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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1998
REGISTRATION NO. 333-62221
811-08981
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
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)
------------------------
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
------------------------
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>
i
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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........................................ 30
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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....................................................... 34
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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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<TABLE>
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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. Tables showing the maximum surrender
charges for select ages, sex and underwriting categories
are included in Appendix C. 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
7
<PAGE>
Policies. (See "CHARGES AND DEDUCTIONS--Variable Account
Charges.") This 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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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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 following table lists the
maximum surrender charge for select ages in various
underwriting categories in the first Policy Year.
<TABLE>
<CAPTION>
ISSUE AGE MALE, TOBACCO FEMALE, TOBACCO UNISEX, TOBACCO
<S> <C> <C> <C>
30 10.49 10.40 9.76
50 26.80 15.49 24.41
70 34.49 34.49 34.49
</TABLE>
Maximum surrender charges for insureds of the same age
and sex in the non-tobacco underwriting category are
generally less than those in the tobacco underwriting
category. (See "Appendix C--Maximum Surrender Charges.")
The Surrender Charge is level within each Policy Year.
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.
29
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
30
<PAGE>
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
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<PAGE>
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
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.
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<PAGE>
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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.
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
33
<PAGE>
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
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
34
<PAGE>
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."
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
35
<PAGE>
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. 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
36
<PAGE>
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.
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.
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<PAGE>
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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
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<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS OF
EQUITRUST LIFE INSURANCE
COMPANY
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
- ------------------------------ --------------------------------------------------
<S> <C>
Edward M. Wiederstein, Farmer; Chairman and Director, FBL Financial
President and Director Group, Inc.; President and Director, Iowa Farm
