<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 2000
REGISTRATION NO. 333-31446
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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/
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EQUITRUST LIFE VARIABLE ACCOUNT II
(Exact Name of Registrant)
EQUITRUST LIFE INSURANCE COMPANY
(Name of Depositor)
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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.
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.
TITLE OF SECURITIES BEING REGISTERED: FLEXIBLE PREMIUM LAST SURVIVOR
VARIABLE LIFE INSURANCE POLICIES
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EQUITRUST LIFE VARIABLE ACCOUNT II
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
------------------------------------------------------------------------
PROSPECTUS
May , 2000
Equitrust Life Insurance Company is offering a flexible premium last survivor
variable life insurance policy (the "Policy") described in this prospectus.
Equitrust ("we," "us" or "our") designed the Policy: (1) to provide lifetime
insurance protection to age 115; and (2) to permit the purchaser of a Policy
("you," or "your") to vary premium payments and adjust the death proceeds
payable under the Policy.
Under the Policy, we will pay:
- death proceeds upon the last death of the Joint Insureds and
- a net surrender value or net accumulated value upon complete surrender or
partial withdrawal of the Policy.
You may allocate net premiums under a Policy to one or more of the subaccounts
of Equitrust Life Variable Account II (the "Variable Account"). Death proceeds
may, and accumulated value will, vary with the investment experience of the
Variable Account. Each subaccount invests exclusively in shares of the
investment options listed below. Current prospectuses that describe the
investment objectives and risks of each Investment Option must accompany or
precede this prospectus.
<TABLE>
<S> <C>
EquiTrust Variable Insurance T. Rowe Price Equity Series, Inc.:
Series Fund: Equity Income Portfolio
Value Growth Portfolio Mid-Cap Growth Portfolio
High Grade Bond Portfolio New America Growth Portfolio
High Yield Bond Portfolio Personal Strategy Balanced Portfolio
Money Market Portfolio T. Rowe Price International
Blue Chip Portfolio Series, Inc.:
International Stock Portfolio
Dreyfus Variable Investment Fund:
Appreciation Portfolio
Disciplined Stock Portfolio
Growth and Income Portfolio
International Equity Portfolio
Small Cap Portfolio
</TABLE>
You may also allocate net premiums to the Declared Interest Option, which is
supported by our General Account. We credit amounts allocated to the Declared
Interest Option with at least a 4% annual interest rate.
Please note that the Policies and Investment Options are not bank deposits, are
not federally insured, are not guaranteed to achieve their goals and are subject
to risks, including loss of the amount invested.
Please carefully consider replacing any existing insurance with the policy.
EquiTrust does not claim that investing in the policy is similar or comparable
to investing in a mutual fund.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus carefully and retain it for future reference.
Issued By:
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS................................................. 3
SUMMARY OF THE POLICY....................................... 5
EQUITRUST LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT... 9
EquiTrust Life Insurance Company...................... 9
The Variable Account.................................. 9
Investment Options.................................... 10
Addition, Deletion or Substitution of Investments..... 13
THE POLICY.................................................. 14
Purchasing the Policy................................. 14
Premiums.............................................. 14
Examination of Policy (Cancellation Privilege)........ 16
Policy Lapse and Reinstatement........................ 16
Special Transfer Privilege............................ 17
POLICY BENEFITS............................................. 17
Accumulated Value Benefits............................ 17
Transfers............................................. 20
Loan Benefits......................................... 20
Death Proceeds........................................ 22
Benefits at Maturity.................................. 25
Payment Options....................................... 25
CHARGES AND DEDUCTIONS...................................... 26
Premium Expense Charge................................ 27
Monthly Deduction..................................... 27
Transfer Charge....................................... 29
Partial Withdrawal Fee................................ 29
Surrender Charge...................................... 29
Variable Account Charges.............................. 29
THE DECLARED INTEREST OPTION................................ 30
General Description................................... 30
Declared Interest Option Accumulated Value............ 30
Transfers, Partial Withdrawals, Surrenders and Policy
Loans................................................ 31
GENERAL PROVISIONS.......................................... 31
The Contract.......................................... 31
Incontestability...................................... 31
Change of Provisions.................................. 31
Misstatement of Age or Sex............................ 32
Suicide Exclusion..................................... 32
Annual Report......................................... 32
Non-Participation..................................... 32
Ownership of Assets................................... 32
Written Notice........................................ 32
Postponement of Payments.............................. 32
Continuance of Insurance.............................. 33
Ownership............................................. 33
The Beneficiary....................................... 33
Changing the Policyowner or Beneficiary............... 34
Additional Insurance Benefits......................... 34
Policy Split Option................................... 34
</TABLE>
1
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
DISTRIBUTION OF THE POLICIES................................ 35
FEDERAL TAX MATTERS......................................... 35
Introduction.......................................... 35
Tax Status of the Policy.............................. 35
Tax Treatment of Policy Benefits...................... 36
Possible Tax Law Changes.............................. 38
Taxation of the Company............................... 38
Employment-Related Benefit Plans...................... 38
ADDITIONAL INFORMATION...................................... 38
FINANCIAL STATEMENTS........................................ 42
Appendix
ILLUSTRATIONS OF DEATH BENEFITS AND ACCUMULATED VALUES...... A
Appendix
DEATH BENEFIT OPTIONS....................................... B
Appendix
MAXIMUM SURRENDER CHARGES................................... C
</TABLE>
The Policy is not available in all States.
This prospectus constitutes an offering only in those jurisdictions where such
offering may lawfully be made.
EquiTrust has not authorized any dealer, salesman or other person to give any
information or make any representations in connection with this offering other
than those contained in this prospectus. Do not rely on any such other
information or representations.
2
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DEFINITIONS
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ACCUMULATED VALUE: The total amount invested under the Policy. It is the sum of
the values of the Policy in each subaccount of the Variable Account, the value
of the Policy in the Declared Interest Option and any outstanding Policy Debt.
BENEFICIARY: The person or entity the Policyowner named in the application, or
by later designation, to receive the death proceeds upon the Insured's death.
BUSINESS DAY: Each day that the New York Stock Exchange is open for trading,
except: (1) any period when the Securities and Exchange Commission determines
that an emergency exists which makes it impracticable for a Fund to dispose of
its securities or to fairly determine the value of its net assets; or (2) such
other periods as the Securities and Exchange Commission may permit for the
protection of security holders of a Fund.
COMPANY, WE, US, OUR: EquiTrust Life Insurance Company.
DECLARED INTEREST OPTION: A part of the Company's General Account. Policyowners
may allocate Net Premiums and transfer Accumulated Value to the Declared
Interest Option. The Company credits Accumulated Value in the Declared Interest
Option with interest at an annual rate guaranteed to be at least 4%.
DELIVERY DATE: The date when the Company issues the Policy and mails it to the
Policyowner.
DUE PROOF OF DEATH: Proof of death that is satisfactory to the Company. Such
proof may consist of the following:
(a) A certified copy of the death certificate;
(b) A certified copy of a court decree reciting a finding of death; or
(c) Any other proof satisfactory to the Company.
FUND: An open-end, diversified management investment company in which the
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 we send notice to the
Policyowner that Net Accumulated Value or Net Surrender Value is insufficient to
cover the monthly deduction.
HOME OFFICE: The Company's principal offices at 5400 University Avenue, West Des
Moines, Iowa 50266.
INVESTMENT OPTION: A separate investment portfolio of a Fund.
JOINT EQUAL AGE: The age on which premium and Accumulated Value are based. It is
an actuarial equivalent and is determined by the age and sex of the Joint
Insureds. The current Joint Equal Age on any Policy Anniversary will equal the
Joint Equal Age on the Policy Date plus the number of years since the Policy
Date.
JOINT EQUAL ATTAINED AGE: The Joint Equal Age at the Policy Date plus the number
of Policy Years since the Policy Date.
JOINT INSUREDS: The persons upon whose lives the Company issues a Policy.
MATURITY DATE: The Joint Equal Attained Age 115. It is the date when 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
Company makes the monthly deduction on the Business Day coinciding with or
immediately following the Monthly Deduction Day. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.")
NET ACCUMULATED VALUE: The Accumulated Value of the Policy reduced by any
outstanding Policy Debt and increased by any unearned loan interest.
3
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NET ASSET VALUE: The total current value of each Subaccount's securities, cash,
receivables and other assets less liabilities.
NET PREMIUM: The amount of premium remaining after we deduct the premium expense
charge (see "CHARGES AND DEDUCTIONS--Premium Expense Charge"). The Company will
allocate this amount, 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.
PARTIAL WITHDRAWAL FEE: A fee we assess at the time of any partial withdrawal
equal to the lesser of $25 or 2% at the amount withdrawn.
POLICY: The flexible premium last surviver variable life insurance policy we
offer and describe in this prospectus, which term includes the Policy described
in this prospectus, the Policy application, any supplemental applications and
any endorsements or additional benefit riders or agreements.
POLICY ANNIVERSARY: The same date in each year as the Policy Date.
POLICY DATE: The date set forth on the Policy data page which we use 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 the Policyowner borrows from the Company using the Policy
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, YOU, YOUR: The person who owns a Policy. The 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 we assess at the time of any surrender during the
first ten Policy Years and for ten 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. We use this amount to
calculate the premium expense charge during periods when we declare a premium
expense charge less than the 7% guaranteed premium expense charge. We may
declare a lower percentage of premium expense charge on premiums paid in excess
of the Target Premium during a Policy Year. We also use Target Premium to
calculate registered representatives' compensation.
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, a separate investment account
the Company established to receive and invest the Net Premiums paid under the
Policies.
4
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SUMMARY OF THE POLICY
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The following is a summary of the Policy's features. Please read the entire
Prospectus and the Policy for more detailed information. 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.
THE POLICY
- The Policy is a flexible premium last survivor variable life insurance
policy providing for:
- death proceeds payable to the Beneficiary upon the last death of
the Joint Insureds,
- the accumulation of Accumulated Value,
- withdrawal and surrender options, and
- loan privileges.
- We normally issue a Policy for a minimum Specified Amount of $100,000,
but we may issue Policies for lower Specified Amounts.
- You have flexibility in determining the frequency and amount of
premiums. (See "THE POLICY--Premiums.")
- We do not guarantee the amount and/or duration of the life insurance
coverage.
- Accumulated Value may increase or decrease, depending upon the
investment experience of the assets supporting the Policy. You bear the
investment risk of any depreciation of, and reap the benefit of any
appreciation in, the value of the underlying assets.
- If either Joint Insured is alive and the Policy is in force on the
Maturity Date, we will pay you the Accumulated Value as of the end of
the Business Day coinciding with or immediately following the Maturity
Date, reduced by any outstanding Policy Debt.
- CANCELLATION PRIVILEGE. You may examine and cancel the Policy by
returning it to us before midnight of the 20th day after you receive it.
We will refund you the greater of:
- premiums paid, or
- the Accumulated Value on the Business Day we receive the Policy
plus any charges we deducted. (See "THE POLICY--Examination of
Policy (Cancellation Privilege).")
THE VARIABLE ACCOUNT
- The Variable Account has 15 Subaccounts, each of which invests
exclusively in one of the following Investment Options offered by the
Funds:
<TABLE>
<S> <C>
- Value Growth Portfolio - Personal Strategy Balanced Portfolio
- High Grade Bond Portfolio - International Stock Portfolio
- High Yield Bond Portfolio - Appreciation Portfolio
- Money Market Portfolio - Disciplined Stock Portfolio
- Blue Chip Portfolio - International Equity Portfolio
- Equity Income Portfolio - Small Cap Portfolio
- Mid-Cap Growth Portfolio - Growth and Income Portfolio
- New America Growth Portfolio
</TABLE>
- You may instruct us to allocate Net Premiums and transfer Accumulated
Value to any of the Subaccounts.
5
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- We will allocate your initial premium to the Declared Interest Option.
- We will automatically allocate, without charge, your Accumulated Value
in the Declared Interest Option according to your allocation
instructions upon the earlier of:
(1) the date we receive a signed notice that you have received the
Policy, or
(2) 25 days after the Delivery Date.
- If we receive Net Premiums before (1) or (2) above, we will allocate
those monies to the Declared Interest Option.
- We will allocate Net Premiums received after (1) or (2) above according
to your allocation instructions.
THE DECLARED INTEREST OPTION
- You 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 (at least 4% annually). (See "THE DECLARED INTEREST
OPTION.")
PREMIUMS
- You choose when to pay and how much to pay.
- You must pay an initial premium that (when reduced by the premium
expense charge) is enough to pay the first monthly deduction.
- We deduct a premium expense charge from each payment. (See "CHARGES and
DEDUCTIONS--Premium Expense Charge.")
POLICY BENEFITS
ACCUMULATED VALUE BENEFITS (SEE "POLICY BENEFITS--ACCUMULATED VALUE BENEFITS.")
- Your Policy provides for a Accumulated Value. A Policy's Accumulated
Value varies to reflect:
- the amount and frequency of premium payments,
- the investment experience of the Subaccounts,
- interest earned on Accumulated Value in the Declared Interest
Option,
- Policy Loans,
- partial withdrawals and
- charges we assess under the Policy.
- You may fully surrender your Policy and receive the Net Surrender Value.
- You may obtain a partial withdrawal of your Net Accumulated Value
(minimum $500) at any time before the Maturity Date.
- A partial withdrawal or surrender may have federal income tax
consequences. (See "FEDERAL TAX MATTERS".)
TRANSFERS (SEE "POLICY BENEFITS--TRANSFERS.")
- You may transfer amounts (minimum $100) among the Subaccounts an
unlimited number of times in a Policy Year.
- You may make one transfer per Policy Year between the Subaccounts and
the Declared Interest Option.
- The first transfer in a Policy Year is free. We may deduct a $25 charge
from the amount transferred on subsequent transfers in that Policy Year.
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- We do not count certain transfers for purposes of the one free transfer
limit. (See "THE POLICY--Special Transfer Privilege"; and "THE
POLICY--Premiums--Allocating Net Premiums.")
LOANS (SEE POLICY BENEFITS--"LOAN BENEFITS.")
- You may borrow up to 90% of the Policy's Net Surrender Value as of the
date of the most recent loan.
- We charge you a maximum annual interest rate equal to the higher of the
"Published Monthly Average of the Composite Yield on Seasoned Corporate
Bonds" as published by Moody's Investors Services, Inc. (or any
successor thereto) for the calendar month ending two months before the
date on which the rate is determined; or 5.5%.
- We secure your loan by segregating in the Declared Interest Option an
amount equal to the Policy Loan. We credit this amount with an effective
annual rate of interest equal to at least 4%.
- Policy Loans may have federal income tax consequences. (See "FEDERAL TAX
MATTERS.")
DEATH PROCEEDS (SEE "POLICY BENEFITS--DEATH PROCEEDS.")
- The Policy contains two death benefit options:
- 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
Joint Equal Attained Age, as set forth in the Policy.
- Option B--the death benefit is the greater of the Specified Amount,
or the Accumulated Value multiplied by the specified amount factor
for the Joint Equal Attained Age, as set forth in the Policy.
- 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 last death of the Joint Insureds.
- To determine the death proceeds, we reduce the death benefit by any
outstanding Policy Debt and increase the death benefit by any unearned
loan interest and any premiums paid after the date of death. We may pay
the proceeds in a lump sum or in accordance with a payment option.
- You may change the Specified Amount or the death benefit option.
CHARGES (SEE "CHARGES AND DEDUCTIONS")
PREMIUM EXPENSE CHARGE
- We deduct a Premium Expense Charge equal to 7% of each premium up to the
Target Premium and 2% of each premium in excess of the Target Premium.
The remaining amount is the Net Premium.
ACCUMULATED VALUE CHARGES
- Each month, we make a monthly deduction (that varies from month to
month) equal to the sum of:
- a cost of insurance charge, plus
- the cost of any additional insurance benefits added by rider, plus
- a $10 policy expense charge, plus
- a monthly charge of $0.03 per $1,000 of Specified Amount.
- During the first 12 Policy Months and during the 12 Policy Months
immediately following an increase in Specified Amount, the monthly
deduction will include a first year monthly administrative charge of
$0.10 per $1,000 of Specified Amount.
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- We apply a $10 first year monthly expense charge during the first 12
Policy Months.
- Upon partial withdrawal of a Policy we assess a charge equal to the
lesser of $25 or 2% of the amount withdrawn.
- We apply a charge upon surrender during the first ten Policy Years, as
well as during the first ten Policy Years following an increase in
Specified Amount (see "APPENDIX C--Maximum Surrender Charges").
