proxy materials, and any other material
constituting sales literature or advertising under National Association of
Securities Dealers, Inc. rules, the Act or the 1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each
Participating Fund, Dreyfus, each respective Participating Fund's
investment adviser and sub-investment adviser (if applicable), each
respective Participating Fund's distributor, and their respective
affiliates, and each of their directors, trustees, officers, employees,
agents and
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each person, if any, who controls or is associated with any of the
foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any
action, suit or proceeding or any claim asserted) for which the
Indemnified Parties may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect to thereof) (i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
information furnished by Insurance Company for use in the registration
statement or Prospectus or sales literature or advertisements of the
respective Participating Fund or with respect to the Separate Account or
Contracts, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; (ii) arise
out of or as a result of conduct, statements or representations (other
than statements or representations contained in the Prospectus and sales
literature or advertisements of the respective Participating Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which the respective Participating Fund's
shares are an underlying investment; (iii) arise out of the wrongful
conduct of Insurance Company or persons under its control with respect to
the sale or distribution of the Contracts or the respective Participating
Fund's shares; (iv) arise out of Insurance Company's incorrect calculation
and/or untimely reporting of net purchase or redemption orders; or (v)
arise out of any breach by Insurance Company of a material term of this
Agreement or as a result of any failure by Insurance Company to provide
the services and furnish the materials or to make any payments provided
for in this Agreement. Insurance Company will reimburse any Indemnified
Party in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that with respect to
clauses (i) and (ii) above Insurance Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission or
alleged omission made in such registration statement, prospectus, sales
literature, or advertisement in conformity with written information
furnished to Insurance Company by the respective Participating Fund
specifically for use therein. This indemnity agreement will be in
addition to any liability which Insurance Company may otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees, agents
and each person, if any, who controls Insurance Company within the meaning
of the 1933 Act against any losses, claims, damages or liabilities to
which Insurance Company or any such director, officer, employee, agent or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (1) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or advertisements
of the respective Participating Fund: (2) arise out of or
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are based upon the omission to state in the registration statement or
Prospectus or sales literature or advertisements of the respective
Participating Fund any material fact required to be stated therein or
necessary to make the statements therein not misleading; or (3) arise out
of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the registration statement or Prospectus or
sales literature or advertisements with respect to the Separate Account or
the Contracts and such statements were based on information provided to
Insurance Company by the respective Participating Fund; and the respective
Participating Fund will reimburse any legal or other expenses reasonably
incurred by Insurance Company or any such director, officer, employee,
agent or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
the respective Participating Fund will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or omission or alleged omission made in
such registration statement, Prospectus, sales literature or advertisements
in conformity with written information furnished to the respective
Participating Fund by Insurance Company specifically for use therein. This
indemnity agreement will be in addition to any liability which the
respective Participating Fund may otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to pay
due to the respective Participating Fund's (1) incorrect calculation of the
daily net asset value, dividend rate or capital gain distribution rate; (2)
incorrect reporting of the daily net asset value, dividend rate or capital
gain distribution rate; and (3) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate; provided that the
respective Participating Fund shall have no obligation to indemnify and
hold harmless Insurance Company if the incorrect calculation or incorrect
or untimely reporting was the result of incorrect information furnished by
Insurance Company or information furnished untimely by Insurance Company or
otherwise as a result of or relating to a breach of this Agreement by
Insurance Company.
9.4 Promptly after receipt by an indemnified party under this Article of notice
of the commencement of any action, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party under this
Article, notify the indemnifying party of the commencement thereof. The
omission to so notify the indemnifying party will not relieve the
indemnifying party from any liability under this Article IX, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a
result of the failure to give such notice. In case any such action is
brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such indemnified party, and
to the extent that the indemnifying party has given notice to such effect
to the indemnified party and is
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performing its obligations under this Article, the indemnifying party shall
not be liable for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable costs of investigation. Notwithstanding the foregoing, in any
such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this Agreement.
9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund
harmless against any tax liability incurred by the Participating Fund under
Section 851 of the Code arising from purchases or redemptions by Insurance
Company's General Accounts or the account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
10.2 This Agreement shall terminate without penalty:
a. As to any Participating Fund, at the option of Insurance Company or
the Participating Fund at any time from the date hereof upon 180 days'
notice, unless a shorter time is agreed to by the respective
Participating Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company, if
shares of that Participating Fund are not reasonably available to meet
the requirements of the Contracts as determined by Insurance Company.