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.
</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>
John M. Paule, Vice President- Vice President-Corporate Administration, FBL
Corporate Administration Financial Group, Inc.
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>
[THIS PAGE INTENTIONALLY LEFT BLANK]
44
<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 $ 241 $ 0 $ 100,241
2............... 1,190 367 0 100,367 590 102 100,590
3............... 1,831 612 0 100,612 927 537 100,927
4............... 2,503 * * * 1,251 958 101,251
5............... 3,208 * * * 1,561 1,366 101,561
6............... 3,950 * * * 1,857 1,773 101,857
7............... 4,728 * * * 2,137 2,137 102,137
8............... 5,545 * * * 2,402 2,402 102,402
9............... 6,403 * * * 2,652 2,652 102,652
10............... 7,303 * * * 2,888 2,888 102,888
15............... 12,530 * * * 3,793 3,793 103,793
20............... 19,200 * * * 4,125 4,125 104,125
25............... 27,713 * * * 3,775 3,775 103,775
30............... 38,578 * * * 2,528 2,528 102,528
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 * * * 2,528 2,528 102,528
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 $ 255 $ 0 $ 100,255
2............... 1,190 399 0 100,399 632 144 100,632
3............... 1,831 674 0 100,674 1,011 621 101,011
4............... 2,503 * * * 1,390 1,097 101,390
5............... 3,208 * * * 1,771 1,578 101,771
6............... 3,950 * * * 2,150 2,066 102,150
7............... 4,728 * * * 2,528 2,528 102,528
8............... 5,545 * * * 2,903 2,903 102,903
9............... 6,403 * * * 3,277 3,277 103,277
10............... 7,303 * * * 3,649 3,649 103,649
15............... 12,530 * * * 5,412 5,412 105,412
20............... 19,200 * * * 6,840 6,840 106,840
25............... 27,713 * * * 7,718 7,718 107,718
30............... 38,578 * * * 7,690 7,690 107,690
35............... 52,445 * * * 5,947 5,947 105,947
40............... * * * * 1,362 1,362 101,362
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 * * * 7,690 7,690 107,690
Age 70............... 52,445 * * * 5,947 5,947 105,947
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 $ 270 $ 0 $ 100,270
2............... 1,190 432 0 100,432 675 187 100,675
3............... 1,831 740 0 100,740 1,099 709 101,099
4............... 2,503 1,053 77 101,053 1,542 1,249 101,542
5............... 3,208 1,371 395 101,371 2,004 1,809 102,004
6............... 3,950 1,692 856 101,692 2,486 2,402 102,486
7............... 4,728 2,014 1,361 102,014 2,987 2,987 102,987
8............... 5,545 2,337 1,859 102,337 3,509 3,509 103,509
9............... 6,403 2,662 2,351 102,662 4,053 4,053 104,053
10............... 7,303 2,988 2,836 102,988 4,621 4,621 104,621
15............... 12,530 4,581 4,581 104,581 7,800 7,800 107,800
20............... 19,200 5,844 5,844 105,844 11,514 11,514 111,514
25............... 27,713 6,274 6,274 106,274 15,765 15,765 115,765
30............... 38,578 4,908 4,908 104,908 20,431 20,431 120,431
35............... 52,445 * * * 24,890 24,890 124,890
40............... 70,143 * * * 28,073 28,073 128,073
45............... 92,730 * * * 26,903 26,903 126,903
50............... 121,558 * * * 16,920 16,920 116,920
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 4,908 4,908 104,908 20,431 20,431 120,431
Age 70............... 52,445 * * * 24,890 24,890 124,890
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 $ 285 $ 0 $ 100,285
2............. 1,190 466 0 100,466 720 232 100,720
3............. 1,831 809 0 100,809 1,193 803 101,193
4............. 2,503 1,174 198 101,174 1,706 1,413 101,706
5............. 3,208 1,562 586 101,562 2,264 2,069 102,264
6............. 3,950 1,971 1,135 101,971 2,869 2,785 102,869