- We may deduct a $25 charge from the amount transferred on the second and
subsequent transfers in a Policy Year.
CHARGES AGAINST THE VARIABLE ACCOUNT
- We deduct a daily mortality and expense risk charge from the average
daily net assets of each Subaccount. The charge equals an effective
annual rate of .90%.
- We may assess a charge against the Variable Account for federal income
taxes that may be attributable to the Variable Account.
- Because the Variable Account purchases shares of the Investment Options,
the value of the average net assets of the Variable Account will reflect
the investment advisory fee and other expenses incurred by each
Investment Option. The following table indicates the Investment Options'
fees and expenses (after waivers or reimbursements) for the period ended
December 31, 1999.
<TABLE>
<CAPTION>
ADVISORY OTHER TOTAL
INVESTMENT OPTION FEE EXPENSES EXPENSES
<S> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth 0.45% 0.12% 0.57%
High Grade Bond 0.30% 0.18% 0.48%
High Yield Bond 0.45% 0.15% 0.60%
Money Market 0.25% 0.30% 0.55%
Blue Chip 0.20% 0.10% 0.30%
T. Rowe Price Equity Series, Inc.
Equity Income 0.85% 0.00% 0.85%(1)
Mid-Cap Growth 0.85% 0.00% 0.85%(1)
New America Growth 0.85% 0.00% 0.85%(1)
Personal Strategy Balanced 0.90% 0.00% 0.90%(1)
T. Rowe Price International Series, Inc.
International Stock 1.05% 0.00% 1.05%(1)
Dreyfus Variable Investment Fund
Appreciation Portfolio 0.75% 0.03% 0.78%
Disciplined Stock Portfolio 0.75% 0.06% 0.81%
Growth and Income Portfolio 0.75% 0.04% 0.79%
International Equity Portfolio 0.75% 0.27% 1.02%
Small Cap Portfolio 0.75% 0.03% 0.78%
</TABLE>
(1) Total annual investment option expenses are an all-inclusive fee and
pay for investment management services and other operating costs.
8
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OTHER POLICIES
- We offer other variable life insurance policies (through the Variable
Account and other variable accounts we establish) 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 your needs. You may contact us to
obtain more information about these policies.
TAX TREATMENT (SEE "FEDERAL TAX MATTERS")
- We believe that it is reasonable to conclude that the Policy qualifies
as a life insurance contract for federal income tax purposes.
- If 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--the Policyowner is generally not
deemed to be in constructive receipt of Accumulated Values under a
Policy until there is a distribution from the Policy.
- If a Policy qualifies as life insurance for federal income tax purposes,
death proceeds payable under the 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.
- Depending on the total amount of premiums you pay, the Policy may be
treated as a modified endowment contract ("MEC") under Federal tax laws.
If a Policy is treated as a MEC, then complete surrenders, partial
withdrawals and loans under the Policy will be taxable as ordinary
income to the extent there are earnings in the Policy. In addition, a
10% penalty tax may be imposed on complete surrenders, partial
withdrawals and loans taken before you reach age 59 1/2. If the Policy
is not a MEC, distributions generally will be treated first as a return
of basis or investment in the Policy and then as taxable income.
Moreover, loans will not be treated as distributions. Finally, neither
distributions nor loans from a Policy that is not a MEC are subject to
the 10% penalty tax.
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EQUITRUST LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT
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EQUITRUST LIFE INSURANCE COMPANY
EquiTrust Life Insurance Company is a stock life insurance company which was
incorporated in the State of Iowa on June 3, 1966. Our principal business is
offering life insurance policies and annuity contracts. Our principal
offices are at 5400 University Avenue, West Des Moines, Iowa 50266. We are
admitted to do business in 41 states and the District of Columbia--Alabama,
Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia,
Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland,
Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New
Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania,
South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington,
West Virginia, Wisconsin and Wyoming.
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THE VARIABLE ACCOUNT
We established the Variable Account as a separate account on January 6,
1998. The Variable Account receives and invests the Net Premiums under the
Policy, and may receive and invest net premiums for any other variable life
insurance policies we issue.
The Variable Account's assets are our property, and they are available to
cover our general liabilities only to the extent that the Variable Account's
assets exceed its liabilities arising under the Policies and any other
policies it supports. The portion of the Variable Account's assets
attributable to the Policies generally are not chargeable with liabilities
arising out of any other business that we may
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conduct. We may transfer to the General Account any Variable Account assets
which are in excess of such reserves and other Policy liabilities.
The Variable Account currently has 15 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.
We registered the Variable Account as a unit investment trust with the
Securities and Exchange Commission under the Investment Company Act of 1940.
The Variable Account meets the definition of a separate account under the
federal securities laws. Registration with the Securities and Exchange
Commission does not mean that the SEC supervises the management or
investment practices or policies of the Variable Account or the Company. The
Variable Account is also subject to the laws of the State of Iowa which
regulate the operations of insurance companies domiciled in Iowa.
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INVESTMENT OPTIONS
The Variable Account invests in shares of the Investment Options described
below. Each of these Investment Options was formed as an investment vehicle
for insurance company separate accounts. Each Investment Option has its own
investment objectives and separately determines the income and losses for
that Investment Option. While you may be invested in all Subaccounts, we
only permit you to "actively participate" in a maximum of 10 Investment
Options at any one time.
The investment objectives and policies of certain Investment Options are
similar to the investment objectives and policies of other portfolios that
the same investment adviser, investment sub-adviser or manager may manage.
The investment results of the Investment Options, however, may be higher or
lower than the results of such other portfolios. There can be no assurance,
and no representation is made, that the investment results of any of the
Investment Options will be comparable to the investment results of any other
portfolio, even if the other portfolio has the same investment adviser,
investment sub-adviser or manager.
The paragraphs below summarize each Investment Option's investment
objectives and policies. There is no assurance that any Investment Option
will achieve its stated objectives. Please refer to the prospectus for each
Investment Option for more detailed information, including a description of
risks, for each Investment Option. The Investment Option prospectuses must
accompany or precede this Prospectus and you should read them carefully and
retain them for future reference.
EQUITRUST VARIABLE INSURANCE SERIES FUND. Equitrust Investment Management
Services, Inc. is this Fund's investment adviser. The fund is comprised of six
portfolios, the following five of which are available under the Policy:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Value Growth Portfolio - This Portfolio seeks long-term capital appreciation.
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. Portfolio pursues this objective by investing
primarily in debt securities rated AAA, AA or A by
Standard & Poor's, 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.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
High Yield Bond Portfolio - This Portfolio seeks, as a primary objective, as high a
level of current income as is consistent with investment
in a portfolio of fixed-income securities rated in the
lower categories of established rating services (commonly
known as "junk bonds"). As a secondary objective, the
Portfolio seeks capital appreciation when consistent with
its primary objective. The Portfolio pursues these
objectives by investing primarily in fixed-income
securities rated Baa or lower by Moody's Investors
Service, Inc., and/or BBB or lower by Standard & Poor's,
or in unrated securities of comparable quality. AN
INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK. (See the Fund Prospectus "HIGHER
RISK SECURITIES AND INVESTMENT STRATEGIES--Lower Rated
Debt Securities.")
Money Market Portfolio - This Portfolio seeks maximum current income consistent
with liquidity and stability of principal. Portfolio
pursues this objective by investing in high quality
short-term money market instruments. AN INVESTMENT IN THE
MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED
BY THE F.D.I.C. OR ANY GOVERNMENT AGENCY. THERE IS NO
ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Blue Chip Portfolio - This Portfolio seeks growth of capital and income.
Portfolio pursues this objective by investing primarily
in common stocks of well-capitalized, established
companies. Because this Portfolio may be invested heavily
in particular stocks or industries, an investment in this
Portfolio may entail relatively greater risk of loss.
</TABLE>
T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Associates, Inc. is the
investment adviser to the Fund.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Equity Income Portfolio - This Portfolio seeks to provide substantial dividend
income and long-term capital appreciation by investing
primarily in established companies considered by the
adviser to have favorable prospects for both increasing
dividends and capital appreciation.
Mid-Cap Growth Portfolio - This Portfolio seeks to provide long-term capital
appreciation by investing primarily in mid-cap common
stocks with the potential for above-average earnings
growth. The investment adviser defines mid-cap companies
as those whose market capitalization falls within the
range of companies in the Standard & Poor's Mid-Cap 400
Index.
New America Growth Portfolio - This Portfolio seeks growth of capital by investing
primarily in the common stocks of companies operating in
sectors the investment adviser believes will be the
fastest-growing in the U.S. Fast-growing companies can be
found across an array of industries in today's "new
America."
Personal Strategy Balanced Portfolio - This Portfolio seeks the highest total return over time
consistent with an emphasis on both capital appreciation
and income.
</TABLE>
11
<PAGE>
T. ROWE PRICE INTERNATIONAL SERIES, INC. Rowe Price-Fleming International, Inc.
is the investment adviser to the Fund.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
International Stock Portfolio - This Portfolio seeks to provide capital appreciation
through investments primarily in established companies
based outside the United States.
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND. The Dreyfus Corporation serves as the
investment adviser to the Fund. Fayez Sarofim and Co. serves as the
sub-investment adviser to the Dreyfus Variable Investment Fund: Appreciation
Portfolio. The following Fund portfolios are available under the Contract.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Dreyfus Variable Investment Fund: - This Portfolio primarily seeks long-term capital growth,
Appreciation Portfolio consistent with the preservation of capital; current
income is a secondary investment objective. This
Portfolio invests primarily in the common stocks of
domestic and foreign issuers.
Dreyfus Variable Investment Fund: - This Portfolio seeks to provide investment results that
Disciplined Stock Portfolio are greater than the total return performance of
publicly-traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock
Price Index. The Portfolio will use quantitative
statistical modeling techniques to construct a portfolio
in an attempt to achieve its investment objective,
without assuming undue risk relative to the broad stock
market.
Dreyfus Variable Investment Fund: - This Portfolio seeks to provide long-term capital growth,
Growth and Income Portfolio current income and growth of income, consistent with
reasonable investment risk by investing primarily in
equity securities, debt securities and money market
instruments of domestic and foreign issuers.
Dreyfus Variable Investment Fund: - This Portfolio seeks to maximize capital growth through
International Equity Portfolio investments in equity securities of foreign issuers
located throughout the world.
Dreyfus Variable Investment Fund: - This Portfolio seeks maximum capital appreciation by
Small Cap Portfolio investing primarily in common stocks of domestic and
foreign issuers. The Portfolio will be particularly alert
to companies considered by the adviser to be emerging
smaller-sized companies which are believed to be
characterized by new or innovative products, services or
processes which should enhance prospects for growth in
future earnings.
</TABLE>
The Funds currently sell shares: (1) 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 (2) to separate accounts to serve as the
underlying investment for both variable life insurance policies and variable
annuity contracts. We currently do not foresee any disadvantage to
Policyowners arising from the sale of shares to support variable life
insurance policies and variable annuity contracts, or from shares being sold
to separate accounts of insurance companies that may or may not be
affiliated with the Company. However, we will monitor events in order to
identify any material irreconcilable conflicts that might possibly arise. In
that event, we would determine what action, if any, should be taken in
response to those events or conflicts. In addition, if we believe that a
Fund's response to any of those events or conflicts insufficiently protects
Policyowners, we will take appropriate action on our
12
<PAGE>
own, including withdrawing the Variable Account's investment in that Fund.
(See the Fund prospectuses for more detail.)
We may receive compensation from an affiliate(s) of one or more of the Funds
based upon an annual percentage of the average assets we hold in the
Investment Options. These amounts are intended to compensate us for
administrative and other services we provide to the Funds and/or
affiliate(s).
Each Fund is registered with the 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 Funds by the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from or substitutions for the shares of the
Investment Options that the Variable Account holds or that the Variable
Account may purchase. If the shares of an Investment Option are no longer
available for investment or if, in our judgment, further investment in any
Investment Option should become inappropriate in view of the purposes of the
Variable Account, we reserve the right to dispose of the shares of any
Investment Option and to substitute shares of another Investment Option. We
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. In the event of any such
substitution or change, we may, by appropriate endorsement, make such
changes in these and other policies as may be necessary or appropriate to
reflect such substitution or change. 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.
We also reserve 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. We may establish new
subaccounts when, in our sole discretion, marketing, tax or investment
conditions warrant, and we may make any new subaccounts available to
existing Policyowners on a basis we determine. Subject to obtaining any
approvals or consents required by applicable law, we may transfer the assets
of one or more Subaccounts to any other Subaccount(s), or one or more
Subaccounts may be eliminated or combined with any other Subaccount(s) if,
in our sole discretion, marketing, tax or investment conditions warrant.
If we deem it to be in the best interests of persons having voting rights
under the Policies, we may
- operate the Variable Account as a management company under the
Investment Company Act of 1940,
- deregister the Variable Account under that Act in the event such
registration is no longer required, or,
- subject to obtaining any approvals or consents required by
applicable law, combine the Variable Account with other Company
separate accounts.
To the extent permitted by applicable law, we may also transfer the Variable
Account's assets associated with the Policies to another separate account.
In addition, we 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.")
13
<PAGE>
- --------------------------------------------------------------------------------
THE POLICY
- --------------------------------------------------------------------------------
PURCHASING THE POLICY
In order to issue a Policy, we must receive a completed application,
including payment of the initial premium, at our Home Office. We ordinarily
will issue a Policy only for Joint Insureds who have a Joint Equal Age of 18
to 85 years of age at their last birthday and who supply satisfactory
evidence of insurability to the Company. Acceptance is subject to our
underwriting rules and we may, in our sole discretion, reject any
application or premium for any lawful reason. The minimum Specified Amount
for which we will issue a Policy is normally $100,000, although we may, in
our discretion, issue Policies with Specified Amounts of less than $100,000.
The effective date of insurance coverage under the Policy will be the later
of:
- the Policy Date,
- the date the Joint Insureds sign the last of any amendments to the
initial application required by our underwriting rules, or
- the date when we receive the full initial premium at the Home
Office.
The Policy Date will be the later of:
(1) the date of the initial application, or
(2) the date we receive any additional information at the Home Office
if our underwriting rules require additional medical or other
information.
The Policy Date may also be any other date mutually agreed to by you and the
Company. If the later of (1) or (2) above is the 29th, 30th or 31st of any
month, the Policy Date will be the 28th of such month. We use the Policy
Date 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.
- --------------------------------------------------------------------------------
PREMIUMS
Subject to certain limitations, you have flexibility in determining the
frequency and amount of premiums.
PREMIUM FLEXIBILITY. We do not require you to pay premiums in accordance
with a rigid and inflexible premium schedule. We may require you to pay an
initial premium that, when reduced by the 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, you 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.
We may, at our discretion, permit you to make planned periodic premium
payments on a monthly basis. We ordinarily will send periodic reminder
notices 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.")
You are not required to pay premiums in accordance with the planned periodic
premium schedule. Furthermore, you have considerable flexibility to alter
the amount, frequency and the time period over which you pay planned
periodic premiums; however, we must consent to any planned periodic payment
less than $100. Changes in the planned premium schedule may have federal
income tax consequences. (See "FEDERAL TAX MATTERS.")
14
<PAGE>
Paying 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 you do pay planned periodic premiums, the
Policy will nevertheless lapse if, during the first three Policy Years, the
Net Accumulated Value (Net Surrender Value if you have taken a policy loan)
or, after three Policy Years, the 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, we may, in our discretion, waive this minimum requirement. We
reserve 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
you pay a premium that would result in total premiums exceeding the
applicable maximum premium limitation, we will accept only that portion of
the premium which will make total premiums equal the maximum. We will return
any part of the premium in excess of that amount and we will not accept
further premiums until allowed by the applicable maximum premium limitation.
PAYMENT OF PREMIUMS. We will treat any payments you make first as payment of
any outstanding Policy Debt unless you indicate that the payment should be
treated otherwise. Where you make no indication, we will treat any portion
of a payment that exceeds the amount of any outstanding Policy Debt 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.")
ALLOCATING NET PREMIUMS. In your application for a Policy, you can allocate
Net Premiums or portions thereof to the Subaccounts, to the Declared
Interest Option, or both. We will allocate Net Premiums to the Declared
Interest Option if we receive them either
(1) before the date we obtain a signed notice from you that you
have received the Policy, or
(2) before the end of 25 days after the Delivery Date (the date we
issue and mail the Policy to you).
Upon the earlier of (1) or (2) above, we will automatically allocate the
Accumulated Value in the Declared Interest Option, without charge, among the
Subaccounts and Declared Interest Option in accordance with your allocation
instructions.