Prompt notice of election to terminate shall be furnished by Insurance
Company, said termination to be effective ten days after receipt of
notice unless the Participating Fund makes available a sufficient
number of shares to meet the requirements of the Contracts within said
ten-day period;
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c. As to a Participating Fund, at the option of Insurance Company, upon the
institution of formal proceedings against that Participating Fund by the
Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in Insurance Company's reasonable judgment, materially impair
that Participating Fund's ability to meet and perform the Participating
Fund's obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by Insurance Company with said termination to
be effective upon receipt of notice;
d. As to a Participating Fund, at the option of each Participating Fund, upon
the institution of formal proceedings against Insurance Company by the
Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in the Participating Fund's reasonable judgment, materially
impair Insurance Company's ability to meet and perform Insurance Company's
obligations and duties hereunder. Prompt notice of election to terminate
shall be furnished by such Participating Fund with said termination to be
effective upon receipt of notice;
e. As to a Participating Fund, at the option of that Participating Fund, if
the Participating Fund shall determine, in its sole judgment reasonably
exercised in good faith, that Insurance Company has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity and such material adverse change or material
adverse publicity is likely to have a material adverse impact upon the
business and operation of that Participating Fund or Dreyfus, such
Participating Fund shall notify Insurance Company in writing of such
determination and its intent to terminate this Agreement, and after
considering the actions taken by Insurance Company and any other changes in
circumstances since the giving of such notice, such determination of the
Participating Fund shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth day shall be the
effective date of termination;
f. As to a Participating Fund, upon termination of the Investment Advisory
Agreement between that Participating Fund and Dreyfus or its successors
unless Insurance Company specifically approves the selection of a new
Participating Fund investment adviser. Such Participating Fund shall
promptly furnish notice of such termination to Insurance Company;
g. As to a Participating Fund, in the event that Participating Fund's shares
are not registered, issued or sold in accordance with applicable federal
law, or such law precludes the use of such shares as the underlying
investment medium of Contracts issued or to be issued by Insurance Company.
Termination shall be effective immediately as to that Participating Fund
only upon such occurrence without notice;
-15-
<PAGE>
h. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue to
operate pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by such Participating
Fund to Insurance Company of such termination;
i. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if such Participating Fund
reasonably believes that the Contracts may fail to so qualify;
j. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;
k. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law; or
l. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, each Participating Fund and Dreyfus may, at the option of
the Participating Fund, continue to make available additional shares of
that Participating Fund for as long as the Participating Fund desires
pursuant to the terms and conditions of this Agreement as provided below,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if that Participating Fund and Dreyfus
so elect to make additional Participating Fund shares available, the
owners of the Existing Contracts or Insurance Company, whichever shall
have legal authority to do so, shall be permitted to reallocate
investments in that Participating Fund, redeem investments in that
Participating Fund and/or invest in that Participating Fund upon the
making of additional purchase payments under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 10.2
hereof, such Participating Fund and Dreyfus, as promptly as is
practicable under the circumstances, shall notify Insurance Company
whether Dreyfus and that Participating Fund will continue to make that
Participating Fund's shares available after such termination. If such
Participating Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either of that Participating Fund or Insurance Company may
terminate the Agreement as to that Participating Fund, as so continued
pursuant to this Section 10.3, upon prior written
-16-
<PAGE>
notice to the other party, such notice to be for a period that is
reasonable under the circumstances but, if given by the Participating
Fund, need not be for more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall not
be deemed a termination as to any other Participating Fund unless
Insurance Company or such other Participating Fund, as the case may be,
terminates this Agreement as to such other Participating Fund in
accordance with this Article X.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the addition
or deletion of any Participating Fund as specified in Exhibit A, shall be
made by agreement in writing between Insurance Company and each
respective Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company: EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Attn: Sue Cornick
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
Attn: Vice President and Assistant Secretary
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Steven F. Newman
Stroock & Stroock & Lavan
180 Maiden Lane
New York, New York 10038-4982
-17-
<PAGE>
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
director, trustee, officer or shareholder of the Fund individually. It
is agreed that the obligations of the Funds are several and not joint,
that no Fund shall be liable for any amount owing by another Fund and
that the Funds have executed one instrument for convenience only.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
EQUITRUST LIFE INSURANCE COMPANY
By: /s/ William J. Oddy
-----------------------------
Its: Executive Vice President &
General Manager
----------------------------
Attest: /s/ Dennis M. Marker
-----------------------------
DREYFUS LIFE AND ANNUITY INDEX FUND, INC.
(d/b/a DREYFUS STOCK INDEX FUND)
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
----------------------------
-18-
<PAGE>
Attest: /s/ Doreen Plante
-----------------------------
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
----------------------------
Attest: /s/ Doreen Plante
-----------------------------
DREYFUS VARIABLE INVESTMENT FUND
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
----------------------------
Attest: /s/ Doreen Plante
-----------------------------
DREYFUS INVESTMENT PORTFOLIOS
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
----------------------------
Attest: /s/ Doreen Plante
-----------------------------
-19-
<PAGE>
EXHIBIT A
LIST OF PARTICIPATING FUNDS
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio
Disciplined Stock Portfolio
Growth and Income Portfolio
International Equity Portfolio
Small Cap Portfolio
-20-
<PAGE>
PARTICIPATION AGREEMENT
Among
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
and
EQUITRUST LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 8th day of June, 1998
by and among EquiTrust Life Insurance Company (hereinafter, the "Company"), a
Iowa insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), and the
undersigned funds, each, a corporation organized under the laws of Maryland
(each hereinafter referred to as the "Fund") and T. Rowe Price Investment
Services, Inc. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by the
Company and the Account on those days on which the Fund calculates its net asset
value pursuant to rules of the SEC, and the Fund shall use its best efforts to
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
<PAGE>
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III and VII of this Agreement is in effect to govern such
sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt
of an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For
purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash.