7............. 4,728 2,403 1,750 102,403 3,526 3,526 103,526
8............. 5,545 2,859 2,381 102,859 4,239 4,239 104,239
9............. 6,403 3,344 3,033 103,344 5,015 5,015 105,015
10............. 7,303 3,858 3,706 103,858 5,860 5,860 105,860
15............. 12,530 6,940 6,940 106,940 11,324 11,324 111,324
20............. 19,200 10,970 10,970 110,970 19,591 19,591 119,591
25............. 27,713 16,109 16,109 116,109 32,226 32,226 132,226
30............. 38,578 22,330 22,330 122,330 51,665 51,665 151,665
35............. 52,445 28,283 28,283 128,283 81,371 81,371 181,371
40............. 70,143 31,088 31,088 131,088 126,791 126,791 226,791
45............. 92,730 21,633 21,633 121,633 195,006 195,006 295,006
50............. 121,558 * * * 297,321 297,321 397,321
55............. 158,351 * * * 450,615 450,615 550,615
60............. 205,309 * * * 681,030 681,030 781,030
65............. 265,240 * * * 979,411 979,411 1,079,411
70............. 341,730 * * * 1,384,619 1,384,619 1,484,619
75............. 439,352 * * * 2,020,047 2,020,047 2,120,047
80............. 563,945 * * * 3,041,312 3,041,312 3,141,312
Age 65............. 38,578 22,330 22,330 122,330 51,665 51,665 151,665
Age 70............. 52,445 28,283 28,283 128,283 81,371 81,371 181,371
Age 115............. 563,945 * * * 3,041,312 3,041,312 3,141,312
</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 $ 241 $ 0 $ 100,000
2............... 1,190 369 0 100,000 591 103 100,000
3............... 1,831 614 0 100,000 929 539 100,000
4............... 2,503 * * * 1,254 961 100,000
5............... 3,208 * * * 1,566 1,371 100,000
6............... 3,950 * * * 1,864 1,780 100,000
7............... 4,728 * * * 2,147 2,147 100,000
8............... 5,545 * * * 2,416 2,416 100,000
9............... 6,403 * * * 2,670 2,670 100,000
10............... 7,303 * * * 2,911 2,911 100,000
15............... 12,500 * * * 3,853 3,853 100,000
20............... 19,200 * * * 4,247 4,247 100,000
25............... 27,713 * * * 3,984 3,984 100,000
30............... 38,578 * * * 2,837 2,837 100,000
35............... * * * * 200 200 100,000
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65............... 38,578 * * * 2,837 2,837 100,000
Age 70............... 52,445 * * * 200 200 100,000
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 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 $ 256 $ 0 100,000
2............... 1,190 400 0 100,000 633 145 100,000
3............... 1,831 676 0 100,000 1,013 623 100,000
4............... 2,503 * * * 1,394 1,101 100,000
5............... 3,208 * * * 1,777 1,582 100,000
6............... 3,950 * * * 2,159 2,075 100,000
7............... 4,728 * * * 2,541 2,541 100,000
8............... 5,545 * * * 2,921 2,921 100,000
9............... 6,403 * * * 3,301 3,301 100,000
10............... 7,303 * * * 3,680 3,680 100,000
15............... 12,530 * * * 5,502 5,502 100,000
20............... 19,200 * * * 7,051 7,051 100,000
25............... 27,713 * * * 8,146 8,146 100,000
30............... 38,578 * * * 8,467 8,467 100,000
35............... 52,445 * * * 7,244 7,244 100,000
40............... 70,143 * * * 3,267 3,267 100,000
45............... * * * * -- -- --
50............... * * * * -- -- --
55............... * * * * -- -- --
60............... * * * * -- -- --
65............... * * * * -- -- --
70............... * * * * -- -- --
75............... * * * * -- -- --
80............... * * * * -- -- --
Age 65............... 38,578 * * * 8,467 8,467 100,000
Age 70............... 52,445 * * * 7,244 7,244 100,000
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 $ 270 $ 0 $ 100,000
2............... 1,190 433 0 100,000 677 189 100,000
3............... 1,831 743 0 100,000 1,102 712 100,000
4............... 2,503 1,058 82 100,000 1,546 1,253 100,000