We allocate Net Premiums received on or after (1) or (2) above in accordance
with your instructions, to the Variable Account, the Declared Interest
Option, or both. You do not waive your cancellation privilege by sending us
the signed notice of receipt of the Policy (see "THE POLICY--Examination of
Policy (Cancellation Privilege)").
The following additional rules apply to Net Premium allocations:
- You must allocate at least 10% of each premium to any subaccount of
the Variable Account or to the Declared Interest Option.
- Your allocation percentages must be in whole numbers (we do not
permit fractional percentages).
- You may change the allocation percentages for future Net Premiums
without charge, at any time while the Policy is in force, by
providing us with a written notice signed by you on a form we
accept. The change will take effect on the date we receive the
written notice at the Home Office and will have no effect on prior
Accumulated Values.
15
<PAGE>
- --------------------------------------------------------------------------------
EXAMINATION OF POLICY (CANCELLATION PRIVILEGE)
You may cancel the Policy by delivering or mailing written notice or sending
a telegram to us at the Home Office, and returning the Policy to us at the
Home Office before midnight of the 20th day you receive the Policy. (Certain
states may provide for 30 days in which to cancel a Policy in a replacement
situation.) 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, we will refund, within seven days after
receipt of satisfactory notice of cancellation and the returned Policy at
our Home Office, an amount equal to the greater of premiums paid, or:
- the Accumulated Value on the Business Day on or next following the
date we receive the Policy at the Home Office, plus
- any premium expense charges we deducted, plus
- monthly deductions made on the Policy Date and any Monthly Deduction
Day, and
- amounts approximating the daily mortality and expense risk charges
against the Variable Account.
- --------------------------------------------------------------------------------
POLICY LAPSE AND REINSTATEMENT
LAPSE. Your Policy may lapse (terminate without value) during the first
three Policy Years if the Net Accumulated Value (Net Surrender Value if you
take a policy loan), or after three Policy Years if the 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 we will deem the Policy 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.
A Grace Period of 61 days will commence on the date we send you a notice of
any insufficiency, at which time the Accumulated Value in each Subaccount
will be automatically transferred without charge to the Declared Interest
Option.
To avoid lapse and termination of the Policy without value, we must receive
from you 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"). If your Policy enters a Grace
Period, the amount transferred to the Declared Interest Option will remain
there unless and until you provide us with allocation instructions.
REINSTATEMENT. Prior to the Maturity Date, you may reinstate a lapsed Policy
at any time within five years of the Monthly Deduction Day immediately
preceding the Grace Period which expired without payment of the required
premium. You must submit the following items to us:
- A written application for reinstatement signed by the Policyowner
and the Joint Insureds;
- Evidence of insurability we deem satisfactory;
- 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
- 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 we did not deduct the first
year monthly administrative charge for a total of twelve
16
<PAGE>
Policy Months prior to lapse, we will continue to deduct such charge
following reinstatement of the Policy until we have assessed such charge,
both before and after the lapse, for a total of 12 Policy Months. (See
"CHARGES AND DEDUCTIONS--Monthly Deduction.") We 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 we approve the application
for reinstatement. Upon reinstatement of your Policy, the amount tranferred
to the Declared Interest Option during the Grace Period will remain there
unless and until you provide us with allocation instructions.
- --------------------------------------------------------------------------------
SPECIAL TRANSFER PRIVILEGE
You may, at any time prior to the Maturity Date while the Policy is in
force, operate the Policy as a flexible premium fixed-benefit last survivor
life insurance policy by requesting that we transfer all of the Accumulated
Value in the Variable Account to the Declared Interest Option. You may
exercise this special transfer privilege once each Policy Year. Once you
exercise the special transfer privilege, we automatically will credit all
future premium payments to the Declared Interest Option, until you request a
change in allocation to convert the Policy back to a flexible premium
variable life insurance policy. The Company will not impose any charge for
transfers resulting from the exercise of the special transfer privilege.
- --------------------------------------------------------------------------------
POLICY BENEFITS
- --------------------------------------------------------------------------------
While a Policy is in force, it provides for certain benefits prior to the
Maturity Date. Subject to certain limitations, you 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, you have
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 last death of the Joint Insureds under
one of two death benefit options selected by you (see "POLICY BENEFITS--
Death Proceeds--DEATH BENEFIT OPTIONS"), and benefits upon the maturity of a
Policy (see "POLICY BENEFITS--Benefits at Maturity").
- --------------------------------------------------------------------------------
ACCUMULATED VALUE BENEFITS
SURRENDER AND WITHDRAWAL PRIVILEGES. At any time prior to the Maturity Date
while the Policy is in force, you may surrender the Policy or make a partial
withdrawal by sending a written request to the Company at our Home Office. A
Surrender Charge will apply to any surrender during the first ten Policy
Years, as well as during the first ten 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. (See
"CHARGES AND DEDUCTIONS--Surrender Charge, and --Partial Withdrawal Fee").
We ordinarily mail surrender and withdrawal proceeds to the Policyowner
within seven days after we receive a signed request at our Home Office,
although we may postpone payments 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 when we receive the
request. We may pay this amount 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"). If you surrender the Policy, all
insurance in force will terminate. See "FEDERAL TAX MATTERS" for a
discussion of the tax consequences associated with complete surrenders.
PARTIAL WITHDRAWALS. A Policyowner may obtain a portion of the Policy's Net
Accumulated Value upon partial withdrawal of the Policy.
- A partial withdrawal must be at least $500.
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<PAGE>
- A partial withdrawal cannot exceed the lesser of (1) the Net
Accumulated Value less $500 or (2) 90% of the Net Surrender Value.
We deduct the Partial Withdrawal Fee from the remaining Accumulated Value.
You may request that we pay the proceeds of a partial withdrawal in a lump
sum or under one of the payment options specified in the Policy. (See
"POLICY BENEFITS--Payment Options").
We will allocate a partial withdrawal (together with the Partial Withdrawal
Fee) among the Subaccounts and the Declared Interest Option in accordance
with the Policyowner's written instructions. If we do not receive any such
instructions with the request for partial withdrawal, we will allocate the
partial withdrawal among the Subaccounts and the Declared Interest Option in
the same proportion that the Accumulated Value in each of the Subaccounts
and the Accumulated Value in the Declared Interest Option, reduced by any
outstanding Policy Debt, bears to the total Accumulated Value on the date we
receive the request at the Home Office.
Partial withdrawals will affect both the Policy's Accumulated Value and the
death proceeds payable under the Policy. (See "POLICY BENEFITS--Death
Proceeds.")
- The Policy's Accumulated Value will be reduced by the amount of the
partial withdrawal and Partial Withdrawal Fee.
- 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.
If Option B is in effect at the time of partial withdrawal, the partial
withdrawal will reduce the Policy's Specified Amount by the amount of
Accumulated Value withdrawn. If Option A is in effect at the time of the
partial 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, we 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.
CALCULATING ACCUMULATED VALUE. The Policy provides for the accumulation of
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. We determine Accumulated
Value on each Business Day, and there is no guaranteed minimum Accumulated
Value.
- Accumulated Value will reflect a number of factors, including
- Net Premiums paid,
- partial withdrawals,
- Policy Loans,
- charges assessed in connection with the Policy,
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<PAGE>
- interest earned on the Accumulated Value in the Declared
Interest Option, and
- investment performance of the Subaccounts to which the
Accumulated Value is allocated.
As of the Policy Date, the 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 we
receive notice that the Policyowner has received the Policy, but no later
than 25 days after the Delivery Date, we will automatically transfer the
Accumulated Value (all of which is in the Declared Interest Option) among
the Subaccounts and the Declared Interest Option in accordance with your
percentage allocation instructions. At the end of each Valuation Period
thereafter, the Accumulated Value in a Subaccount will equal:
- 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
- Any Net Premiums received during the current Valuation Period which
are allocated to the Subaccount; PLUS
- All Accumulated Values transferred to the Subaccount from the
Declared Interest Option or from another Subaccount during the
current Valuation Period; MINUS
- 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
- All partial withdrawals (and any portion of the Partial Withdrawal
Fee) from the Subaccount during the current Valuation Period; MINUS
- 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 you allocate Net Premiums
or transfer other amounts into a Subaccount, we purchase a number of units
based on the Unit Value of the Subaccount as of the end of the Valuation
Period during which the allocation or 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, we initially set the Unit Value set at $10 when the
Subaccount first purchased shares of the designated Investment Option. We
calculate the Unit Value for each subsequent valuation period by dividing
(a) by (b) where:
(a) is (1) the Net Asset Value of the net assets of the Subaccount at
the end of the preceding Valuation Period, PLUS
(2) the investment income and capital gains, realized or
unrealized, credited to the net assets of that Subaccount
during the Valuation Period for which the Unit Value is being
determined, MINUS
(3) the capital losses, realized or unrealized, charged against
those assets during the Valuation Period, MINUS
(4) any amount charged against the Subaccount for taxes, or any
amount we set aside during the Valuation Period as a provision
for taxes attributable to the operation or maintenance of that
Subaccount, MINUS
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<PAGE>
(5) a charge no greater than 0.0024548% of the average daily net
assets of the Subaccount for each day in the Valuation Period.
This corresponds to an effective annual rate of .90% of the
average daily net assets of the Subaccount for mortality and
expense risks incurred in connection with the Policies.
(b) is the number of units outstanding at the end of the preceding
Valuation Period.
The Unit Value for a Valuation Period applies for each day in the period. We
value the assets in the Variable Account at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
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TRANSFERS
The following features apply to transfers under the Policy:
- You may transfer amounts among the Subaccounts an unlimited number
of times in a Policy Year.
- You may only make one transfer per Policy Year between the Declared
Interest Option and the Variable Account.
- You may make transfers by written request to the Home Office or, if
you elected the "Telephone Transfer Authorization" on the
supplemental application, by calling the Home Office toll-free at
the phone number shown on the cover of the Prospectus.
- The amount of the transfer must be at least $100, or if less than
$100, 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). 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 we receive the request at the Home Office.
- The first transfer in each Policy Year is free. Each time you
subsequently transfer amounts in that Policy Year, we may assess a
transfer charge of $25. We will deduct the transfer charge from the
amount transferred unless you submit payment for the charge at the
time of your request. Once we issue a Policy, we will not increase
this charge. (See "CHARGES AND DEDUCTIONS--Transfer Charge.")
- For purposes of these limitations and charges, we consider all
transfers effected on the same day as 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, you 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 you may borrow at any time is 90% of the Net
Surrender Value as of the end of the Valuation Period during which we
receive the request for the Policy Loan at our Home Office, less any
previously outstanding Policy Debt. 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, we will treat
payments you make first as payment of outstanding Policy Debt, unless you
indicate that we should treat the payment otherwise. Where no indication is
made, we will treat as a premium payment any portion of a payment that
exceeds the amount of any outstanding Policy Debt.
ALLOCATION OF POLICY LOAN. When you take a Policy Loan, we segregate an
amount equal to the Policy Loan within the Declared Interest Option as
security for the Policy Loan. If, immediately prior to the
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<PAGE>
Policy Loan, the Accumulated Value in the Declared Interest Option less
Policy Debt outstanding is less than the amount of such Policy Loan, we will
transfer the difference 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. We will determine Accumulated Values as of
the end of the Valuation Period during which we receive the request for the
Policy Loan at the Home Office.
We normally will mail loan proceeds to you 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 we charge 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%. We may elect to change the interest rate at
any time, of which you will be notified. 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 you make any Policy Loan (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. We will
subtract interest payable at the time you make a Policy Loan from the loan
proceeds. Thereafter, we will add interest not paid when due to the existing
Policy Debt and it will bear interest at the same rate charged for Policy
Loans. We will segregate the amount equal to unpaid interest 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.")
Because we charge interest in advance, we will add any interest that has not
been earned to the death benefit payable at the last Joint Insureds' death
and to the Accumulated Value upon surrender, and we will credit it 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. We will credit all amounts
held in the Declared Interest Option as security for Policy Debt with
interest on each Monthly Deduction Day at an effective annual rate equal to
the greater of 4% or the current effective loan interest rate minus no more
than 3%, as determined and declared by the Company. We will not credit
additional interest 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, we may allow a loan spread of 0% on the gain in a Policy
in effect a minimum of ten years. When we do so, the Federal income tax
treatment of the loan is unclear. You should consult a tax adviser before
taking a loan.
Even though you may repay Policy Debt 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 higher
where such interest rates were greater than the performance of the
Subaccount(s).
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<PAGE>
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, the Net Accumulated Value (Net
Surrender Value if you take a policy loan) or, after three Policy Years, the
Net Surrender Value, is insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "CHARGES AND DEDUCTIONS--Monthly Deduction"), we will
notify you. To avoid lapse and termination of the Policy without value (see
"THE POLICY--Policy Lapse and Reinstatement--Lapse"), you 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. You may repay Policy Debt in whole or in part any
time during the Joint Insureds' lifetimes and before the Maturity Date so
long as the Policy is in force. We subtract any Policy Debt not repaid from
the death benefit payable at the last Joint Insureds' death, from
Accumulated Value upon complete 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
partial or full repayment of Policy Debt, we will no longer segregate within
the Declared Interest Option the portion of the Accumulated Value securing
the repaid portion of the Policy Debt, but that amount will remain in the
Declared Interest Option unless and until transferred to the Variable
Account by the Policyowner. We will notify you when your Policy Debt is
repaid in full.
For a discussion of the tax consequences associated with Policy Loans and
lapses, see "FEDERAL TAX MATTERS."
- --------------------------------------------------------------------------------
DEATH PROCEEDS
So long as the Policy remains in force, the Policy provides for the payment
of death proceeds upon the last death of the Joint Insureds.
- You may name one or more primary Beneficiaries or contingent
Beneficiaries and we will pay proceeds to the primary Beneficiary or
a contingent Beneficiary.
- If no Beneficiary survives the Joint Insureds, we will pay the death
proceeds to you or your estate. We may pay death proceeds in a lump
sum or under a payment option. (See "POLICY BENEFITS--Payment
Options.")
- If the Joint Insureds die simultaneously, we will pay an equal
portion of the death proceeds to each beneficiary.
To determine the death proceeds, we will reduce the death benefit by any
outstanding Policy Debt and increase it by any unearned loan interest and
any premiums paid after the date of death. We will ordinarily mail proceeds
within seven days after receipt by the Company of Due Proof of Death. We may
postpone payment, however, under certain circumstances. (See "GENERAL
PROVISIONS--Postponement of Payments.") We pay 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 last Joint Insureds' death.
Under Option A, the death benefit will be equal to the greater of:
(1) the sum of the current Specified Amount and the Accumulated Value,
or
(2) the Accumulated Value multiplied by the specified amount factor.
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<PAGE>
We will determine Accumulated Value as of the end of the Business Day coinciding
with or immediately following the last death of the Joint Insureds. The
specified amount factor is 2.50 for a Joint Insureds' Joint Equal Attained Age
40 or below on the date of death. For Joint Insureds with a Joint Equal 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). If you prefer to have favorable investment
performance and additional premiums reflected in increased death benefits,
Policyowners 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 last death of the Joint
Insureds) 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. If you are satisfied with the amount of your insurance
coverage and prefer to have favorable investment performance and additional
premiums reflected in higher Accumulated Value, rather than increased death
benefits, Policyowners generally should select Option B.
Appendix B shows examples illustrating Option A and Option B.
CHANGING THE DEATH BENEFIT OPTION. You may change the death benefit option in
effect at any time by sending a written request to us at our Home Office. The
effective date of such a change will be the Monthly Deduction Day coinciding
with or immediately following the date we approve the change. A change in death
benefit options may have federal income tax consequences. (See "FEDERAL TAX
MATTERS.") You should consult a tax adviser before changing your death benefit
option.
If you change the death benefit option from Option A to Option B, the death
benefit will not change and the current Specified Amount will be increased by
the Accumulated Value on the effective date of the change. If you change the
death benefit option from Option B to Option A, we will reduce the current
Specified Amount by an amount equal to the Accumulated Value on the effective
date of the change. You may not make a change in the death benefit option 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.
We impose no charges 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, you may adjust the existing insurance coverage by increasing or decreasing
the Specified Amount. To make a change, you must send us a written request at
our 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 your 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.") You should consult a tax adviser before changing your existing
coverage.