The Fund shall notify the Company of the number of shares so issued as payment
of such dividends and distributions.
<PAGE>
1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated (normally
by 6:30 p.m. Baltimore time) and shall use its best efforts to make such net
asset value per share available by 7 p.m. Baltimore time. If the net asset
value is materially incorrect through no fault of the Company, the Company on
behalf of each Account, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct net asset value in
accordance with Fund procedures. Any material error in the net asset value
shall be reported to the Company promptly upon discovery. Any administrative or
other costs or losses incurred for correcting underlying Contract owner accounts
shall be at Company's expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Iowa insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Iowa and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
<PAGE>
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Iowa to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered under all applicable federal and state securities
laws and that the Adviser shall perform its obligations for the Fund in
compliance in all material respects with the laws of the State of Iowa and any
applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $2.5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund if, and when, applicable. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies. The Company
agrees to exercise its best efforts to ensure that other individuals/entities
not employed or controlled by the Company and dealing with the money and/or
securities of the Fund maintain a similar bond or coverage in a reasonable
amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
<PAGE>
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and semi-
annual reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or on diskette) and other assistance as
is reasonably necessary in order for the Company (at the Company's expense) to
print such shareholder communications for distribution to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
<PAGE>
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a Portfolio
thereof) or the Adviser or the Underwriter is named, at least ten calendar days
prior to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within ten calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within ten calendar days after receipt of
such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account, within a
reasonable time after the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
<PAGE>
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, except as otherwise provided herein. The
Fund shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior to
their sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's
prospectus (in accordance with 3.1) and of distributing the Fund's prospectus,
proxy materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such
a manner as to ensure that the Contracts will be treated as annuity, endowment,
or life insurance contracts, whichever is appropriate, under the Internal
Revenue Code of 1986, as amended (the Code ) and the regulations issued
thereunder (or any successor provisions). Without limiting the scope of the
foregoing, each Designated Portfolio of the Fund will comply with Section 817(h)
of the Code and Treasury Regulation 1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
<PAGE>
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Code (or any successor or similar provision), shall
identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
<PAGE>
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six month period the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
<PAGE>
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement, prospectus, or statement of additional information ( SAI ) for the
Contracts or contained in the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement, prospectus or SAI for the
Contracts or in the Contracts or sales literature or other promotional material
(or any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature or other promotional material of the
Fund not supplied by the Company or persons under its control) or wrongful
conduct of the Company or persons under its authorization or control, with
respect to the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, SAI, or
sales literature or other promotional material of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the Company;
or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the qualification requirements specified in Article VI of this
Agreement); or
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
<PAGE>
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or SAI or sales literature or other promotional material
of the Fund (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on behalf of the Company
for use in the Registration Statement or prospectus for the Fund or in sales
literature or other promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature or other promotional
material for the Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund or Underwriter or persons under their
control, with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
SAI, or sales literature or other promotional material of the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter;
<PAGE>
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action and to settle the claim at its own expense;
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Underwriter to such
party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
<PAGE>
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to
some or all Designated Portfolios, by six (6) months' advance written notice
delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based upon the
Company's determination that shares of the Fund are not reasonably available to
meet the requirements of the Contracts; provided that such termination shall
apply only to the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the Company by the
NASD, the SEC, the Insurance Commissioner or like official of any state or any
other regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of any Account, or the
purchase of the Fund shares; provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or Underwriter by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body; provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in the event that such
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the qualifications
specified in Section 6.3 hereof; or if the Fund or Underwriter reasonably
believes that such Contracts may fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
<PAGE>
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole judgment exercised
in good faith, that the Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any termination under
Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company s assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a Legally Required Redemption ), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund
and the Underwriter the opinion of counsel for the Company (which counsel shall
be reasonably satisfactory to the Fund and the Underwriter) to the effect that
any redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
Equitrust Life Insurance Company
5400 University Avenue
<PAGE>
West Des Moines, Iowa 50266
Attention: Sue Cornick
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All references herein to the Fund are to each of the undersigned
Funds as if this agreement were between such individual Fund and the Underwriter
and the Company. All references herein to the Adviser relate solely to the
Adviser of such individual Fund, as appropriate. All persons dealing with a
Fund must look solely to the property of such Fund, and in the case of a series
company, the respective Designated Portfolio listed on Schedule A hereto as
though such Designated Portfolio had separately contracted with the Company and
the Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all
<PAGE>
information reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as such information may come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Iowa Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Iowa
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted accounting
principles ( GAAP ), if any), as soon as practical and in any event within 90
days after the end of each fiscal year.