5............... 3,208 1,380 404 100,000 2,011 1,816 100,000
6............... 3,950 1,705 869 100,000 2,497 2,413 100,000
7............... 4,728 2,033 1,380 100,000 3,003 3,003 100,000
8............... 5,545 2,364 1,886 100,000 3,531 3,531 100,000
9............... 6,403 2,698 2,387 100,000 4,084 4,084 100,000
10............... 7,303 3,036 2,884 100,000 4,662 4,662 100,000
15............... 12,530 4,731 4,731 100,000 7,935 7,935 100,000
20............... 19,200 6,217 6,217 100,000 11,885 11,885 100,000
25............... 27,713 7,073 7,073 100,000 16,650 16,650 100,000
30............... 38,578 6,434 6,434 100,000 22,375 22,375 100,000
35............... 52,445 1,834 1,834 100,000 28,993 28,993 100,000
40............... 70,143 * * * 36,468 36,468 100,000
45............... 92,730 * * * 44,010 44,010 100,000
50............... 121,558 * * * 50,933 50,933 100,000
55............... * * * * 55,852 55,852 100,000
60............... * * * * 55,655 55,655 100,000
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 38,578 6,434 6,434 100,000 22,375 22,375 100,000
Age 70............... 52,445 1,834 1,834 100,000 28,993 28,993 100,000
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 $ 285 $ 0 $ 100,000
2........ 1,190 467 0 100,000 721 233 100,000
3........ 1,831 813 0 100,000 1,195 805 100,000
4........ 2,503 1,180 204 100,000 1,711 1,418 100,000
5........ 3,208 1,572 596 100,000 2,272 2,077 100,000
6........ 3,950 1,987 1,151 100,000 2,882 2,798 100,000
7........ 4,728 2,426 1,773 100,000 3,545 3,545 100,000
8........ 5,545 2,893 2,415 100,000 4,266 4,266 100,000
9........ 6,403 3,390 3,079 100,000 5,053 5,053 100,000
10........ 7,303 3,922 3,770 100,000 5,913 5,913 100,000
15........ 12,530 7,171 7,171 100,000 11,529 11,529 100,000
20........ 19,200 11,653 11,653 100,000 20,243 20,243 100,000
25........ 27,713 17,902 17,902 100,000 34,065 34,065 100,000
30........ 38,578 26,751 26,751 100,000 56,500 56,500 100,000
35........ 52,445 39,032 39,032 100,000 93,770 93,770 108,774
40........ 70,143 57,039 57,039 100,000 155,192 155,192 166,055
45........ 92,730 86,186 86,186 100,000 255,267 255,267 268,031
50........ 121,558 139,258 139,258 146,220 416,381 416,381 437,200
55........ 158,351 220,540 220,540 231,567 673,570 673,570 707,248
60........ 205,309 348,805 348,805 352,293 1,090,089 1,090,089 1,100,990
65........ 265,240 551,296 551,296 556,809 1,765,582 1,765,582 1,783,238
70........ 341,730 850,593 850,593 859,099 2,840,703 2,840,703 2,869,110
75........ 439,352 1,310,844 1,310,844 1,323,952 4,559,277 4,559,277 4,604,869
80........ 563,945 2,018,604 2,018,604 2,038,790 7,305,995 7,305,995 7,379,055
Age 65........ 38,578 26,751 26,751 100,000 56,500 56,500 100,000
Age 70........ 52,445 39,032 39,032 100,000 93,770 93,770 108,774
Age 115........ 563,945 2,018,604 2,018,604 2,038,790 7,305,995 7,305,995 7,379,055
</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 $ 370 $ 0 $ 100,370
2............... 1,526 608 0 100,608 849 205 100,849
3............... 2,347 969 0 100,969 1,312 797 101,312
4............... 3,209 1,311 23 101,311 1,760 1,374 101,760
5............... 4,114 1,634 503 101,634 2,192 1,966 102,192
6............... 5,064 1,933 1,013 101,933 2,608 2,516 102,608
7............... 6,061 2,209 1,491 102,209 3,006 3,006 103,006
8............... 7,109 2,462 1,936 102,462 3,386 3,386 103,386
9............... 8,209 2,689 2,347 102,689 3,748 3,748 103,748
10............... 9,364 2,890 2,723 102,890 4,091 4,091 104,091
15............... 16,064 3,419 3,419 103,419 5,441 5,441 105,441
20............... 24,616 2,870 2,870 102,870 5,991 5,991 105,991
25............... 35,530 539 539 100,539 5,351 5,351 105,351