Any decrease in the Specified Amount will become effective on the Monthly
Deduction Day coinciding with or immediately following the date we approve the
request. The decrease will first reduce the Specified Amount provided by the
most recent increase, then the next most recent increases successively,
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<PAGE>
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, you must provide us with evidence of insurability we
deem satisfactory. Any approved increase will become effective on the Monthly
Deduction Day coinciding with or immediately following the date we approve the
request. 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.
CHANGES IN INSURANCE PROTECTION. You 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 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.
- 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.
- If you elect Option B, 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.
- If you elect Option B, 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.
- A partial withdrawal will reduce the death benefit. (See "POLICY
BENEFITS--Accumulated Value Benefits--PARTIAL WITHDRAWALS.") 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. A change in insurance protection may have federal income tax
consequences. (See "FEDERAL TAX MATTERS.") You should consult a tax adviser
before changing your insurance protection.
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BENEFITS AT MATURITY
If either Joint Insured is alive and the Policy is in force on the Maturity
Date, we will pay to you 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.") We may pay benefits at maturity in a
lump sum or under a payment option. The Maturity Date is Joint Equal
Attained Age 115. The tax consequences associated with continuing the Policy
beyond the 100th birthday of the younger insured are unclear and a tax
adviser should be consulted.
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PAYMENT OPTIONS
We may pay death proceeds and Accumulated Value due at maturity, or upon
surrender or partial withdrawal of a Policy, in whole or in part under a
payment option. In any case, a supplemental agreement will be issued for the
payment option. Under a supplemental agreement, the Effective Date is the
date on which death proceeds and Accumulated Value are applied to a payment
option.
You may designate an option in your application or notify us in writing at
our Home Office. During the lives of the Joint Insureds, you may select a
payment option; in addition, during that time you may change a previously
selected option by sending written notice to us requesting the cancellation
of the prior option and the designation of a new option. If you have not
chosen an option prior to the last Joint Insureds' death, the Beneficiary
may choose an option. The Beneficiary may change a payment option by sending
a written request to us, provided that a prior option chosen by you is not
in effect.
If you have not elected a payment option, we will pay the proceeds of the
Policy in one sum. The Company will also pay the proceeds in one sum if,
(1) the proceeds are less than $2,000;
(2) periodic payments would be less than $20; or
(3) 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 vary. Proceeds applied under a payment option earn interest at
a rate guaranteed to be no less than 3% compounded yearly. The Company may
be crediting higher interest rates on the Effective Date, but is not
obligated to declare that such additional interest 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. We reserve the right to defer a withdrawal for up to
six months and to refuse to allow partial withdrawals of less than $250.
We have provided a description of the available payment options below.
Payments under Options 2, 3, 4 or 5 will begin as of the date of the last
Joint Insureds' death, on partial withdrawal or 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% compounded yearly. The
payee may withdraw all or part of the proceeds at any time.
OPTION 2--INCOME FOR A FIXED PERIOD. Periodic payments will be made for a
fixed period not longer than 30 years. Payments can be annual, semi-annual,
quarterly or monthly. Guaranteed amounts
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payable under the plan will earn interest at a rate determined by the
Company, in no event less than 3% 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% 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%
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%
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. The Company may make available alternative payment
options.
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CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
We deduct certain charges in connection with the Policy to compensate us for
(1) the services and benefits we provide; (2) the costs and expenses we
incur; and (3) the risks we assume, some of which are described below.
<TABLE>
<S> <C> <C>
SERVICES AND BENEFITS WE PROVIDE: - the death benefit, cash and loan benefits
under the Policy
- investment options, including premium
allocations
- administration of elective options
- the distribution of reports to Policyowners
COSTS AND EXPENSES WE INCUR: - costs associated with processing and
underwriting applications, issuing and
administering the Policy (including any
Policy riders)
- overhead and other expenses for providing
services and benefits
- sales and marketing expenses
- other costs of doing business, such as
collecting premiums, maintaining records,
processing claims, effecting transactions,
and paying Federal, state and local premium
and other taxes and fees
RISKS WE ASSUME: - that the cost of insurance charges we may
deduct are insufficient to meet our actual
claims because Insureds die sooner than we
estimate
- that the costs of providing the services
and benefits under the Policies exceed the
charges we deduct
</TABLE>
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<PAGE>
The nature and amount of these charges are described more fully below.
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PREMIUM EXPENSE CHARGE
Before allocating Net Premiums among the Subaccounts and the Declared
Interest Option, we reduce premiums paid by a premium expense charge. The
premium less the premium expense charge equals the Net Premium.
The premium expense charge is 7% of each premium up to the Target Premium
(or 2% for each premium over the Target Premium) and is used to compensate
us for expenses incurred in distributing the Policy, including registered
representative sales commissions, the cost of printing prospectuses and
sales literature, advertising costs and charges we consider necessary to pay
all taxes imposed by states and subdivisions thereof (which currently range
from 1% to 3%).
- --------------------------------------------------------------------------------
MONTHLY DEDUCTION
We deduct certain charges monthly from the Accumulated Value of each Policy
("monthly deduction") to compensate us 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. We deduct the monthly deduction on the Policy Date and on each
Monthly Deduction Day. We deduct it 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, we determine Accumulated Values as of the end of the Business
Day coinciding with or immediately following the Monthly Deduction 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.
During the first 12 Policy Months and during the 12 Policy Months
immediately following an increase in Specified Amount, the monthly deduction
will include a first year monthly administrative charge.
We make the monthly deduction on the Business Day coinciding with or
immediately following each Monthly Deduction Day and it will equal:
- the cost of insurance for the Policy; plus
- the cost of any optional insurance benefits added by rider; plus
- the monthly policy expense charges.
COST OF INSURANCE. This charge is designed to compensate us for the
anticipated cost of paying death proceeds to Beneficiaries when the Joint
Insureds die prior to the Maturity Date. We determine the cost of insurance
on a monthly basis, and we determine it separately for the initial Specified
Amount and for any subsequent increases in Specified Amount. We 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.
We determine the Specified Amount and the Accumulated Value as of the end of
the Business Day coinciding with or immediately following the Monthly
Deduction Day.
- ------------------------
(1) Dividing by this number 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%.
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<PAGE>
We determine the net amount at risk separately for the initial Specified
Amount and any increases in Specified Amount. In determining the net amount
at risk for each Specified Amount, we first consider the Accumulated Value a
part of the initial Specified Amount. If the Accumulated Value exceeds the
initial Specified Amount, we will consider it to be a part of any increase
in the Specified Amount in the same order as the increases occurred.
COST OF INSURANCE RATE. We base the cost of insurance rate for the initial
Specified Amount on the Joint Insureds' sex, premium class and Joint Equal
Age. For any increase in Specified Amount, we base the cost of insurance
rate on the Joint Insureds' sex, premium class and age at last birthday on
the effective date of the increase. Actual cost of insurance rates may
change and we will determine the actual monthly cost of insurance rates 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 Joint Insureds' Joint
Equal Attained Age increases. The premium class of the Joint Insureds also
will affect the cost of insurance rate. The Company currently places Joint
Insureds into a standard premium class or into premium classes involving a
higher mortality risk. In an otherwise identical Policy, Joint 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 Joint Insureds will generally
have a lower cost of insurance rate than similarly situated Joint Insureds
who use tobacco.
We determine the cost of insurance rate separately for the initial Specified
Amount and for the amount of any increase in Specified Amount. In
calculating the cost of insurance charge, we apply the rate for the premium
class on the Policy Date to the net amount at risk for the initial Specified
Amount; for each increase in Specified Amount, we use the rate for the
premium class applicable to the increase. However, if we calculate the death
benefit as the Accumulated Value times the specified amount factor, we will
use the rate for the premium class for the most recent increase that
required evidence of insurability 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 CHARGES. We have primary responsibility for the
administration of the Policy and the Variable Account. Administrative
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 administrative expenses
related to the maintenance of each Policy and the Variable Account, we
assess a $10 monthly administrative charge against each Policy. We guarantee
this charge will not exceed $14 per Policy Month. We also apply a charge of
$0.03 per $1,000 of Specified Amount against each Policy. We guarantee this
charge will not exceed $0.05 per $1,000 of Specified Amount.
FIRST YEAR MONTHLY ADMINISTRATIVE CHARGE. We deduct monthly administrative
charges from Accumulated Value as part of the monthly deduction during the
first twelve Policy Months and during the twelve Policy Months immediately
following an increase in Specified Amount. The charge will compensate us 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 Joint Insureds' premium class, and
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<PAGE>
establishing policy records. The first year monthly administrative charge is
$0.10 per $1,000 of Specified Amount or increase in Specified Amount. We
guarantee this charge will not exceed $0.14 per $1,000 of Specified Amount.
FIRST YEAR MONTHLY EXPENSE CHARGE. We will deduct a monthly expense charge
of $10 from Accumulated Value during the first twelve Policy Months. We
guarantee this charge will not exceed $14 per Policy Month.
- --------------------------------------------------------------------------------
TRANSFER CHARGE
We may impose a transfer charge of $25 for the second and each subsequent
transfer during a Policy Year to compensate us for the costs in making the
transfer.
- Unless paid in cash, we will deduct the transfer charge from the
amount transferred.
- Once we issue a Policy, we will not increase this charge for the
life of the Policy.
- We will not impose a transfer charge 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, we assess a charge equal to the lesser
of $25 or 2% of the amount withdrawn to compensate us for costs incurred in
accomplishing the withdrawal. We deduct this fee from Accumulated Value.
- --------------------------------------------------------------------------------
SURRENDER CHARGE
We apply a Surrender Charge during the first ten Policy Years, as well as
during the first ten years following an increase in Specified Amount. This
charge is an amount per $1,000 of Specified Amount which declines to $0 in
the eleventh year and varies by Joint Equal Age, underwriting category and
Policy Year. We have listed below the maximum Surrender Charge for select
ages in various underwriting categories in the first Policy Year.
<TABLE>
<CAPTION>
ISSUE AGE NON-TOBACCO TOBACCO COMBINED
<S> <C> <C> <C>
30 13.67 15.00 14.23
50 24.28 27.59 25.68
70 54.10 53.81 53.97
</TABLE>
The Surrender Charge is level within each Policy Year. (See "APPENDIX C --
Maximum Surrender Charges.")
Currently, we waive the Surrender Charge after the first Policy Year if
either Joint Insured is terminally ill or stays in a qualified nursing care
center for 90 days.
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE. We deduct a daily mortality and expense
risk charge from each Subaccount at an effective annual rate of .90% of the
average daily net assets of the Subaccounts. We guarantee this charge will
not exceed 1.05% of the average daily net assets of the Subaccounts. We may
realize a profit from this charge and may use such profit for any lawful
purpose, including payment of our distribution expenses.
The mortality risk we assume is that Joint Insureds may die sooner than
anticipated and therefore, we may pay an aggregate amount of life insurance
proceeds greater than anticipated. The expense
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<PAGE>
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. We
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.
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THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
You may allocate Net Premiums and transfer Accumulated Value to the Declared
Interest Option. Because of exemptive and exclusionary provisions, we have
not registered interests in the Declared Interest Option under the
Securities Act of 1933 and we have not registered the Declared Interest
Option 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. Please
refer to the Policy for complete details regarding the Declared Interest
Option.
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION
Our General Account supports the Declared Interest Option. The General
Account consists of all assets we own other than those in the Variable
Account and other separate accounts. Subject to applicable law, we have sole
discretion over the investment of the General Account's assets.
You may elect to allocate Net Premiums to the Declared Interest Option, the
Variable Account, or both. You may also transfer Accumulated Value from the
Subaccounts to the Declared Interest Option, or from the Declared Interest
Option to the Subaccounts. Allocating or transferring funds to the Declared
Interest Option does not entitle you to share in the investment experience
of the General Account. Instead, we guarantee that Accumulated Value in the
Declared Interest Option will accrue interest at an effective annual rate of
at least 4%, independent of the actual investment experience of the General
Account.
- --------------------------------------------------------------------------------
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. We
guarantee 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%. The Company may, in its sole discretion, credit a higher rate of
interest, although it is not obligated to credit interest in excess of 4%
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% 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% 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%, but will in no event be greater
than the current effective loan interest rate minus no more than 3%. From
time to time, we may allow a loan spread of 0% on the gain in a Policy in
effect a minimum of 10 years. The Accumulated Value in the Declared Interest
Option will be calculated no less frequently than each Monthly Deduction
Day.
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<PAGE>
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% per year, plus any
excess interest which we credit, 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 surrenders or transfers
to the Variable Account.
- --------------------------------------------------------------------------------
TRANSFERS, PARTIAL WITHDRAWALS, SURRENDERS AND POLICY LOANS
You may transfer amounts between the Subaccounts and the Declared Interest
Option. However, only one transfer between the Variable Account and the
Declared Interest Option is permitted in each Policy Year. We may impose a
transfer charge of $25 in connection with the transfer unless such transfer
is the first transfer requested by the Policyowner during such Policy Year.
Unless you submit the transfer charge in cash with your request, we will
deduct the charge from the amount transferred. 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, you may transfer the full Net Accumulated Value in the Declared
Interest Option. A Policyowner may also make surrenders and obtain Policy
Loans from the Declared Interest Option at any time prior to the Policy's
Maturity Date.
We may delay transfers, partial withdrawals and surrenders from, and
payments of Policy Loans allocated to, the Declared Interest Option for up
to six months. Surrenders and partial withdrawals will have tax consequences
(see "FEDERAL TAX MATTERS").
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT
We issue the Policy in consideration of the statements in the application
and the payment of the initial premium. The Policy, the application, any
supplemental applications and endorsements or additional benefit riders or
agreements make up the entire contract. In the absence of fraud, we will
treat the statements made in an application or supplemental application as
representations and not as warranties. We will not use any statement to void
the Policy or in defense of a claim unless the statement is 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 lifetimes of the Joint Insureds 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 lifetimes of the
Joint Insureds for two years from the effective date of the increase.
Depending upon individual state replacement requirements, if we replace your
Policy with another life insurance policy issued by us or one of our
affiliates, we will credit the amount of time you held your Policy when
calculating incontestability provisions under the new policy.
- --------------------------------------------------------------------------------
CHANGE OF PROVISIONS
We reserve the right to change the Policy, in the event of future changes in
the federal tax law, to the extent required to maintain the Policy's
qualification as life insurance under federal tax law.
Except as provided in the foregoing paragraph, no one can change any part of
the Policy except the Policyowner and the President, a Vice President, the
Secretary or an Assistant Secretary of the
31
<PAGE>
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 either Joint Insureds' age or sex was misstated in the application, we
will adjust each benefit and any amount to be paid under the Policy to
reflect the correct age and sex.
- --------------------------------------------------------------------------------
SUICIDE EXCLUSION
If the Policy is in force and the surviving Joint Insured commits suicide,
while sane or insane, within one year from the Policy Date, we will limit
life insurance proceeds payable under the Policy 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
surviving Joint Insured commits suicide, while sane or insane, within one
year from the effective date of any increase in Specified Amount, we will
not pay any increase in the death benefit resulting from the requested
increase in Specified Amount. Instead, we will refund to the Policyowner an
amount equal to the total cost of insurance applied to the increase.
Depending upon individual state replacement requirements, if we replace your
Policy with another life insurance policy issued by us or one of our
affiliates, we will credit the amount of time you held your Policy when
calculating suicide provisions under the new policy.
- --------------------------------------------------------------------------------
ANNUAL REPORT
At least once each year, we will send an annual report 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
You should send any written notice to the Company at our Home Office. The
notice should include the policy number and the Joint Insureds' full names.
Any notice we send to a Policyowner will be sent to the address shown in the
application unless you filed an appropriate address change form 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 we receive your signed
request at our Home Office. We will usually mail death proceeds within seven
days after receipt of Due Proof of Death and maturity benefits
32
<PAGE>
within seven days of the Maturity Date. However, we may postpone payment of
any amount upon a partial withdrawal from or surrender of a Policy, payment
of any Policy Loan, and payment of death proceeds or benefits at maturity
whenever:
- 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;
- the Securities and Exchange Commission by order permits postponement
for the protection of Policyowners; or
- 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.
We also may postpone transfers under these circumstances.
Payments under the Policy which are derived from any amount paid to the
Company by check or draft may be postponed until such time as the Company is
satisfied that the check or draft has cleared the bank upon which it is
drawn.