(b) the Company s quarterly statements (statutory) (and GAAP, if any),
as soon as practical and in any event within 45 days after the end of each
quarterly period.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
<PAGE>
COMPANY: EQUITRUST LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ William J. Oddy
Title: Executive Vice President,
General Manager & Director
Date: June 8, 1998
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: June 8, 1998
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: June 8, 1998
<PAGE>
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ Darrell N. Braman
Title: Vice President
Date: June 8, 1998
<PAGE>
SCHEDULE A
Name of Separate Account and Date Established by Board of Directors:
EquiTrust Life Variable Account
1/6/98
EquiTrust Life Variable Account II
1/6/98
Contracts Funded by Separate Account:
Flexible Premium Variable Life Insurance Policy
Designated Portfolios:
T. Rowe Price Equity Series, Inc.
- Equity Income Portfolio
- Mid-Cap Growth Portfolio
- New America Growth Portfolio
- Personal Strategy Balanced Portfolio
T. Rowe Price International Series, Inc.
- International Stock Portfolio
Name of Separate Account and Date Established by Board of Directors:
EquiTrust Life Annuity Account
1/6/98
EquiTrust Life Annuity Account II
1/6/98
Contracts Funded by Separate Account:
Flexible Premium Deferred Variable Annuity Contract
Designated Portfolios:
T. Rowe Price Equity Series, Inc.
- Equity Income Portfolio
- Mid-Cap Growth Portfolio
- New America Growth Portfolio
- Personal Strategy Balanced Portfolio
T. Rowe Price International Series, Inc.
- International Stock Portfolio
<PAGE>
August 10, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statement on Form S-6 filed by EquiTrust Life
Insurance Company ("Company") and its EquiTrust Life Variable Account II with
the Securities and Exchange Commission covering certain variable universal life
insurance policies, 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 universal life policies, when issued as contemplated by the
said Form S-6 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
S-6 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>
August 10, 1998
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by EquiTrust
Life Insurance Company of a flexible premium variable life insurance policy
("Policy") under the Securities Act of 1933, as amended. The prospectus
included in the Initial Filing to the Registration Statement on Form S-6
describes the Policy. I have provided actuarial advice concerning the
preparation of the policy form described in the Registration Statement, and I
am familiar with the Registration Statement and exhibits thereto.
It is my professional opinion that:
(1) The illustrations of death benefits and cash values included in Appendix A
of the Prospectus, based on the assumptions stated in the illustrations,
are consistent with the provisions of the Policy. The rate structure of the
Policy has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear more favorable
for policyowners at the ages illustrated than for policyowners at other
ages.
(2) The information contained in the examples set forth in Appendix B of the
Prospectus, based on the assumptions stated in the examples, is consistent
with the provisions of the Policy.
(3) The fees and charges deducted under the Policy, 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 the Initial Filing
to the Registration Statement and to the reference to my name under the heading
"Experts" in the Prospectus.
Sincerely,
/s/ Christopher G. Daniels
Christopher G. Daniels, FSA, MSAA
Life Product Development and Price Vice
President
EquiTrust Life Insurance Company
<PAGE>
Ernst & Young LLP letterhead
The Board of Directors
EquiTrust Life Insurance Company
We consent to the reference to our firm under the captions "Financial
Statements" and "Experts" and to the use of our report dated January 16, 1998
with respect to EquiTrust Life Insurance Company, in the Registration
Statement (Form S-6) and related Prospectus of EquiTrust Life Variable
Account II for the registration of flexible premium variable life insurance
policies.
Sincerely,
/s/ Ernst &Young LLP
Des Moines, Iowa
August 14, 1998
<PAGE>
[Sutherland, Asbill & Brennan LLP letterhead]
August 24, 1998
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of the registration statement on
Form S-6 for EquiTrust Life Variable 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
By: /s/ Stephen E. Roth
Stephen E. Roth, Esq.
<PAGE>
DESCRIPTION OF EQUITRUST LIFE
INSURANCE COMPANY'S ISSUANCE, TRANSFER AND REDEMPTION
PROCEDURES FOR ITS FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICIES
This document sets forth the administrative procedures that will be
followed by EquiTrust Life Insurance Company (the "Company") in connection with
the issuance of its individual flexible premium variable life insurance policy
(the "Policy") and acceptance of payments thereunder, the transfer of assets
held thereunder and the redemption by policyowners of their interests in the
Policies. Capitalized terms used herein have the same definition as in the
prospectus for the Policy that is included in the current registration statement
on Form S-6 for the Policy as filed with the Securities and Exchange Commission
("Commission" or "SEC").