30............... 49,460 * * * 2,984 2,984 102,984
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 * * * 2,984 2,984 102,984
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 $ 391 $ 0 $ 100,391
2............... 1,526 655 0 100,655 907 263 100,907
3............... 2,347 1,062 0 101,062 1,428 913 101,428
4............... 3,209 1,465 177 101,465 1,954 1,568 101,954
5............... 4,114 1,863 732 101,863 2,483 2,257 102,483
6............... 5,064 2,252 1,332 102,252 3,015 2,923 103,015
7............... 6,061 2,632 1,914 102,632 3,549 3,549 103,549
8............... 7,109 3,001 2,475 103,001 4,084 4,084 104,084
9............... 8,209 3,356 3,014 103,356 4,619 4,619 104,619
10............... 9,364 3,696 3,529 103,696 5,153 5,153 105,153
15............... 16,064 5,061 5,061 105,061 7,716 7,716 107,716
20............... 24,616 5,450 5,450 105,450 9,832 9,832 109,832
25............... 35,530 3,872 3,872 103,872 10,949 10,949 110,949
30............... 49,460 * * * 10,245 10,245 110,245
35............... 67,239 * * * 6,560 6,560 106,560
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 * * * 10,245 10,245 110,245
Age 70............... 67,239 * * * 6,560 6,560 106,560
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 $ 411 $ 0 $ 100,411
2............... 1,526 704 0 100,704 967 323 100,967
3............... 2,347 1,161 0 101,161 1,551 1,036 101,551
4............... 3,209 1,632 344 101,632 2,164 1,778 102,164
5............... 4,114 2,119 988 102,119 2,807 2,581 102,807
6............... 5,064 2,618 1,698 102,618 3,481 3,389 103,481
7............... 6,061 3,130 2,412 103,130 4,187 4,187 104,187
8............... 7,109 3,653 3,127 103,653 4,926 4,926 104,926
9............... 8,209 4,187 3,845 104,187 5,700 5,700 105,700
10............... 9,364 4,731 4,564 104,731 6,508 6,508 106,508
15............... 16,064 7,512 7,512 107,512 11,063 11,063 111,063
20............... 24,616 10,025 10,025 110,025 16,421 16,421 116,421
25............... 35,530 11,210 11,210 111,210 22,321 22,321 122,321
30............... 49,460 9,110 9,110 109,110 28,191 28,191 128,191
35............... 67,239 * * * 32,984 32,984 132,984
40............... 89,929 * * * 34,656 34,656 134,656
45............... 118,889 * * * 29,620 29,620 129,620
50............... * * * * 13,313 13,313 113,313
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 9,110 9,110 109,110 28,191 28,191 128,191
Age 70............... 67,239 * * * 32,984 32,984 132,984
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 $ 432 $ 0 $ 100,432
2............... 1,526 754 0 100,754 1,029 385 101,029
3............... 2,347 1,265 0 101,265 1,681 1,166 101,681
4............... 3,029 1,814 526 101,814 2,392 2,006 102,392
5............... 4,114 2,404 1,273 102,404 3,168 2,942 103,168
6............... 5,064 3,037 2,117 103,037 4,013 3,921 104,013
7............... 6,061 3,715 2,997 103,715 4,935 4,935 104,935
8............... 7,109 4,442 3,916 104,442 5,941 5,941 105,941
9............... 8,209 5,221 4,879 105,221 7,037 7,037 107,037
10............... 9,364 6,055 5,888 106,055 8,233 8,233 108,233
15............... 16,064 11,166 11,166 111,166 15,995 15,995 115,995
20............... 24,616 18,106 18,106 118,106 27,769 27,769 127,769
25............... 35,530 26,953 26,953 126,953 45,502 45,502 145,502
30............... 49,460 37,265 37,265 137,265 72,130 72,130 172,130
35............... 67,239 47,076 47,076 147,076 112,160 112,160 212,160
40............... 89,929 51,519 51,519 151,519 172,291 172,291 272,291
45............... 118,889 39,636 39,636 139,636 262,545 262,545 362,545
50............... 155,849 * * * 399,693 399,693 499,693
55............... 203,020 * * * 610,144 610,144 710,144
60............... 263,225 * * * 937,122 937,122 1,037,122