- --------------------------------------------------------------------------------
CONTINUANCE OF INSURANCE
The insurance under a Policy will continue until the earlier of:
- 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;
- the date the Policyowner surrenders the Policy for its entire Net
Accumulated Value;
- the last death of the Joint Insureds; or
- 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. If there is more than one owner,
the Policy will be owned jointly with right of survivorship. 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 Joint Insureds' lifetimes, 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 Joint Insureds are 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 us unless in writing and
until we receive notice of the assignment at the Home Office. The assignment
is subject to any payment or action we may have taken before we received
notice of the assignment at the Home Office. Assigning the Policy may have
federal income tax consequences. [See "FEDERAL TAX MATTERS."]
- --------------------------------------------------------------------------------
THE BENEFICIARY
The Policyowner designates the primary Beneficiaries and contingent
Beneficiaries 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
33
<PAGE>
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, we will pay the proceeds payable at the
last Joint Insured's death in a lump sum to the primary Beneficiary. If the
primary Beneficiary dies before the last Joint Insured, we will pay the
proceeds to the contingent Beneficiary. If no Beneficiary survives the
Insured, we will pay the proceeds to the Policyowner or the Policyowner's
estate.
- --------------------------------------------------------------------------------
CHANGING THE POLICYOWNER OR BENEFICIARY
During the Joint Insureds' lives, the Policyowner and the Beneficiary may be
changed. To make a change, you must send a written request to us at our Home
Office. The request and the change must be in a form satisfactory to the
Company and we must actually receive and record the request. The change will
take effect as of the date you sign the request and will be subject to any
payment made before we recorded the change. We may require return of the
Policy for endorsement.
- --------------------------------------------------------------------------------
ADDITIONAL INSURANCE BENEFITS
Subject to certain requirements, you may add one or more of the following
additional insurance benefits to a Policy by rider:
- Last Survivor Universal Cost of Living Increase;
- Universal Term Life Insurance; and
- Estate Protector 4-Year Non-Renewable Last Survivor Term.
We will deduct the cost of any additional insurance benefits as part of the
monthly deduction. (See "CHARGES AND DEDUCTIONS--Monthly Deduction.") You
may obtain detailed information concerning available riders, and their
suitability for inclusion to your Policy, from the registered representative
selling the Policy.
- --------------------------------------------------------------------------------
POLICY SPLIT OPTION
You may split the Policy into two single-life policies, one on each of the
Joint Insureds, upon the occurrence of the following events:
- divorce or annulment with respect to the marriage of the Joint
Insureds, or
- certain changes in the Federal Estate Tax Law resulting in reductions
in the Unlimited Marital Deduction, the Federal Unified Credit or the
Federal Estate Tax.
You may elect this option subject to the following provisions:
- you must provide us with written notification within 90 days after
the effective date of one of the events listed above;
- each new policy will be issued for no more than one-half the
Specified Amount of this Policy;
- the Net Surrender Value will be divided and allocated in proportion
to the Specified Amount of each new policy;
- the Beneficiary of this Policy will be the beneficiary of each new
policy;
- if the Joint Insureds are the owners of this Policy, each will be the
owner of their new policy; if the Joint Insureds are not the owners
of this Policy, then the owners will be the owners of each new policy
(in this case, there will be a taxable event);
- the new policies will be issued based on the age and premium class
for each Joint Insured on the effective date of the election of this
option;
34
<PAGE>
- the new policies must fit our single life issue limits in effect at
the time you elect the option. The new policies will be subject to
the same charges as those in effect for requesting underwritten
policies;
- this option will not be available after the date of first death of
the Joint Insureds; and
- the two single-life policies may be any permanent single life
policies currently offered by the Company at the time this option is
elected; and
- any assignments of this Policy will apply to each new policy.
Please consult your registered representative for more information on this
option.
- --------------------------------------------------------------------------------
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 also registered
representatives of the principal underwriter of the Policies, EquiTrust
Marketing Services, LLC ("EquiTrust Marketing"), a broker-dealer having a
selling agreement with EquiTrust Marketing or a broker-dealer having a
selling agreement with such broker-dealer. EquiTrust Marketing, 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. ("NASD").
The maximum sales commission payable to broker-dealers will be 100% of
premiums up to the first-year Target Premium, 6% of renewal Target Premium
and 4% of excess premium in all years. 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."
Under the Public Disclosure Program, NASD Regulation ("NASDR") provides
certain information regarding the disciplinary history of NASD member
broker-dealers and their associated persons in response to written,
electronic or telephonic inquiries. NASDR's toll-free Public Disclosure
Program Hotline telephone number is 1-800-289-9999 and their Web site
address is www.nasdr.com. An investor brochure that includes information
describing the Public Disclosure Program is available from NASDR.
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the policy and does not purport to be
complete or to cover all tax situations. This discussion is not intended as
tax advice. Counsel or other competent tax advisors should be consulted for
more complete information. This discussion is based upon our understanding
of the present Federal income tax laws. No representation is made as to the
likelihood of continuation of the present Federal income tax laws or as to
how they may be interpreted by the Internal Revenue Service.
- --------------------------------------------------------------------------------
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a life insurance policy must satisfy
certain requirements which are set forth in the Internal Revenue Code.
Guidance as to how these requirements are to be applied is limited
especially with regard to policies issued on joint lives. While we believe
that it is reasonable to conclude that a Policy should satisfy the
applicable requirements of the Code, certain features of the Policy are not
addressed in the relevant authorities.
35
<PAGE>
For example, the relevant authorities do not address the Policy's use of
Joint Equal Age calculations to test for compliance with the requirements of
the Code. If it is subsequently determined that a Policy does not satisfy
the applicable requirements to be treated as a life insurance contract, we
may take appropriate steps to bring the Policy into compliance with such
requirements and we reserve the right to modify the Policy as necessary in
order to do so.
In certain circumstances, owners of variable life insurance policies have
been considered for Federal income tax purposes to be the owners of the
assets of variable account supporting their contracts due to their ability
to exercise investment control over those assets. Where this is the case,
the policyowners have been currently taxed on income and gains attributable
to variable account assets. There is little guidance in this area, and some
features of the Policy, such as the flexibility to allocate premium payments
and Accumulated Values, have not been explicitly addressed in published
rulings. While we believe that the Policy does not give the Policyowner
investment control over Variable Account assets, we reserve the right to
modify the Policy as necessary to prevent the Policyowner from being treated
as the owner of the Variable Account assets supporting the Policy.
In addition, the Code requires that the investments of the Subaccounts be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal income tax purposes. It is intended that the
Subaccounts, through the funds, will satisfy these diversification
requirements.
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 death benefit under a Policy
should be excludible from the gross income of the beneficiary. Federal,
state and local estate, inheritance, transfer, and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
Policyowner or beneficiary. A tax adviser should be consulted on these
consequences.
Generally, a Policyowner will not be deemed to be in constructive receipt of
the Accumulated Value until there is a distribution. When distributions from
a Policy occur, or when loans are taken out from or secured by a Policy, the
tax consequences depend on whether the Policy is classified as a "modified
endowment contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life
insurance contracts are classified as "modified endowment contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policy as to premium payments and benefits, the
individual circumstances of each Policy will determine whether it is
classified as a modified endowment contract. The rules are too complex to be
summarized here, but generally depend on the amount of premium payments made
during the first seven Policy years. Certain changes in a Policy after it is
issued (including a reduction in benefits anytime after issuance) could also
cause it to be classified as a modified endowment contract. You should
consult with a competent tax adviser to determine whether a Policy
transaction will cause the Policy to be classified as a modified endowment
contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS. Policies classified as modified endowment contracts are subject
to the following tax rules:
(1) All distributions other than death benefits from a modified
endowment contract, including distributions upon surrender and
withdrawals, will be treated first as distributions of gain taxable
as ordinary income and as tax-free recovery of the Policyowner's
investment in the Policy only after all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a modified
endowment contract are treated as distributions and taxed
accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject
to tax except where the distribution or loan is made when the
Policyowner has attained age 59 1/2 or is disabled, or where the
distribution is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Policyowner or
the joint lives (or joint life expectancies) of the Policyowner and
the Policyowner's beneficiary or designated beneficiary.
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<PAGE>
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS. Distributions other than death benefits from a Policy
that is not classified as a modified endowment contract are generally
treated first as a recovery of the Policyowner's investment in the Policy,
and only after the recovery of all investment in the Policy, as taxable
income. However, certain distributions which must be made in order to enable
the Policy to continue to qualify as a life insurance contract for Federal
income tax purposes if Policy benefits are reduced during the first 15
Policy years may be treated in whole or in part as ordinary income subject
to tax.
Loans from or secured by a Policy that is not a modified endowment contract
will generally not be treated as taxable distributions. However, the tax
treatment of loans available where there is no spread or a minimal spread
between the interest rate charged and the interest rate credited on the
loaned amount is unclear. You should consult a tax adviser as to the tax
consequences of such a loan.
Finally, neither distributions from, nor loans from or secured by, a Policy
that is not a modified endowment contract are subject to the 10 percent
additional income tax.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally your
aggregate premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that
is tax-free.
POLICY LOAN INTEREST. In general, interest on a Policy Loan will not be
deductible. If a loan from a Policy is outstanding when the Policy is
cancelled or lapses, then the amount of the outstanding indebtedness will be
added to the amount treated as a distribution from the Policy and will be
taxed accordingly.
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 includible in the Policyowner's income when a taxable
distribution occurs.
ACCELERATED DEATH BENEFITS. 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, you 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.
EXCHANGES. The Company believes that an exchange of a fixed-benefit joint
life policy issued by the Company for a Policy as provided under "THE
POLICY--Exchange Privilege" generally should be treated as a non-taxable
exchange of life insurance policies within the meaning of section 1035 of
the Code. However, in certain circumstances, the exchanging owner may
receive a cash distribution that might have to be recognized as income to
the extent there was gain in the fixed-benefit policy. Moreover, to the
extent a fixed-benefit policy with an outstanding loan is exchanged for an
unencumbered Policy, the exchanging owner could recognize income at the time
of the exchange up to an amount of such loan (including any due and unpaid
interest on such loan). An exchanging Policyowner should consult a tax
adviser as to whether an exchange of a fixed-benefit policy for the Policy
will have adverse tax consequences.
CONTINUATION BEYOND AGE 100. If the Policy continues in force beyond the
100th birthday of the younger insured, the tax consequences are uncertain.
You should consult a tax adviser as to those consequences.
POLICY SPLIT OPTION. The policy split option permits a Policy to be split
into two single life insurance policies. It is not clear whether exercising
the policy split option will be treated as a taxable transaction or whether
the individual policies that result would be modified endowment contracts.
Consult a tax adviser before exercising the policy split option.
37
<PAGE>
OTHER POLICYOWNER TAX MATTERS. Businesses can use the Policy in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, tax
exempt and nonexempt welfare benefit plans, retiree medical benefit plans
and others. The tax consequences of such plans may vary depending on the
particular facts and circumstances. If you are purchasing the Policy for any
arrangement the value of which depends in part on its tax consequences, you
should consult a qualified tax adviser. In recent years, moreover, Congress
has adopted new rules relating to life insurance owned by businesses. Any
business contemplating the purchase of a new Policy or a change in an
existing Policy should consult a tax adviser.
OTHER TAX CONSIDERATIONS. The transfer of the Policy or designation of a
beneficiary may have federal, state and/or local transfer and inheritance
tax consequences, including the imposition of gift, estate and
generation-skipping transfer taxes. For example, the transfer of the Policy
to, the designation as a beneficiary of or the payment of proceeds to a
person who is assigned to a generation which is two or more generations
below the generation assignment of the owner may have generation-skipping
transfer tax consequences under federal tax law. The individual situation of
each owner or beneficiary will determine the extent, if any, to which
federal, state and local transfer and inheritance taxes may be imposed and
how ownership or receipt of Policy proceeds will be treated for purposes of
federal, state and local estate, inheritance, generation-skipping and other
taxes.
- --------------------------------------------------------------------------------
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the Policy could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Policy.
- --------------------------------------------------------------------------------
TAXATION OF THE COMPANY
At the present time, the Company makes no charge for any Federal, state or
local taxes (other than the charge for state premium taxes) that may be
attributable to the Variable Account or to the policies. The Company
reserves the right to charge the Subaccounts of the Variable Account for any
future taxes or economic burden the Company may incur.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
We maintain records of all purchases and redemptions of shares by each
Investment Option for each corresponding Subaccount. Additional
38
<PAGE>
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, We determine
that it is permitted to vote the Fund shares in its own right, we 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 you have 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.
39
<PAGE>
- --------------------------------------------------------------------------------
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 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 our outstanding voting shares are owned by Farm
Bureau Life Insurance Company which is 100% owned by FBL Financial Group,
Inc. At December 31, 1999, Iowa Farm Bureau Federation owned 56.47% of the
outstanding voting shares of FBL Financial Group, Inc.
Iowa Farm Bureau Federation is an Iowa not-for-profit corporation, the
members of which are county Farm Bureau organizations and their individual
members. Iowa Farm Bureau Federation is primarily engaged, through various
divisions and subsidiaries, in the formulation, analysis and promotion of
programs (at local, state, national and international levels) that are
designed to foster the educational, social and economic advancement of its
members. The principal offices of Iowa Farm Bureau Federation are at 5400
University Avenue, West Des Moines, Iowa 50266.
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS OF EQUITRUST LIFE INSURANCE COMPANY
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.
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
Edward M. Wiederstein Farmer; Chairman and Director, FBL Financial Group, Inc.; President
President and Director and Director, Iowa Farm Bureau Federation, and other affiliates of
the foregoing and Farm Bureau Agricultural Business Corporation;
Director, Multi-Pig Corporation, Western Agricultural Insurance
Company and other affiliates of the foregoing
William J. Oddy Chief Executive Officer and Management Director, FBL Financial
Chief Executive Officer and Group, Inc.
Director
Jerry C. Downin Senior Vice President and Secretary-Treasurer, Iowa Farm Bureau
Senior Vice President, Federation and other affiliates of the foregoing; Senior Vice
Secretary-Treasurer and President, Secretary-Treasurer, and Management Director, FSL
Director Financial Group, Inc.
Stephen M. Morain Senior Vice President, General Counsel and Management Director, FBL
Senior Vice President, General Financial Group, Inc.
Counsel and Director
JoAnn Rumelhart Executive Vice President and General Manager-Life Cos., FBL
Executive Vice President, Financial Group, Inc.
General Manager and Director
Timothy J. Hoffman Chief Administrative Officer, FBL Financial Group, Inc.
Chief Administrative Officer
and Director
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
James W. Noyce Chief Financial Officer, FBL Financial Group, Inc.
Chief Financial Officer and
Director
Barbara J. Moore Vice President-Property/Casualty Operations, FBL Financial
Vice President Group, Inc.
John M. Paule Vice President-Chief Marketing Officer, FBL Financial Group, Inc.
Chief Marketing Officer
Lynn E. Wilson Vice President-Life Sales, FBL Financial Group, Inc.
Vice President-Life Sales
LouAnn Sandburg Vice President-Investments and Assistant Treasurer, FBL Financial
Vice President - Investments Group, Inc.
and Assistant Treasurer
Thomas E. Burlingame Vice President-Associate General Counsel, FBL Financial Group, Inc.
Vice President - Associate
General Counsel
James P. Brannen Vice President-Controller, FBL Financial Group, Inc.
Vice President-Controller
Jan Sewright Insurance Accounting Vice President, FBL Financial Group, Inc.
Insurance Accounting Vice
President
Dennis M. Marker Vice President-Investment Administration, FBL Financial Group, Inc.
Vice President-Investment
Administration
Paul Grinvalds Vice President-Life Administration, Appointed Actuary, FBL Financial
Vice President-Life Group, Inc.
Administration
Christopher G. Daniels Life Product Development and Pricing Vice President, FBL Financial
Life Product Development and Group, Inc.
Pricing Vice President
Don Seibel Vice President-Accounting, FBL Financial Group, Inc.
Vice President-Accounting
James E. McCarthy Trust Sales Vice President, FBL Financial Group, Inc.
Trust Sales Vice President
James M. Mincks Vice President-Human Resources, FBL Financial Group, Inc.
Vice President-Human Resources
Scott Shuck Vice President-Marketing Services, FBL Financial Group, Inc.
Vice President-Marketing
Services
Jim Streck Vice President-Life Underwriting and Issue, FBL Financial
Vice President-Life Group, Inc.
Underwriting and Issue
Blake D. Weber Sales Services Vice President, FBL Financial Group, Inc.
Sales Services Vice President
Doug Gumm Vice President-Information Technology, FBL Financial Group, Inc.
Vice President-Information
Technology
James A. Pugh Assistant General Counsel, FBL Financial Group, Inc.
Assistant General Counsel
</TABLE>
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 us 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, we believe 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 or the Company.