1. PURCHASE AND RELATED TRANSACTIONS.
Set forth below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction.
(a) PREMIUM PAYMENTS. The Policies will be offered and sold pursuant to
established underwriting standards in accordance with state insurance laws.
State insurance laws prohibit unfair discrimination, but recognize that premiums
and charges must be based upon factors such as age, sex, health and occupation.
Premiums for the Policies will not be the same for all policyowners selecting
the same Specified Amount. An initial premium, together with a completed
application, must be received by the Company before a Policy will be issued.
The minimum amount of an initial
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<PAGE>
premium is equal to an amount that, when reduced by the premium expense charge,
will be sufficient to pay the monthly deduction for the first Policy Month.
Other than the initial premium, the Company does not require the payment of an
additional premium, and failure to pay an additional premium will not of itself
cause a Policy to lapse. The Company expects that most Policyowners will choose
to pay planned periodic premiums -- that is, level premiums at regular
(quarterly, semi-annual or annual) intervals. The Policy provides, however,
that a policyowner may pay premiums in addition to planned periodic premiums
(i.e., unscheduled premiums) if (i) the insured is then living; (ii) the
additional premium is at least $100; and (iii) the premium does not cause total
premiums paid to exceed the maximum premium limitation for the Policy
established by federal tax law. The Company reserves the right to limit the
number and amount of unscheduled premium payments. In the event that a tendered
premium causes total premiums paid to exceed the maximum premium limitation for
the Policies established by federal tax law, the Company will return the portion
of such premium which causes total premiums to exceed such limitation.
The Policy will remain in force so long as the Net Accumulated Value is
sufficient to pay the monthly deduction which consists of charges for the cost
of insurance, additional insurance benefits and administrative expenses. Thus,
the amount of the premium, if any, that must be paid to keep the Policy in force
depends upon the amount of the monthly deduction and the Net Accumulated Value
of the Policy, which in turn depends upon the investment experience of the
Subaccounts of the Variable Account.
The cost of insurance rate utilized in computing the cost of insurance
charge will not be the same for each Policyowner. The chief reason is that the
principle of pooling and distribution of
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<PAGE>
mortality risks is based upon the assumption that the cost of insuring each
insured is commensurate with his or her mortality risk, which is actuarially
determined based upon factors such as attained age, sex and premium class.
Accordingly, while not all insureds will be subject to the same cost of
insurance rate, there will be a single rate for all insureds in a given
actuarial category.
(b) INITIAL PREMIUM PROCESSING. Upon receipt of a completed application
for a Policy, the Company will follow certain insurance underwriting (i.e.,
evaluation of risk) procedures designed to determine whether the proposed
insured is insurable. This process may involve medical examinations or other
verification procedures and may require that certain further information be
provided by the applicant before a determination can be made. A Policy will not
be issued until this underwriting procedure has been completed. The effective
date of insurance coverage under the Policy will be the latest of (i) the policy
date, (ii) if an amendment to the initial application is required pursuant to
the Company's underwriting rules, the date the insured signs the last such
amendment, or (iii) the date on which the full initial premium is received by
the Company at its Home Office. The policy date will be the later of (i) the
date of the initial application, or (ii) if additional medical or other
information is required pursuant to the Company's underwriting rules, the date
such information is received by the Company at its Home Office. The policy date
may also be any other date mutually agreed to by the Company and the
Policyowner. If the policy date would fall on the 29th, 30th or 31st of any
month, the policy date will instead be the 28th of such month. Applicants who
pay the initial premium at the time of submission of the application will be
issued a conditional receipt which provides that if the applicant dies during
the underwriting period, he or she will receive the death benefit provided for
in such conditional receipt if he or she would have
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<PAGE>
been found to be insurable under the Company's normal underwriting
procedures. Net Premiums will be allocated to the Declared Interest Option if
they are received either before the date the Company obtains a signed notice
from the Policyowner that the Policy has been received, or before the end of
25-days after the Delivery Date. Upon the earlier of (i) the date the
Company obtains a signed notice from the Policyowner that the Policy has been
received, or (ii) 25 days after the Delivery Date, the Accumulated Value in
the Declared Interest Option automatically will be allocated, without charge,
among the Subaccounts and Declared Interest Option in accordance with the
Policyowner's allocation instructions. Net Premiums received on or after (i)
or (ii) above are allocated in accordance with the instructions of the
Policyowner, to the Variable Account, the Declared Interest Option, or both.
No charge is imposed in connection with the initial allocation.
(c) PREMIUM ALLOCATION. The policyowner may allocate net premiums among
the Subaccounts or the Declared Interest Option. The Variable Account currently
has 15 Subaccounts, each of which invests exclusively in shares of one of the
corresponding portfolios of the EquiTrust Variable Insurance Series Fund, T.