65............... 340,062 * * * 1,397,671 1,397,671 1,497,671
70............... 438,129 * * * 2,069,005 2,069,005 2,169,005
75............... 563,290 * * * 3,139,449 3,139,449 3,239,449
80............... 723,030 * * * 4,871,855 4,871,855 4,971,855
Age 65............... 49,460 37,265 37,265 137,265 72,130 72,130 172,130
Age 70............... 67,239 47,076 47,076 147,076 112,160 112,160 212,160
Age 115............... 723,030 * * * 4,871,855 4,871,855 4,971,855
</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 $ 371 $ 0 $ 100,000
2............... 1,526 610 0 100,000 850 206 100,000
3............... 2,347 973 0 100,000 1,315 800 100,000
4............... 3,209 1,319 31 100,000 1,765 1,379 100,000
5............... 4,114 1,645 514 100,000 2,200 1,974 100,000
6............... 5,064 1,949 1,029 100,000 2,619 2,527 100,000
7............... 6,061 2,231 1,513 100,000 3,022 3,022 100,000
8............... 7,109 2,491 1,965 100,000 3,408 3,408 100,000
9............... 8,209 2,726 2,384 100,000 3,776 3,776 100,000
10............... 9,364 2,936 2,769 100,000 4,127 4,127 100,000
15............... 16,064 3,533 3,533 100,000 5,536 5,536 100,000
20............... 24,616 3,086 3,086 100,000 6,196 6,196 100,000
25............... 35,530 852 852 100,000 5,733 5,733 100,000
30............... 49,460 * * * 3,580 3,580 100,000
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 $ 391 $ 0 $ 100,000
2............... 1,526 657 0 100,000 909 265 100,000
3............... 2,347 1,067 0 100,000 1,431 916 100,000
4............... 3,209 1,473 185 100,000 1,960 1,574 100,000
5............... 4,114 1,876 745 100,000 2,493 2,267 100,000
6............... 5,064 2,271 1,351 100,000 3,029 2,937 100,000
7............... 6,061 2,659 1,941 100,000 3,569 3,569 100,000
8............... 7,109 3,037 2,511 100,000 4,111 4,111 100,000
9............... 8,209 3,404 3,062 100,000 4,655 4,655 100,000
10............... 9,364 3,758 3,591 100,000 5,200 5,200 100,000
15............... 16,064 5,235 5,235 100,000 7,858 7,858 100,000
20............... 24,616 5,840 5,840 100,000 10,186 10,186 100,000
25............... 35,530 4,612 4,612 100,000 11,723 11,723 100,000
30............... 49,460 * * * 11,760 11,760 100,000
35............... 67,239 * * * 9,165 9,165 100,000
40............... * * * * 1,717 1,717 100,000
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
65............... * * * * * * *
70............... * * * * * * *
75............... * * * * * * *
80............... * * * * * * *
Age 65............... 49,460 * * * 11,760 11,760 100,000
Age 70............... 67,239 * * * 9,165 9,165 100,000
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 $ 412 $ 0 $ 100,000
2............... 1,526 706 0 100,000 969 325 100,000
3............... 2,347 1,166 0 100,000 1,555 1,040 100,000
4............... 3,209 1,642 354 100,000 2,171 1,785 100,000
5............... 4,114 2,134 1,003 100,000 2,818 2,592 100,000
6............... 5,064 2,641 1,721 100,000 3,498 3,406 100,000
7............... 6,061 3,162 2,444 100,000 4,211 4,211 100,000
8............... 7,109 3,698 3,172 100,000 4,960 4,960 100,000
9............... 8,209 4,248 3,906 100,000 5,746 5,746 100,000
10............... 9,364 4,812 4,645 100,000 6,569 6,569 100,000
15............... 16,064 7,777 7,777 100,000 11,277 11,277 100,000
20............... 24,616 10,370 10,370 100,000 17,036 17,036 100,000
25............... 35,530 12,875 12,875 100,000 23,913 23,913 100,000
30............... 49,460 12,634 12,634 100,000 31,989 31,989 100,000
35............... 67,239 6,389 6,389 100,000 41,468 41,468 100,000
40............... 89,929 * * * 52,740 52,740 100,000
45............... 118,889 * * * 66,856 66,856 100,000