- --------------------------------------------------------------------------------
EXPERTS
The financial statements of the Variable Account at December 31, 1999 and
for the period from January 21, 1999 (date operations commenced) through
December 31, 1999, and the statutory-basis financial statements of the
Company at December 31, 1999 and 1998 and for the years then ended,
appearing herein, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their respective reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by
Christopher G. Daniels, FSA, MAAA, Life Product Development and Pricing Vice
President, as stated in the opinion filed as an exhibit to the registration
statement.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Variable Account's statements of net assets as of December 31, 1999 and
the related statements of operations and changes in net assets for the
period from January 21, 1999 (date operations commenced) through
December 31, 1999, and the statutory-basis balance sheets of the Company at
December 31, 1999 and 1998 and the related statutory-basis statements of
operations, changes in net worth and cash flows for the years then ended,
appearing herein, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their respective reports thereon appearing
elsewhere herein. This Policy was not offered through the Variable Account
prior to May 1, 2000.
42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Participants
EquiTrust Life Insurance Company
We have audited the accompanying individual and combined statements of net
assets of EquiTrust Life Variable Account II (comprised of the Value Growth,
High Grade Bond, High Yield Bond, Money Market, Blue Chip, Capital Appreciation,
Disciplined Stock, Growth and Income, International Equity, Small Cap, Equity
Income, Mid-Cap Growth, New America Growth, Personal Strategy Balanced and
International Stock Subaccounts) as of December 31, 1999, and the related
statements of operations and changes in net assets for the period from
January 21, 1999 (date operations commenced) through December 31, 1999. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999, by
correspondence with the mutual funds' transfer agents. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
respective subaccounts of EquiTrust Life Variable Account II at December 31,
1999, and the individual and combined results of their operations and changes in
their net assets for the period from January 21, 1999 through December 31, 1999,
in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Des Moines, Iowa
March 10, 2000
43
<PAGE>
EQUITRUST LIFE VARIABLE ACCOUNT II
STATEMENTS OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments in EquiTrust Variable Insurance
Series Fund:
Value Growth Subaccount:
Value Growth Portfolio, 9,990.84 shares at net
asset value of $8.69 per share
(cost: $90,439) $ 86,820
High Grade Bond Subaccount:
High Grade Bond Portfolio, 8,277.87 shares at
net asset value of $9.49 per share
(cost: $79,599) 78,557
High Yield Bond Subaccount:
High Yield Bond Portfolio, 474.78 shares at
net asset value of $9.30 per share
(cost: $4,508) 4,415
Money Market Subaccount:
Money Market Portfolio, 4,395.73 shares at net
asset value of $1.00 per share
(cost: $4,396) 4,396
Blue Chip Subaccount:
Blue Chip Portfolio, 4,252.02 shares at net
asset value of $43.98 per share
(cost: $177,177) 187,004
Investment in Dreyfus Variable Investment Fund:
Capital Appreciation Subaccount:
Capital Appreciation Portfolio, 3,585.79
shares at net asset value of $39.82 per share
(cost: $135,850) 142,786
Disciplined Stock Subaccount:
Disciplined Stock Portfolio, 11,458.52 shares
at net asset value of $26.82 per share
(cost: $282,384) 307,317
Growth and Income Subaccount:
Growth and Income Portfolio, 3,590.37 shares
at net asset value of $25.32 per share
(cost: $86,502) 90,908
International Equity Subaccount:
International Equity Portfolio, 147.46 shares
at net asset value of $22.21 per share
(cost: $2,602) 3,275
Small Cap Subaccount:
Small Cap Portfolio, 1,094.55 shares at net
asset value of $65.03 per share
(cost: $66,661) 71,179
Investments in T. Rowe Equity Series, Inc.:
Equity Income Subaccount:
Equity Income Portfolio, 3,287.03 shares at
net asset value of $18.62 per share
(cost: $66,725) 61,204
Mid-Cap Growth Subaccount:
Mid-Cap Growth Portfolio, 5,345.37 shares at
net asset value of $17.24 per share
(cost: $84,196) 92,154
New America Growth Subaccount:
New America Growth Portfolio, 3,809.37 shares
at net asset value of $26.03 per share
(cost: $97,255) 99,158
Personal Strategy Balanced Subaccount:
Personal Strategy Balanced Portfolio, 1,140.21
shares at net asset value of $15.94 per share
(cost: $18,323) 18,175
Investment in T. Rowe Price International
Series, Inc.:
International Stock Subaccount:
International Stock Portfolio, 333.18 shares
at net asset value of $18.98 per share
(cost: $5,453) 6,324
--------
Total investments (cost: $1,202,070) 1,253,672
LIABILITIES --
--------
COMBINED NET ASSETS $1,253,672
========
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXTENDED
UNITS UNIT VALUE VALUE
------------- ---------- ----------
<S> <C> <C> <C>
Net assets are represented by:
Value Growth Subaccount 8,960.100239 $ 9.689668 $ 86,820
High Grade Bond Subaccount 7,970.558688 9.855898 78,557
High Yield Bond Subaccount 448.877463 9.836604 4,415
Money Market Subaccount 427.508371 10.282208 4,396
Blue Chip Subaccount 15,899.470703 11.761624 187,004
Capital Appreciation Subaccount 12,692.882285 11.249324 142,786
Disciplined Stock Subaccount 26,301.995830 11.684189 307,317
Growth and Income Subaccount 8,005.289727 11.356002 90,908
International Equity Subaccount 208.757558 15.688390 3,275
Small Cap Subaccount 6,025.309406 11.813294 71,179
Equity Income Subaccount 5,851.259504 10.460047 61,204
Mid-Cap Growth Subaccount 7,508.054370 12.274045 92,154
New America Growth Subaccount 9,125.082865 10.866524 99,158
Personal Strategy Balanced Subaccount 1,649.090901 11.021218 18,175
International Stock Subaccount 465.369950 13.588458 6,324
----------
Combined net assets $1,253,672
==========
</TABLE>
SEE ACCOMPANYING NOTES.
45
<PAGE>
EQUITRUST LIFE VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 21, 1999 (DATE OPERATIONS
COMMENCED) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE HIGH GRADE
GROWTH BOND
COMBINED SUBACCOUNT SUBACCOUNT
-------- ---------- ----------
<S> <C> <C> <C>
Net investment income
(operating loss):
Dividend income $18,409 $ -- $ 1,087
Mortality and expense
risk charges (3,616) (230) (153)
------- ------- -------
Net investment income
(operating loss) 14,793 (230) 934
Net realized and
unrealized gain (loss)
on investments:
Net realized gain
(loss) from
investment
transactions 87 57 (183)
Change in unrealized
appreciation/depreciation
of investments 51,602 (3,619) (1,042)
------- ------- -------
Net gain (loss) on
investments 51,689 (3,562) (1,225)
------- ------- -------
Net increase (decrease)
in net assets resulting
from operations $66,482 $(3,792) $ (291)
======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
46
<PAGE>
<TABLE>
<CAPTION>
GROWTH
HIGH YIELD MONEY CAPITAL DISCIPLINED AND
BOND MARKET BLUE CHIP APPRECIATION STOCK INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income
(operating loss):
Dividend income $ 98 $28 $ -- $1,259 $ 2,991 $2,991
Mortality and expense
risk charges (11) (5) (418) (531) (1,024) (344)
----- --- ------- ------ ------- ------
Net investment income
(operating loss) 87 23 (418) 728 1,967 2,647
Net realized and
unrealized gain (loss)
on investments:
Net realized gain
(loss) from
investment
transactions (9) -- 444 (432) 259 165
Change in unrealized
appreciation/depreciation
of investments (93) -- 9,827 6,936 24,933 4,406
----- --- ------- ------ ------- ------
Net gain (loss) on
investments (102) -- 10,271 6,504 25,192 4,571
----- --- ------- ------ ------- ------
Net increase (decrease)
in net assets resulting
from operations $ (15) $23 $ 9,853 $7,232 $27,159 $7,218
===== === ======= ====== ======= ======
</TABLE>
47
<PAGE>
EQUITRUST LIFE VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS (CONTINUED)
PERIOD FROM JANUARY 21, 1999 (DATE OPERATIONS
COMMENCED) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY SMALL CAP
SUBACCOUNT SUBACCOUNT
------------- ----------
<S> <C> <C>
Net investment income
(operating loss):
Dividend income $114 $ --
Mortality and expense
risk charges (6) (133)
---- ------
Net investment income
(operating loss) 108 (133)
Net realized and
unrealized gain (loss)
on investments:
Net realized gain
(loss) from
investment
transactions 43 215
Change in unrealized
appreciation/depreciation
of investments 673 4,518
---- ------
Net gain (loss) on
investments 716 4,733
---- ------
Net increase (decrease)
in net assets resulting
from operations $824 $4,600
==== ======
</TABLE>
SEE ACCOMPANYING NOTES.
48
<PAGE>
<TABLE>
<CAPTION>
EQUITY MID-CAP NEW AMERICA PERSONAL STRATEGY INTERNATIONAL
INCOME GROWTH GROWTH BALANCED STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Net investment income
(operating loss):
Dividend income $ 3,094 $ 912 $5,036 $ 720 $ 79
Mortality and expense
risk charges (259) (231) (204) (52) (15)
------- ------ ------ ----- ------
Net investment income
(operating loss) 2,835 681 4,832 668 64
Net realized and
unrealized gain (loss)
on investments:
Net realized gain
(loss) from
investment
transactions 53 220 (900) 23 132
Change in unrealized
appreciation/depreciation
of investments (5,521) 7,958 1,903 (148) 871
------- ------ ------ ----- ------
Net gain (loss) on
investments (5,468) 8,178 1,003 (125) 1,003
------- ------ ------ ----- ------
Net increase (decrease)
in net assets resulting
from operations $(2,633) $8,859 $5,835 $ 543 $1,067
======= ====== ====== ===== ======
</TABLE>
49
<PAGE>
EQUITRUST LIFE VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD FROM JANUARY 21, 1999 (DATE OPERATIONS
COMMENCED) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE HIGH GRADE
GROWTH BOND
COMBINED SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Operations:
Net investment income
(operating loss) $ 14,793 $ (230) $ 934
Net realized gain
(loss) from
investment
transactions 87 57 (183)
Change in unrealized
appreciation/depreciation
of investments 51,602 (3,619) (1,042)
---------- ------- -------
Net increase (decrease)
in net assets resulting
from operations 66,482 (3,792) (291)
Capital share
transactions:
Transfers of net
premiums 456,842 2,981 10,135
Transfers of cost of
insurance and
transfer charges (73,732) (2,556) (3,183)
Transfers between
subaccounts,
including fixed
interest subaccount 804,080 90,187 71,896
---------- ------- -------
Net increase in net
assets resulting from
capital share
transactions 1,187,190 90,612 78,848
---------- ------- -------
Total increase in net
assets 1,253,672 86,820 78,557
Net assets at beginning
of period -- -- --
---------- ------- -------
Net assets at end of
period $1,253,672 $86,820 $78,557
========== ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
50
<PAGE>
<TABLE>
<CAPTION>
HIGH YIELD MONEY CAPITAL DISCIPLINED GROWTH AND
BOND MARKET BLUE CHIP APPRECIATION STOCK INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income
(operating loss) $ 87 $ 23 $ (418) $ 728 $ 1,967 $ 2,647
Net realized gain
(loss) from
investment
transactions (9) -- 444 (432) 259 165
Change in unrealized
appreciation/depreciation
of investments (93) -- 9,827 6,936 24,933 4,406
------ ------ -------- -------- -------- -------
Net increase (decrease)
in net assets resulting
from operations (15) 23 9,853 7,232 27,159 7,218
Capital share
transactions:
Transfers of net
premiums 3,314 310 30,619 52,369 135,265 35,620
Transfers of cost of
insurance and
transfer charges (462) (814) (12,241) (16,500) (10,901) (3,574)
Transfers between
subaccounts,
including fixed
interest subaccount 1,578 4,877 158,773 99,685 155,794 51,644
------ ------ -------- -------- -------- -------
Net increase in net
assets resulting from
capital share
transactions 4,430 4,373 177,151 135,554 280,158 83,690
------ ------ -------- -------- -------- -------
Total increase in net
assets 4,415 4,396 187,004 142,786 307,317 90,908
Net assets at beginning
of period -- -- -- -- -- --
------ ------ -------- -------- -------- -------
Net assets at end of
period $4,415 $4,396 $187,004 $142,786 $307,317 $90,908
====== ====== ======== ======== ======== =======
</TABLE>
51
<PAGE>
EQUITRUST LIFE VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
PERIOD FROM JANUARY 21, 1999 (DATE OPERATIONS
COMMENCED) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY SMALL CAP
SUBACCOUNT SUBACCOUNT
------------- ----------
<S> <C> <C>
Operations:
Net investment income
(operating loss) $ 108 $ (133)
Net realized gain
(loss) from
investment
transactions 43 215
Change in unrealized
appreciation/depreciation
of investments 673 4,518
------ -------
Net increase (decrease)
in net assets resulting
from operations 824 4,600
Capital share
transactions:
Transfers of net
premiums 476 45,639
Transfers of cost of
insurance and
transfer charges (180) (3,732)
Transfers between
subaccounts,
including fixed
interest subaccount 2,155 24,672
------ -------
Net increase in net
assets resulting from
capital share
transactions 2,451 66,579
------ -------
Total increase in net
assets 3,275 71,179
Net assets at beginning
of period -- --
------ -------
Net assets at end of
period $3,275 $71,179
====== =======
</TABLE>
SEE ACCOMPANYING NOTES.
52
<PAGE>
<TABLE>
<CAPTION>
PERSONAL
EQUITY MID-CAP NEW AMERICA STRATEGY
INCOME GROWTH GROWTH BALANCED INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT STOCK SUBACCOUNT
---------- ---------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income
(operating loss) $ 2,835 $ 681 $ 4,832 $ 668 $ 64
Net realized gain
(loss) from
investment
transactions 53 220 (900) 23 132
Change in unrealized
appreciation/depreciation
of investments (5,521) 7,958 1,903 (148) 871
------- ------- ------- ------- ------
Net increase (decrease)
in net assets resulting
from operations (2,633) 8,859 5,835 543 1,067
Capital share
transactions:
Transfers of net
premiums 27,415 49,652 53,566 7,308 2,173
Transfers of cost of
insurance and
transfer charges (2,329) (7,069) (6,401) (2,830) (960)
Transfers between
subaccounts,
including fixed
interest subaccount 38,751 40,712 46,158 13,154 4,044
------- ------- ------- ------- ------
Net increase in net
assets resulting from
capital share
transactions 63,837 83,295 93,323 17,632 5,257
------- ------- ------- ------- ------
Total increase in net
assets 61,204 92,154 99,158 18,175 6,324
Net assets at beginning
of period -- -- -- -- --
------- ------- ------- ------- ------
Net assets at end of
period $61,204 $92,154 $99,158 $18,175 $6,324
======= ======= ======= ======= ======
</TABLE>
53
<PAGE>
EQUITRUST LIFE VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
EquiTrust Life Variable Account II (the Account) is a unit investment trust
registered under the Investment Company Act of 1940. The Account was established
as a separate investment account within EquiTrust Life Insurance Company (the
Company) to fund flexible premium variable universal life insurance policies.
The Account commenced operations on January 21, 1999.
The Account has available fifteen separate subaccounts, each of which invests
solely, as directed by contract owners, in a different portfolio of EquiTrust
Variable Insurance Series Fund, Dreyfus Variable Investment Fund, T. Rowe Price
Equity Series, Inc. and T. Rowe Price International Series, Inc. (the Funds),
which are open-end, diversified management investment companies. Contract owners
also may direct investments to a fixed interest subaccount held in the general
assets of the Company.
Investments in shares of the Funds are stated at market value, which is the
closing net asset value per share as determined by the Funds. The first-in,
first-out cost basis has been used in determining the net realized gain or loss
from investment transactions and unrealized appreciation or depreciation on
investments.
Dividends paid to the Account are automatically reinvested in shares of the
Funds on the payable date.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Account's financial statements and accompanying notes
requires management to make estimates and assumptions that affect the amounts
reported and disclosed. These estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.
2. EXPENSE CHARGES
The Account pays the Company certain amounts relating to the distribution and
administration of the policies funded by the Account and as reimbursement for
certain mortality and other risks assumed by the Company. The following
summarizes those amounts.
PREMIUM EXPENSE CHARGE: Premiums paid by the contractholders are reduced by a
7% premium expense charge up to the target premium, as defined, and 2% for each
premium over the target premium. The 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 political subdivisions.