Rowe Price Equity Series, Inc., T. Rowe Price International Series, Inc., and
Dreyfus Variable Investment Fund (each a "Fund"). Each Fund is a series-type
mutual fund and is registered with the Securities and Exchange Commission as an
open-end diversified management investment company.
The policyowner must indicate the initial allocation of premiums in the
application for the Policy. Net premiums will continue to be allocated in
accordance with the policyowner's allocation instructions in the application
unless contrary written instructions are received by the Company. The change
will take effect on the date the written notice is received at the Home Office.
Once a change in allocation is made, all future net premiums will be allocated
in accordance with the new allocation instructions, unless contrary written
instructions are provided by the policyowner. The minimum
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<PAGE>
percentage of each premium that may be allocated to any Subaccount or the
Declared Interest Option is 10%; fractional percentages are not permitted. No
charge is imposed for any change in net premium allocation.
-5-
<PAGE>
(d) REINSTATEMENT. Prior to the maturity date, a lapsed policy (other
than a surrendered Policy) may be reinstated at any time within five years of
the monthly deduction day immediately preceding the grace period which expired
without payment of the required premium. In order to reinstate a Policy, a
policyowner must submit: (i) a written application for reinstatement signed by
the insured and the policyowner; (ii) evidence of insurability satisfactory to
the Company; (iii) payment of a premium that, after deduction of the premium
expense charge, is at least sufficient to keep the Policy in force for three
months; and (iv) an amount equal to the monthly cost of insurance charge for the
two policy months prior to lapse. The effective date of reinstatement will be
the monthly deduction day coinciding with or next following the date of approval
by the Company of the application for reinstatement.
(e) REPAYMENT OF POLICY DEBT. A loan made under the Policy will be
subject to interest charges at the loan interest rate stated in the Policy from
the date that the loan is made. Outstanding policy debt may be repaid in whole
or in part prior to the maturity date at any time during the insured's life so
long as the Policy is in force. Any payments made by the policyowner while
there
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<PAGE>
is outstanding policy debt are treated first as repayment of policy debt, unless
the owner indicates otherwise. When a repayment of the debt is made, the
portion of the accumulated value in the Declared Interest Option securing the
repaid portion of the policy debt will no longer be segregated within the
Declared Interest Option as security for policy debt, but will remain in the
Declared Interest Option unless and until transferred to the Variable Account by
the Policyowner.
(f) CORRECTION OF MISSTATEMENT OF AGE OR SEX. If the insured's age or sex
was misstated in an application, the Company will recalculate the accumulated
value to be the amount it would have been had the cost of insurance been based
on the correct age and sex of the insured. If the insured has died, the Company
will pay the death proceeds that would have been payable at the insured's
correct age and sex.
2. TRANSFERS.
Amounts may be transferred among the Subaccounts an unlimited number of
times per year. Only one transfer per policy year may be made between the
Declared Interest Option and the Variable Account. The amount of this
transfer must be at least $100 or the total accumulated value in the
Subaccount, or the total accumulated value in the Declared Interest Option
reduced by any outstanding policy debt, if less than $100. The Company may,
at its discretion, waive the $100 minimum requirement. The transfer will be
effective as of the end of the valuation period during which the request is
received at the Home Office. The first transfer in each policy year will be
made without charge; each time amounts are subsequently transferred in that
policy year, a transfer charge of $25 will be assessed. Transfers resulting
from the initial allocation of net premiums or from the making of policy
loans will not be considered transfers for the purposes of these limitations
and charges. All transfers effected on the same day
-7-
<PAGE>
will be considered a single transfer for purposes of these limitations and
charges. Transfers are made by written request to the Home Office or by
telephone if the policyowner has elected the Telephone Transfer Authorization.
3. REDEMPTION PROCEDURES - SURRENDER AND RELATED TRANSACTIONS
This section outlines those procedures which might be deemed to constitute
redemptions under the Policy. These procedures differ in certain significant
respects from the redemption procedures for mutual funds and annuity plans.
(a) SURRENDER. At any time prior to the maturity date while the Policy is
in force, a policyowner may surrender the Policy in whole or in part by sending
a written request to the Company at its Home Office. A surrender charge equal
to the lesser of $25 or 2.0% of the amount requested will be payable upon
complete surrender and upon each partial surrender.
The amount payable on complete surrender of the Policy is the net surrender
value at the end of the valuation period during which the surrender request is
received. If the entire net accumulated value is surrendered, all insurance in
force will terminate. A partial surrender must be at least $500 and cannot
exceed the lesser of (i) the net accumulated value less $500, or (2) 90% of the
net accumulated value. The policyowner may request that the proceeds of a
complete or partial surrender be paid in a lump sum or under one of the payment
options specified in the Policy.
A partial surrender will be allocated among the Subaccounts and Declared
Interest Option in accordance with the written instructions of the policyowner.