50............... 155,849 * * * 87,432 87,432 100,000
55............... 203,020 * * * 119,805 119,805 125,795
60............... 263,225 * * * 164,117 164,117 165,758
65............... * * * * 224,190 224,190 226,432
70............... * * * * 303,147 303,147 306,179
75............... * * * * 407,812 407,812 411,890
80............... * * * * 546,652 546,652 552,118
Age 65............... 49,460 12,634 12,634 100,000 31,989 31,989 100,000
Age 70............... 67,239 6,389 6,389 100,000 41,468 41,468 100,000
Age 115............... * * * * 546,652 546,652 552,118
</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 $ 432 $ 0 $ 100,000
2.......... 1,526 757 0 100,000 1,031 387 100,000
3.......... 2,347 1,270 0 100,000 1,685 1,170 100,000
4.......... 3,209 1,824 536 100,000 2,399 2,013 100,000
5.......... 4,114 2,421 1,290 100,000 3,180 2,954 100,000
6.......... 5,064 3,063 2,143 100,000 4,033 3,941 100,000
7.......... 6,061 3,754 3,036 100,000 4,964 4,964 100,000
8.......... 7,109 4,498 3,972 100,000 5,983 5,983 100,000
9.......... 8,209 5,299 4,957 100,000 7,096 7,096 100,000
10.......... 9,364 6,161 5,994 100,000 8,314 8,314 100,000
15.......... 16,064 11,570 11,570 100,000 16,318 16,318 100,000
20.......... 24,616 19,375 19,375 100,000 28,848 28,848 100,000
25.......... 35,530 30,601 30,601 100,000 48,788 48,788 100,000
30.......... 49,460 47,217 47,217 100,000 81,553 81,553 100,000
35.......... 67,239 73,564 73,564 100,000 135,545 135,545 157,232
40.......... 89,929 119,623 119,623 127,997 222,854 222,854 238,454
45.......... 118,889 194,460 194,460 204,183 365,088 365,088 383,343
50.......... 155,849 310,265 310,265 325,778 593,099 593,099 622,754
55.......... 203,020 484,714 484,714 508,949 955,892 955,892 1,003,687
60.......... 263,225 761,269 761,269 768,882 1,544,500 1,544,500 1,559,945
65.......... 340,062 1,200,489 1,200,489 1,212,494 2,501,030 2,501,030 2,526,041
70.......... 438,129 1,849,850 1,849,850 1,868,348 4,023,571 4,023,571 4,063,807
75.......... 563,290 2,848,418 2,848,418 2,876,902 6,457,243 6,457,243 6,521,815
80.......... 723,030 4,383,986 4,383,986 4,427,826 10,346,720 10,346,720 10,450,187
Age 65.......... 49,460 47,217 47,217 100,000 81,553 81,553 100,000
Age 70.......... 67,239 73,564 73,564 100,000 135,545 135,545 157,232
Age 115.......... 723,030 4,383,986 4,383,986 4,427,826 10,346,720 10,346,720 10,450,187
</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+
- ---------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
10 3.30 2.75 2.20 1.65 1.10 0.55 0.00
20 4.48 3.73 2.98 2.24 1.49 0.65 0.00
30 6.29 5.24 4.19 3.14 1.97 0.80 0.00
40 9.65 8.04 6.43 4.74 2.64 1.08 0.00
50 15.44 12.87 10.30 6.86 3.81 1.55 0.00
60 33.71 24.44 16.79 10.64 5.87 2.36 0.00
70 34.49 24.52 16.50 10.23 5.51 2.16 0.00
80 34.49 23.18 14.70 8.56 4.32 1.58 0.00
Male, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7+
- ---------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A
20 7.20 6.00 4.80 3.27 1.82 0.74 0.00
30 10.49 8.74 6.54 4.19 2.33 0.95 0.00
40 16.64 13.17 9.12 5.83 3.24 1.32 0.00
50 26.80 19.59 13.50 8.59 4.75 1.92 0.00
60 34.49 24.80 16.90 10.62 5.80 2.31 0.00
70 34.49 24.14 15.99 9.75 5.17 1.99 0.00
80 34.49 22.65 14.05 8.00 3.96 1.42 0.00
Female, Non-Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7+
- ---------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
10 3.18 2.65 2.12 1.59 1.06 0.52 0.00
20 3.40 2.83 2.26 1.70 1.13 0.57 0.00
30 4.82 4.02 3.22 2.41 1.61 0.74 0.00
40 7.19 5.99 4.79 3.59 2.37 0.96 0.00
50 10.78 8.98 7.18 5.39 3.29 1.33 0.00
60 26.16 20.13 13.89 8.84 4.90 1.98 0.00
70 34.49 24.81 16.90 10.61 5.80 2.31 0.00
80 34.49 23.76 15.45 9.23 4.78 1.80 0.00
Female, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7+