MORTALITY AND EXPENSE RISK CHARGES: The Company deducts a daily mortality and
expense risk charge from the Account at an effective annual rate of .90% of the
average daily net asset value of the Account. These charges are assessed in
return for the Company's assumption of risks associated with adverse mortality
experience or excess administrative expenses in connection with policies issued.
COST OF INSURANCE: The Company assumes the responsibility for providing
insurance benefits included in the policy. The cost of insurance is determined
each month based upon the applicable insurance rate and current net amount at
risk. Also, the cost of insurance includes a flat monthly administration charge
of $5.00 and a first year monthly charge based on age and amount of insurance
inforce (plus $5.00 per month). The aggregate cost of insurance can vary from
month to month since the determination of both the insurance rate and the
current net amount at risk depends on a number of variables as described in the
Account's prospectus.
OTHER CHARGES: A transfer charge of $25 will be imposed for the second and each
subsequent transfer between subaccounts in any one policy year. A partial
withdrawal fee equal to the lesser of $25 or 2.0% of the amount surrendered will
be imposed in the event of a partial contract surrender. A surrender charge is
applicable for all full policy surrenders or lapses in the first six years of
the policy or within six years
54
<PAGE>
EQUITRUST LIFE VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. EXPENSE CHARGES (CONTINUED)
following an increase in minimum death benefit. This surrender charge varies by
age, sex, policy year and other factors as described in the Account's
prospectus.
3. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, operations of
the Company, which is taxed as a life insurance company under the Internal
Revenue Code. Under current law, no federal income taxes are payable with
respect to the Account's net investment income or net realized gain on
investments. Accordingly, no charge for income tax is currently being made to
the Account. If such taxes are incurred by the Company in the future, a charge
to the Account may be assessed.
4. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount for the period from January 21, 1999
(date operations commenced) through December 31, 1999 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
---------------------
Value Growth Subaccount $ 95,892 $ 5,510
High Grade Bond Subaccount 85,772 5,990
High Yield Bond Subaccount 4,810 293
Money Market Subaccount 5,460 1,064
Blue Chip Subaccount 183,796 7,063
Capital Appreciation Subaccount 153,457 17,175
Disciplined Stock Subaccount 287,729 5,604
Growth and Income Subaccount 88,290 1,953
International Equity Subaccount 3,168 609
Small Cap Subaccount 68,259 1,813
Equity Income Subaccount 70,952 4,280
Mid-Cap Growth Subaccount 86,332 2,356
New America Growth Subaccount 110,748 12,593
Personal Strategy Balanced Subaccount 19,549 1,249
International Stock Subaccount 11,594 6,273
---------------------
Combined $1,275,808 $73,825
=====================
</TABLE>
55
<PAGE>
EQUITRUST LIFE VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units of each subaccount for the period from January 21, 1999
(date operations commenced) through December 31, 1999 were as follows:
<TABLE>
<CAPTION>
UNITS SOLD UNITS REDEEMED NET INCREASE
--------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
<CAPTION>
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Value Growth Subaccount 9,486 $ 95,892 526 $ 5,280 8,960 $ 90,612
High Grade Bond Subaccount 8,562 84,686 591 5,838 7,971 78,848
High Yield Bond Subaccount 478 4,712 29 282 449 4,430
Money Market Subaccount 533 5,432 105 1,059 428 4,373
Blue Chip Subaccount 16,520 183,796 621 6,645 15,899 177,151
Capital Appreciation Subaccount 14,305 152,198 1,612 16,644 12,693 135,554
Disciplined Stock Subaccount 26,749 284,738 447 4,580 26,302 280,158
Growth and Income Subaccount 8,157 85,298 152 1,608 8,005 83,690
International Equity Subaccount 265 3,055 56 604 209 2,451
Small Cap Subaccount 6,181 68,259 156 1,680 6,025 66,579
Equity Income Subaccount 6,248 67,858 397 4,021 5,851 63,837
Mid-Cap Growth Subaccount 7,703 85,420 195 2,125 7,508 83,295
New America Growth Subaccount 10,443 105,713 1,318 12,390 9,125 93,323
Personal Strategy Balanced Subaccount 1,761 18,829 112 1,197 1,649 17,632
International Stock Subaccount 1,032 11,515 567 6,258 465 5,257
-------------------------------------------------------------------
Combined 118,423 $1,257,401 6,884 $70,211 111,539 $1,187,190
===================================================================
</TABLE>
6. NET ASSETS
The Account has an unlimited number of units of beneficial interest authorized
with no par value. Net assets as of December 31, 1999 consisted of:
<TABLE>
<CAPTION>
VALUE HIGH GRADE HIGH YIELD MONEY
GROWTH BOND BOND MARKET
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------
Paid-in capital $1,187,190 $90,612 $78,848 $4,430 $4,373
Accumulated undistributed net investment income
(loss) 14,793 (230) 934 87 23
Accumulated undistributed net realized gain (loss)
from investment transactions 87 57 (183) (9) --
Net unrealized appreciation (depreciation) of
investments 51,602 (3,619) (1,042) (93) --
---------- ------- ------- ------ ------
Net assets $1,253,672 $86,820 $78,557 $4,415 $4,396
========== ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
GROWTH
CAPITAL DISCIPLINED AND
BLUE CHIP APPRECIATION STOCK INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
------------------------------------------------------
Paid-in capital $177,151 $135,554 $280,158 $83,690
Accumulated undistributed net investment income (loss) (418) 728 1,967 2,647
Accumulated undistributed net realized gain (loss) from
investment transactions 444 (432) 259 165
Net unrealized appreciation (depreciation) of investments 9,827 6,936 24,933 4,406
-------- -------- -------- -------
Net assets $187,004 $142,786 $307,317 $90,908
======== ======== ======== =======
</TABLE>
56
<PAGE>
EQUITRUST LIFE VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY MID-CAP
EQUITY SMALL CAP INCOME GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
-------------------------------------------------------
Paid-in capital $ 2,451 $66,579 $63,837 $83,295
Accumulated undistributed net investment income (loss) 108 (133) 2,835 681
Accumulated undistributed net realized gain (loss) from
investment transactions 43 215 53 220
Net unrealized appreciation (depreciation) of investments 673 4,518 (5,521) 7,958
------- ------- ------- -------
Net assets $ 3,275 $71,179 $61,204 $92,154
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERSONAL
NEW AMERICA STRATEGY INTERNATIONAL
GROWTH BALANCED STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
------------------------------------------
Paid-in capital $93,323 $17,632 $5,257
Accumulated undistributed net investment income (loss) 4,832 668 64
Accumulated undistributed net realized gain (loss) from
investment transactions (900) 23 132
Net unrealized appreciation (depreciation) of investments 1,903 (148) 871
------- ------- ------
Net assets $99,158 $18,175 $6,324
======= ======= ======
</TABLE>
57
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
EquiTrust Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of EquiTrust
Life Insurance Company as of December 31, 1999 and 1998, and the related
statutory-basis statements of operations, changes in net worth, and cash flows
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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States 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 accounting principles generally accepted in the United States,
the financial position of EquiTrust Life Insurance Company at December 31, 1999
or 1998, or the results of its operations or its cash flows for the years then
ended.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of EquiTrust Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flow for the years then ended, in conformity with
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 14, 2000
58
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
<S> <C> <C>
-------------------
ADMITTED ASSETS
Bonds:
United States Government and
agencies $24,317 $30,526
State, municipal and other
governments 1,021 1,524
Public utilities 1,857 2,085
Industrial and miscellaneous 19,249 15,570
-------------------
46,444 49,705
Cash and short-term
investments 6,612 22,963
-------------------
Cash and invested assets 53,056 72,668
Premiums deferred and
uncollected 21 11
Investment income due and
accrued 432 361
Amounts receivable under
reinsurance agreements 623 89
Other assets 85 9
Assets held in separate
accounts 17,596 503
-------------------
Total admitted assets $71,813 $73,641
===================
LIABILITIES AND NET WORTH
Liabilities:
Life and annuity policy
reserves $21,148 $21,668
Policy and contract claims 525 476
Interest maintenance reserve 41 40
Amount payable under
reinsurance agreements 867 23
Transfer to separate
accounts due or accrued,
net (1,222) (48)
Payable to affiliates 664 102
Payable for securities -- 19,154
Federal income taxes payable 268 302
Other liabilities 516 415
Asset valuation reserve 72 45
Liabilities related to
separate accounts 17,596 503
-------------------
Total liabilities 40,475 42,680
Commitments and contingencies
Net worth:
Common stock, par value
$1,500 per
share--authorized 2,500
shares; issued and
outstanding 2,000 shares 3,000 3,000
Additional paid-in capital 27,748 27,748
Unassigned funds for the
protection of
policyholders 590 213
-------------------
Total net worth 31,338 30,961
-------------------
Total liabilities and net
worth $71,813 $73,641
===================
</TABLE>
SEE ACCOMPANYING NOTES.
59
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------------
1999 1998
<S> <C> <C>
-----------------------
Revenues:
Life and annuity premiums $ 10,556 $ 22,633
Net investment income 3,238 1,409
Commissions and expense
allowances on reinsurance
ceded 1,408 --
Reserve adjustments on
reinsurance ceded 7,311 --
Other income 300 150
-----------------------
Total revenues 22,813 24,192
Benefits and expenses:
Benefits paid or provided
for:
Death benefits 50 --
Annuity benefits 3,476 478
Increase (decrease) in
policy reserves (520) 21,668
-----------------------
3,006 22,146
Commissions 1,731 56
Commissions and expense
allowances on reinsurance
assumed 475 23
General expenses 1,887 750
Insurance taxes, licenses
and fees 181 76
Net transfers to separate
accounts 14,719 423
Other 237 99
-----------------------
Total benefits and expenses 22,236 23,573
-----------------------
Gain from operations before
federal income taxes
and net realized capital
gains 577 619
Federal income taxes 173 341
-----------------------
Net gain from operations
before net realized capital
gains 404 278
Net realized capital gains,
less related federal income
tax expense (benefit)
[1999--$10; 1998--$(6)] and
amounts transferred to
(from) interest maintenance
reserve [1999--$19;
1998--$(9)] -- 1
-----------------------
Net income $ 404 $ 279
=======================
</TABLE>
SEE ACCOMPANYING NOTES.
60
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET WORTH--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNASSIGNED
FUNDS FOR
ADDITIONAL THE
COMMON PAID-IN PROTECTION OF TOTAL NET
STOCK CAPITAL POLICYHOLDERS WORTH
<S> <C> <C> <C> <C>
-------------------------------------------------
Balance at January 1, 1998 $3,000 $ 5,125 $(21) $ 8,104
Net income for 1998 -- -- 279 279
Decrease in nonadmitted assets -- -- 38 38
Increase in asset valuation reserve -- -- (45) (45)
Capital contribution from parent -- 22,623 -- 22,623
Other -- -- (38) (38)
-------------------------------------------------
Balance at December 31, 1998 3,000 27,748 213 30,961
Net income for 1999 -- -- 404 404
Decrease in nonadmitted assets -- -- 22 22
Increase in asset valuation reserve -- -- (27) (27)
Other -- -- (22) (22)
-------------------------------------------------
Balance at December 31, 1999 $3,000 $27,748 $590 $31,338
=================================================
</TABLE>
SEE ACCOMPANYING NOTES.
61
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------
1999 1998
<S> <C> <C>
-------------------
CASH FROM OPERATIONS
Premiums and other considerations $ 10,546 $ 22,622
Net investment income 3,231 1,150
Allowances and reserve adjustments on reinsurance ceded 8,719 --
Other income 285 52
-------------------
22,781 23,824
Death benefits (50) --
Annuity benefits (3,427) (2)
Commissions, general insurance expenses, and taxes (4,109) (817)
Net transfers to separate accounts (15,893) (470)
Federal income taxes (207) (40)
-------------------
Net cash from operations (905) 22,495
CASH FROM INVESTMENTS
Proceeds from bonds sold, matured or repaid 23,525 2,298
Federal income taxes benefit (expense) on capital gains and
losses (10) 6
-------------------
Total cash from investments 23,515 2,304
Cost of bonds acquired (20,314) (46,557)
-------------------
Net cash from investments 3,201 (44,253)
CASH FROM FINANCING AND MISCELLANEOUS SOURCES
Capital and surplus paid in -- 22,623
Other cash provided 1,207 19,594
Other cash applied (19,854) (89)
-------------------
Net cash from financing and miscellaneous sources (18,647) 42,128
-------------------
Net change in cash and short-term investments (16,351) 20,370
Cash and short-term investments at beginning of year 22,963 2,593
-------------------
Cash and short-term investments at end of year $ 6,612 $ 22,963
===================
</TABLE>
SEE ACCOMPANYING NOTES.
62
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1.SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
EquiTrust Life Insurance Company (the Company), a wholly-owned subsidiary of
Farm Bureau Life Insurance Company (Farm Bureau Life) which, in turn, is
wholly-owned by FBL Financial Group, Inc., operates in the life insurance
industry. The Company markets its products, which consist primarily of variable
universal life insurance policies and variable annuity contracts, to individuals
primarily through alliances with other Farm Bureau organizations, other insurers
and a regional broker-dealer. The Company is licensed to do business in
forty-one states and the District of Columbia.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa, which practices differ in some
respects from generally accepted accounting principles. The more significant of
these differences are as follows: (a) bonds are generally carried at amortized
cost rather than segregating the portfolio into held-to-maturity (carried at
amortized cost), available-for-sale (carried at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring new
business are charged to current operations as incurred rather than deferred and
amortized over the life of the policies; (c) policy reserves on certain
investment products use discounting methodologies utilizing statutory interest
rates rather than full account values; (d) deferred income taxes are not
provided for the difference between the financial statement and income tax bases
of assets and liabilities; (e) net realized gains or losses attributed to
changes in the level of interest rates in the market are deferred and amortized
over the remaining life of the bond or mortgage loan, rather than recognized as
gains or losses in the statement of operations when the sale is completed; (f)
declines in the estimated realizable value of investments are provided for
through the establishment of a formula-determined statutory investment reserve
(carried as a liability) changes to which are charged directly to net worth,
rather than through recognition in the statement of operations for declines in
value, when such declines are judged to be other than temporary; (g) certain
assets designated as "non-admitted assets" are charged to net worth rather than
being reported as assets; (h) revenues for investment products consist of
premiums received rather than policy charges for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed; and (i) pension income or expense is recognized in accordance
with rules and regulations permitted by the Employee Retirement Income Security
Act of 1974 rather than Statement of Financial Accounting Standards (Statement)
No. 87, EMPLOYERS' ACCOUNTING FOR
63
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENSIONS. A reconciliation of net income and net worth between amounts stated in
conformity with accounting principles generally accepted in the United States
and amounts presented herein is as follows:
<TABLE>
<CAPTION>
NET INCOME NET WORTH
------------------- -------------------
1999 1998 1999 1998
-----------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Amounts stated in conformity with generally accepted
accounting principles $ 689 $358 $31,558 $32,780
Net unrealized depreciation (appreciation) on fixed maturity
securities available for sale -- -- 2,343 (597)
Other adjustments to investments (45) (56) 182 227
Deferred policy acquisition costs (1,179) (61) (1,240) (61)
Goodwill 77 72 (1,384) (1,461)
Future policy benefits (347) 8 (339) 8
Accrued expense allowances on separate account liabilities 1,174 48 1,222 48
Deferred income taxes 29 (152) (943) 57
Pension and benefit accruals 6 -- 6 --
Interest maintenance reserve (1) 17 (41) (40)
Asset valuation reserve -- -- (72) (45)
Other 1 45 46 45
-----------------------------------------
As set forth herein $ 404 $279 $31,338 $30,961
=========================================
</TABLE>
In 1998, the National Association of Insurance Commissioners (NAIC) adopted
codified statutory accounting principles (Codification) to be effective
January 1, 2001. Codification will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices that the Company uses to prepare its statutory-basis financial
statements. Codification will require adoption by the various states before it
becomes the prescribed statutory basis of accounting for insurance companies
domesticated within those states. Accordingly, before Codification becomes
effective for the Company, the State of Iowa must adopt Codification as the
prescribed basis of accounting on which domestic insurers must report their
statutory-basis results to the Insurance Division, Department of Commerce, of
the State of Iowa. At this time, it is anticipated that the State of Iowa will
adopt Codification. While management has not yet determined the impact of
Codification to the Company's statutory-basis financial statements, it is
possible that certain changes in statutory accounting principles arising from
Codification could be material.