If no such instructions are received with the request for partial surrender, the
partial surrender will be allocated among the Subaccounts and Declared Interest
Option in the same proportion that the accumulated value in each of the
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<PAGE>
Subaccounts and the accumulated value in the Declared Interest Option, reduced
by any outstanding Policy Debt, bears to the total accumulated value, reduced by
any outstanding Policy Debt, on the date the request is received at the Home
Office.
Surrender proceeds ordinarily will be mailed to the policyowner within
seven days after the Company receives a signed request for a surrender at its
Home Office, although payments may be postponed whenever: (i) the New York
Stock Exchange is closed other than customary weekend and holiday closing, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission; (ii) the Commission by order permits
postponement for the protection of policyowners; or (iii) an emergency exists,
as determined by the Commission, as a result of which disposal of securities is
not reasonably practicable, or it is not reasonably practicable to determine the
value of the net assets of the Variable Account. Payments under the Policy which
are derived from any amount paid to the Company by check or draft may be
postponed until such time as the Company is satisfied that the check or draft
has cleared the bank upon which it is drawn.
(b) PAYMENT OF DEATH PROCEEDS. So long as the Policy remains in force,
the Company will, upon due proof of the insured's death, pay the death proceeds
to the primary or a contingent beneficiary (or if no beneficiary survives the
insured, to the policyowner or his estate). In determining the amount of the
death proceeds, the death benefit will be reduced by any outstanding policy debt
and increased by any unearned loan interest and any premiums paid after the date
of death. The amount of the death benefit payable under a Policy will depend
upon the death benefit option in effect at the time of the Insured's death.
Under Option A, the death benefit will be equal to the greater of (i) the sum of
the current specified amount and the accumulated value, or (ii) the
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<PAGE>
accumulated value multiplied by the specified amount factor. Under Option B, the
death benefit will be equal to the greater of (i) the current specified amount,
or (ii) the accumulated value multiplied by the specified amount factor.
Accumulated value will be determined as of the end of the Business Day
coinciding with or immediately following the date of death. The specified
amount factors referred to above are determined by the "cash value corridor"
mandated by Section 7702 of the Internal Revenue Code. The factor is 2.50 for
those under 40 years of age and declines as the insured's attained age increases
until it becomes 1.0 at age 115.
The death proceeds will be paid to the beneficiary in one lump sum or under
any of the payment options set forth in the Policy, which include payments of
interest only, payments for a fixed period, payments for life with a term
certain, payments of a fixed amount, and a joint and two-thirds survivor monthly
life income. The Company may also provide other payment options in the future.
If the insured is still alive and the Policy is in force on the maturity
date (i.e., the insured's 115th birthday), the Company will pay the policyowner
the accumulated value of the Policy reduced by an outstanding policy debt.
All payments of death benefits and maturity proceeds are ordinarily mailed
within seven days after the Company receives due proof of the insured's death or
within seven days of the maturity date, unless a payment option is chosen.
However, payment may be delayed for more than seven days under the same
circumstances described above with respect to surrender payments.
(c) POLICY LOANS. So long as the Policy remains in force and has a
positive net surrender value, a policyowner may borrow money from the Company at
any time using the Policy as the sole
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<PAGE>
security for the policy loan. The maximum amount that may be borrowed at any
time is 90% of the net surrender value as of the end of the valuation period
during which the request for the policy loan is received at the Home Office,
less any previously outstanding policy debt. Policy debt equals the sum of all
unpaid policy loans and any due and unpaid policy loan interest. Policy debt
may be repaid in whole or in part any time during the insured's life and before
the maturity date so long as the Policy is in force.
When a policy loan is made, an amount equal to the policy loan will be
segregated within the Declared Interest Option as security for the policy loan.
If, immediately prior to the policy loan, the accumulated value in the Declared
Interest Option less policy debt outstanding immediately prior to such policy
loan is less than the amount of such policy loan, the difference will be
transferred from the Subaccounts which have accumulated value in the same
proportions that the Policy's accumulated value in each Subaccount bears to the
Policy's total accumulated value in the Variable Account. No charge will be
made for those transfers. Accumulated values will be determined as of the end
of the valuation period during which the request for the policy loan is received
at the home office.
Policy loan proceeds normally will be mailed to the policyowner within
seven days after receipt of a written request. Postponement of a policy loan may
take place under the same circumstances described above with respect to
surrender payments.
Amounts segregated within the Declared Interest Option as security for
policy debt will bear interest at an annual rate determined and declared by the
Company. The interest credited will remain
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<PAGE>
in the Declared Interest Option unless and until transferred by the policyowner
to the Variable Account, but will not be segregated within the Declared Interest
Option as security for policy debt.
The interest rate charged on policy loans is not fixed. Initially, it will
be the rate shown in the Policy on the policy data page. The Company may at any
time elect to change the interest rate, subject to certain conditions specified
in the Policy and prospectus. The Company will send notice of any change in
rate to the policyowner. The new rate will take effect on the policy
anniversary coinciding with or next following the date the rate is changed.