- ---------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A
20 4.66 3.88 3.10 2.33 1.55 0.65 0.00
30 6.84 5.70 4.56 3.42 1.99 0.81 0.00
40 10.40 8.67 6.94 4.77 2.66 1.08 0.00
50 15.49 12.91 10.33 6.66 3.70 1.50 0.00
60 31.03 22.52 15.49 9.83 5.43 2.19 0.00
70 34.49 24.68 16.72 10.45 5.67 2.24 0.00
80 34.49 23.55 15.19 9.00 4.62 1.72 0.00
Unisex, Non-Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7+
- ---------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
10 3.30 2.75 2.20 1.65 1.10 0.54 0.00
20 4.26 3.55 2.84 2.13 1.42 0.64 0.00
30 5.99 4.99 3.99 2.99 1.94 0.79 0.00
40 9.14 7.62 6.10 4.57 2.59 1.05 0.00
50 14.50 12.08 9.66 6.66 3.70 1.50 0.00
60 32.38 23.49 16.15 10.25 5.66 2.28 0.00
70 34.49 24.59 16.59 10.32 5.58 2.20 0.00
80 34.49 23.34 14.90 8.75 4.45 1.64 0.00
Unisex, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7+
- ---------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A
20 6.68 5.57 4.46 3.18 1.78 0.72 0.00
30 9.76 8.13 6.34 4.06 2.26 0.92 0.00
40 15.36 12.66 8.77 5.60 3.12 1.27 0.00
50 24.41 18.59 12.82 8.16 4.52 1.83 0.00
60 34.49 24.85 16.97 10.69 5.86 2.34 0.00
70 34.49 24.28 16.18 9.94 5.30 2.06 0.00
80 34.49 22.98 14.46 8.36 4.20 1.53 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. (1)
2. None.
3. (a) Form of Principal Underwriting
Agreement. (1)
(b) Form of Sales Agreement. (1)
(c) Form of Wholesaling Agreement. (1)
4. None.
5. (a) Policy Form. (1)
(b) Application Form. (1)
6. (a) Articles of Incorporation of the
Company. (1)
(b) By-Laws of the Company. (1)
7. None.
8. None.
9. (a) Participation Agreement relating to
EquiTrust Variable Insurance Series
Fund. (1)
(b) Participation Agreement relating to
Dreyfus Variable Investment Fund. (1)
(c) Participation Agreement relating to
T. Rowe Price Equity Series, Inc. and
T. Rowe Price International Series,
Inc. (1)
10. Form of Application (see Exhibit
1.A.(5)(c) above.) (1)
2. Opinion and Consent of Stephen M. Morain,
Esquire. (1)
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. (1)
(b) Consent of Messrs. Sutherland, Asbill &
Brennan LLP. (1)
8. Memorandum describing the Company's conversion
procedure (included in Exhibit 9 hereto). (1)
9. Memorandum describing the Company's issuance,
transfer and redemption procedures for the
Policy. (1)
10. Powers of Attorney. (1)
</TABLE>
- ------------------------
* Attached as an exhibit.
(1) Incorporated by reference to the initial filing of this Registration
Statement (File No. 333-62221) on August 25, 1998.
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 28th day of October, 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 October 28, 1998
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ------------------------------ [Principal Financial October 28, 1998
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ------------------------------ [Principal Accounting October 28, 1998
James W. Noyce Officer]
- ------------------------------ Vice President and October 28, 1998
Thomas R. Gibson* Director
- ------------------------------ Director October 28, 1998
Timothy J. Hoffman*
- ------------------------------ Director October 28, 1998
Stephen M. Morain*
- ------------------------------ Director October 28, 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 28th day of October, 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>
[EquiTrust Life Insurance Company letterhead]
October 30, 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 Pre-Effective Amendment No. 1 to the Registration Statement on Form
S-6 (File No. 333-62221) 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 Pre-Effective
Amendment No. 1 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