Interest is payable in advance at the time any policy loan is made (for the
remainder of the policy year) and on each policy anniversary thereafter (for the
entire policy year) so long as there is policy debt outstanding. Interest
payable at the time a policy loan is made will be subtracted from the loan
proceeds. Thereafter, interest not paid when due will be added to the existing
policy debt and bear interest at the same rate charged for policy loans. An
amount equal to unpaid interest will be segregated within the Declared Interest
Option in the same manner that amounts for policy loans are segregated within
the Declared Interest Option.
Because interest is charged in advance, any interest that has not been
earned will be added to the death benefit payable at the insured's death and to
the accumulated value upon complete surrender, and will be credited to the
accumulated value in the Declared Interest Option upon repayment of policy debt.
(d) POLICY TERMINATION. The Policy will terminate and lapse only when net
accumulated value is insufficient on a monthly deduction day to cover the
monthly deduction and a grace period expires without payment of a sufficient
premium. A grace period of 61 days begins on the date on
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<PAGE>
which the Company sends written notice of any insufficiency to the policyowner.
The notice will be sent to the policyowner's last known address on file with the
Company. The notice will specify the premium payment that, if received during
the grace period, will be sufficient to keep the Policy in force. If the
Company does not receive the premium payment on or before the last day of the
grace period, the Policy will terminate and insurance coverage and all rights
thereunder will cease. Insurance coverage will continue during the grace
period. The amount of the premium sufficient to keep the Policy in force beyond
the grace period is an amount equal to three times the monthly deduction due on
the monthly deduction day immediately preceding the grace period. A terminated
Policy (other than a surrendered Policy) may be reinstated prior to the maturity
date at any time within five years of the monthly deduction day immediately
preceding the grace period which expired without payment of the required
premium.
(e) CANCELLATION PRIVILEGE. The policyowner may cancel the Policy by
delivering or mailing written notice or sending a telegram to the Company at its
Home Office, and returning the Policy to the Company at its Home Office before
midnight of the twentieth day after receipt of the Policy. With respect to all
Policies, the Company will refund, within seven days after receipt of the notice
of cancellation and the returned Policy at its Home Office, an amount equal to
the greater of premiums paid or the accumulated value plus an amount equal to
any charges that have been deducted from premiums, accumulated value and the
Variable Account.
(f) SPECIAL TRANSFER PRIVILEGE. A policyowner may, at any time prior to
the maturity date while the Policy is in force, convert the Policy to a flexible
premium fixed-benefit life insurance policy by requesting that all of the
accumulated value in the Variable Account be transferred to the
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<PAGE>
Declared Interest Option. The policyowner may exercise this special transfer
privilege once each policy year. Once a policyowner exercises the special
transfer privilege, all future premium payments will automatically be credited
to the Declared Interest Option, until such time as the policyowner requests a
change in allocation. No charge will be imposed for any transfers resulting
from the exercise of this special transfer privilege.
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<PAGE>
POWER OF ATTORNEY
The undersigned directors of EquiTrust Life Insurance Company, an Iowa
corporation (the "Company"), hereby constitute and appoint Edward M.
Wiederstein, and Stephen M. Morain, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him and on his behalf and in his name, place
and stead, to execute and file any of the documents referred to below relating
to registrations under the Securities Act of 1933 and under the Investment
Company Act of 1940 with respect to any life insurance policies or annuity
contracts: registration statements on any form or forms under the Securities Act
of 1933 and under the Investment Company Act of 1940, and any and all amendments
and supplements thereto, with all exhibits and all instruments necessary or
appropriate in connection therewith, each of said attorneys-in-fact and agents
and him or their substitutes being empowered to act with or without the others
or other, and to have full power and authority to do or cause to be done in the
name and on behalf of the undersigned each and every act and thing requisite and
necessary or appropriate with respect thereto to be done in and about the
premises in order to effectuate the same, as fully to all intents and purposes
as the undersigned might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may do or cause to
be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto set his or her hand on the date
set forth below.
NAME DATE
- ---- ----
/s/ Thomas R. Gibson January 6, 1998
- ----------------------------------- ---------------
Thomas R. Gibson
/s/ Richard D. Harris January 6, 1998
- ----------------------------------- ---------------
Richard D. Harris
/s/ Timothy J. Hoffman January 6, 1998
- ----------------------------------- ---------------
Timothy J. Hoffman
/s/ Stephen M. Morain January 6, 1998
- ----------------------------------- ---------------
Stephen M. Morain
/s/ James W. Noyce January 6, 1998
- ----------------------------------- ---------------
James W. Noyce
/s/ William J. Oddy January 6, 1998
- ----------------------------------- ---------------
William J. Oddy
/s/ Edward M. Wiederstein January 6, 1998
- ----------------------------------- ---------------
Edward M. Wiederstein