The preparation of financial statements in conformity with accounting practices
prescribed or permitted by the Insurance Division, Department of Commerce, of
the State of Iowa requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the statutory-basis financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value) and short-term investments are reported at cost
adjusted for amortization of premiums and accrual of discounts. Amortization is
computed using methods which result in a level yield over the expected life of
the security. The Company reviews its prepayment assumptions on mortgage and
other asset-backed securities at regular intervals and adjusts amortization
rates retrospectively when such assumptions are changed due to experience and/or
expected future patterns.
64
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized and unrealized gains and losses, net of amounts attributed to
changes in the general level of interest rates. The Company defers, in the
Interest Maintenance Reserve, the portion of realized gains and losses on sales
of fixed income investments, principally bonds and mortgage loans (if any),
attributable to changes in the general level of interest rates and amortizes
those deferrals over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds generally when there is evidence of default or another
indication that such amounts will not be collected. At December 31, 1999 and
1998, the Company excluded no amounts of investment income with respect to such
practices.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of twelve months or less to be
cash equivalents.
POLICY RESERVES
The reserves for life and annuity policies, all developed by actuarial methods,
are established and maintained on the basis of published mortality and morbidity
tables using assumed interest rates and valuation methods that will provide, in
the aggregate, reserves that are equal to or greater than the minimum valuation
required by law and guaranteed policy cash values.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Premiums are recognized as revenues over the premium-paying period, whereas
commissions and other costs applicable to the acquisition of new business are
charged to operations as incurred.
SEPARATE ACCOUNTS
Assets and liabilities of the Company's separate accounts (formed during 1998)
are disclosed in the aggregate in the balance sheets. The statements of
operations include the premiums, benefits and other items arising from the
operations of the separate accounts of the Company. Premiums totaling
$16,160,000 and $473,000 (including premiums ceded to other insurance companies)
were received during the years ended December 31, 1999 and 1998, respectively,
related to separate accounts.
The separate accounts, which are not guaranteed as to interest, are carried at
market value. The excess of the market value of separate account assets over the
aggregate reserves has been recorded as a liability, which represents the amount
accrued for expense allowances recognized in the reserve. Aggregate reserves
were $16,374,000 and $455,000 and accrued expense allowances were $1,222,000 and
$48,000 at December 31, 1999 and 1998, respectively.
CAPITAL LEVEL GUARANTEE
Farm Bureau Life has guaranteed that it will maintain a minimum capitalization
level for the Company, sufficient to maintain a favorable risk based capital
ratio. Any increase in capital to maintain the ratio would result in an increase
in Farm Bureau Life's ownership in the Company.
DIVIDEND RESTRICTIONS
Prior approval of insurance regulatory authorities is required for payment of
dividends to the Company's stockholder which exceed an annual limitation. During
2000, the Company could pay dividends to its
65
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stockholder of approximately $2,834,000 without prior approval of the
Commissioner of the Insurance Division, Department of Commerce, of the State of
Iowa.
RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified to
conform with the 1999 presentation.
2.INVESTMENT OPERATIONS
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1999 1998
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Bonds $3,013 $1,161
Short-term investments 324 194
Amortization of interest maintenance reserve 18 8
Other (4) 65
-------------------------
3,351 1,428
Less investment expenses (113) (19)
-------------------------
Net investment income $3,238 $1,409
=========================
</TABLE>
66
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2.INVESTMENT OPERATIONS (CONTINUED)
At December 31, 1999 and 1998, the carrying value and estimated market value of
the Company's bonds and short-term investments, which comprise its portfolio of
debt securities, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Bonds:
United States Government and agencies:
Mortgage and asset-backed securities $21,618 $ -- $(1,387) $20,231
Other 2,699 -- (18) 2,681
State, municipal and other governments 1,021 -- (101) 920
Public utilities 1,857 -- (86) 1,771
Industrial and miscellaneous:
Mortgage and asset-backed securities 9,766 -- (457) 9,309
Other 9,483 46 (522) 9,007
----------------------------------------------
46,444 46 (2,571) 43,919
Short-term investments 5,363 -- -- 5,363
----------------------------------------------
$51,807 $ 46 $(2,571) $49,282
==============================================
DECEMBER 31, 1998
Bonds:
United States Government and agencies:
Mortgage and asset-backed securities $22,786 $ 63 $ (4) $22,845
Other 7,740 65 -- 7,805
State, municipal and other governments 1,524 41 -- 1,565
Public utilities 2,085 34 (23) 2,096
Industrial and miscellaneous:
Mortgage and asset-backed securities 7,127 133 (23) 7,237
Other 8,443 154 (72) 8,525
----------------------------------------------
49,705 490 (122) 50,073
Short-term investments 22,981 -- -- 22,981
----------------------------------------------
$72,686 $490 $ (122) $73,054
==============================================
</TABLE>
The carrying value and estimated market value of the Company's portfolio of debt
securities at December 31, 1999, by contractual maturity, are shown below.
Expected maturities will differ from
67
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2.INVESTMENT OPERATIONS (CONTINUED)
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE MARKET VALUE
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 6,566 $ 6,567
Due after one year through five years 5,310 5,154
Due after five years through ten years 4,256 4,116
Due after ten years 4,291 3,905
-----------------------
20,423 19,742
Mortgage and asset-backed securities 31,384 29,540
-----------------------
$51,807 $49,282
=======================
</TABLE>
Proceeds from sales of investments (excluding maturity proceeds) in debt
securities were $4,106,000 and $1,051,000 for the years ended December 31, 1999
and 1998, respectively. Gross gains of $35,000 and $7,000 and gross losses of
$6,000 and $21,000 were realized on those sales for 1999 and 1998, respectively.
During 1998, Farm Bureau Life Insurance Company transferred 28 securities with a
fair market value of $15,013,000 to the Company in the form of a capital
contribution.
There were no investments which have been non-income producing for the twelve
months preceding December 31, 1999.
At December 31, 1999, affidavits of deposits covering bonds with a carrying
value of $46,444,000 (1998--$30,620,000), and short-term investments with a
carrying value of $5,171,000 (1998--$22,884,000) were on deposit with state
agencies to meet regulatory requirements.
3.FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statutory-basis balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 also excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements and allows companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented herein are limited by each of these factors and do
not purport to represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
BONDS: Fair values for bonds are based on quoted market prices, where
available. For bonds not actively traded, fair values are estimated using a
matrix calculation assuming a spread (based on interest rates and a risk
assessment of the bonds) over U.S. Treasury bonds.
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheets for these instruments approximate their fair
values.
68
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3.FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
ASSETS AND LIABILITIES OF SEPARATE ACCOUNTS: Separate account assets and
liabilities are reported at estimated fair value in the Company's
statutory-basis balance sheets.
LIFE AND ANNUITY POLICY RESERVES: Fair values of the Company's liabilities
under contracts not involving significant mortality or morbidity risks
(principally deferred annuities), are stated at the cost the Company would
incur to extinguish the liability, i.e., the cash surrender value. The
Company is not required to estimate the fair value of its liabilities under
other insurance contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement No.
107:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------
1999 1998
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds (NOTE 2) $46,444 $43,919 $49,705 $50,073
Cash and short-term investments 6,612 6,612 22,963 22,963
Assets held in separate accounts 17,596 17,596 503 503
LIABILITIES
Life and annuity policy reserves (NOTE 4) 20,144 19,993 21,663 21,654
Liabilities related to separate accounts 17,596 17,596 503 503
</TABLE>
4.POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products that are not
subject to significant mortality or morbidity risk; however, there may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The carrying value and related cash surrender value (which the
Company has established as fair value) on these products by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal at book value less
surrender charge of 5% or more $15,782 $15,631 $ 382 $ 373
Subject to discretionary withdrawal at book value without
adjustment [minimal (less than 5%) or no charge or
adjustment] 23,128 23,128 29,584 29,584
---------------------------------------------
38,910 38,759 29,966 29,957
Reinsurance ceded (3,706) (3,706) (7,921) (7,921)
---------------------------------------------
Total net annuity reserves and deposit fund liabilities $35,204 $35,053 $22,045 $22,036
=============================================
</TABLE>
The above amounts include separate account liabilities related to the Company's
variable annuity product aggregating $15,060,000 at December 31, 1999 and
$382,000 at December 31, 1998.
69
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4.POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
A reconciliation of the amounts transferred to and from the separate accounts is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------------
1999 1998
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Transfers as reported in the summary of operations of the
separate accounts statement:
Transfers to separate accounts $16,160 $473
Transfers from separate accounts 1,237 49
-------------------------
Net transfers to separate accounts 14,923 424
Reconciling adjustments:
Fees associated with charges for investment management,
administration and contract guarantees (204) (1)
-------------------------
Transfers as reported in the statement of operations
herein $14,719 $423
=========================
</TABLE>
As of December 31, 1999 and 1998, the Company had no insurance in force for
which the gross premiums are less than the net premiums according to the
standard valuation law of the State of Iowa.
The Company monitors the level of its contract liabilities, the level of
interest rates credited to its interest sensitive products and the assumed rate
of return provided within the pricing structure of its other products. These
amounts are taken into consideration in the Company's overall management of
interest rate risk, which minimizes exposure to changing interest rates.
5.REINSURANCE
The Company has modified coinsurance agreements with various insurance companies
to both assume and cede a specified percentage (with the Company retaining or
assuming 50% to 70%) of variable universal life insurance policies and variable
annuity contracts. Under these agreements, the Company receives their
reinsurance percentage of premiums collected. The Company in return pays to or
receives from the companies an expense allowance for commissions and other
expenses associated with the reinsured contracts. In addition, the Company pays
or receives an amount equal to the change in the statutory reserves on the
reinsured contract adjusted for investment earnings credits. The Company also
administers the policies and receives a fee for such services.
The Company also assumed a block of traditional annuity policies from an
unaffiliated insurer during 1998. At December 31, 1999 and 1998, statutory
reserves established on these policies aggregated $19,423,000 and $21,663,000,
respectively.
70
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5.REINSURANCE (CONTINUED)
Life and annuity premiums reflect the following reinsurance amounts pursuant to
the above agreements:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------------
1999 1998
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Variable products:
Direct premiums $18,181 $ 483
Assumed premiums 238 105
Ceded premiums (8,063) --
Annuities--assumed premiums 200 22,045
-------------------------
$10,556 $22,633
=========================
</TABLE>
Certain business was reinsured to Clarica Life Insurance Company U.S. (Clarica
Life-U.S.) during 1997 under an assumption reinsurance agreement. Under the
agreement, Clarica Life-U.S. agreed to use its best efforts to secure
appropriate policyholder and regulatory approvals to effectuate the transfer of
risk from the Company to Clarica Life-U.S. State rules and regulations require
different levels of approval with respect to such transfers. At December 31,
1999 or 1998, the Company had not received appropriate policyholder and/or
regulatory approval to novate the risk under assumption reinsurance. As a
result, this business has been treated as being reinsured under indemnity
reinsurance arrangements for the years ended December 31, 1999 and 1998.
In that regard, policy reserves, premiums and expenses are stated net of amounts
related to reinsurance agreements. Life and annuity policy reserves have been
reduced by $28,687,000 and $18,202,000 at December 31, 1999 and 1998,
respectively, for reinsurance ceded to Clarica Life-U.S. Life and annuity
premiums have likewise been reduced (1999--$2,563,000 and 1998--$4,727,000) for
amounts paid under the cession agreement. In addition, during the years ended
December 31, 1999 and 1998, insurance benefits paid or provided have been
reduced by $1,214,000 and $3,900,000, respectively, for amounts received under
the cession agreement.
At December 31, 1999 and 1998, life insurance in force ceded to Clarica
Life-U.S. amounted to $363.1 million and $599.2 million, respectively, or
approximately 84.8% and 99.3%, respectively, of total life insurance in force.
Reinsurance coverages for life insurance vary according to the age of the
insured and risk classification with retention limits ranging up to $100,000 of
coverage per individual life. Policies with coverage in excess of $100,000 are
reinsured through Farm Bureau Life. Reinsurance ceded contracts do not relieve
the Company from its obligations to policyholders. The Company remains liable to
its policyholders for the portion reinsured to the extent that any reinsurer
does not meet the obligations assumed under the reinsurance agreements.
6.FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return with FBL Financial
Group, Inc. and a majority of its subsidiaries. FBL Financial Group, Inc. and
its direct and indirect subsidiaries included in the consolidated federal income
tax return each report current income tax expense as allocated under a
consolidated tax allocation agreement. Generally, this allocation results in
profitable companies recognizing a tax provision as if the individual company
filed a separate return and loss companies recognizing benefits to the extent
their losses contribute to reduce consolidated taxes.
71
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6.FEDERAL INCOME TAXES (CONTINUED)
The effective tax rate on net gain from operations before federal income taxes
and net realized capital gains is different from the prevailing federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------------
1999 1998
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Income tax at federal statutory rate (35%) $202 $217
Tax effect (decrease) of:
External expenditures related to strategic alliances -- 95
Goodwill amortization (36) (36)
Deferred policy acquisition costs 109 62
Dividends received deduction (13) --
Other, net (89) 3
-------------------------
Federal income taxes $173 $341
=========================
</TABLE>
7.RETIREMENT AND COMPENSATION PLANS
The Company participates with several affiliates in various defined benefit
plans sponsored by the Iowa Farm Bureau Federation. The plans are
noncontributory and cover substantially all employees. Benefits are based on
years of service and the employee's average compensation during the 36
consecutive month period for which the highest average compensation was paid.
The funding policy is to make at least the minimum annual contribution required
by applicable regulations, including amortization of unfunded prior service
cost. The affiliated group's accumulated benefit obligations as of December 31,
1999 based on a 7.50% discount rate totaled $132.1 million. The vested benefit
obligation and fair value of plan assets as of December 31, 1999 totaled $99.4
million and $108.5 million, respectively.
In addition, in prior years, the Company participated with certain affiliates in
a nonqualified retirement plan (also a noncontributory defined benefit plan) to
enhance early retirement for certain qualified employees. This plan is unfunded
and is accounted for on a cash basis since the Board of Directors has the right
to discontinue the Plan at any time.
The Company is charged for its allocable share of expense for the
above-mentioned plans generally based on each employee's time allocated to the
Company. Pension expense for these defined benefit plans recorded by the Company
in its statements of operations for the years ended December 31, 1999 and 1998
was $48,000 and $5,000, respectively.
The Company participates with several affiliates in a 401(k) defined
contribution plan which covers substantially all employees. Beginning in 1998,
the Company contributes FBL Financial Group, Inc. stock in amounts equal to 50
percent of employee contributions up to four percent of the annual salary
contributed by the employees. Costs are allocated among the affiliates on a
basis of time incurred by the respective employees for each employer. Related
expense totaled $4,000 and $1,000 for the years ended December 31, 1999 and
1998, respectively.
In addition to benefits offered under the aforementioned benefit plans, the
Company and several other affiliates sponsor a plan that provides group term
life insurance benefits to retired full-time employees who have worked ten years
and attained age 55 while in service with the Company. Postretirement benefit
expense is allocated in a manner consistent with pension expense discussed
above. Such allocations are reviewed annually. For 1999 and 1998, no costs were
recognized by the Company related to these benefits.
72
<PAGE>
EQUITRUST LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8.MANAGEMENT AND SERVICES AGREEMENTS
The Company shares certain office facilities and services with the Iowa Farm
Bureau Federation and its affiliated companies. These expenses are allocated to
the Company on the basis of cost and time studies that are updated annually and
consist primarily of salaries and related expenses, travel, and occupancy costs.
A majority of the Company's operating expenses are allocated in this manner and
are included in the general expense line of the statement of
operations--statutory basis.
The Company participates in a management agreement with FBL Financial Group,
Inc., under which FBL Financial Group, Inc. provides general business,
administration and management services to the Company. In addition, Farm Bureau
Management Corporation, a wholly-owned subsidiary of the Iowa Farm Bureau
Federation, provides certain management services to the Company under a separate
arrangement. During 1999 and 1998, the Company incurred related expenses
totaling $285,000 and $7,000, respectively.
EquiTrust Investment Management Services, Inc., an affiliate, provides
investment advisory services to the Company. The related fees are based in
increments upon the level of assets under management, plus certain out-of-pocket
expenses. The Company incurred related expenses totaling $53,000 and $19,000
during 1999 and 1998, respectively.
9.COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company may be involved in litigation for
which amounts are alleged that are substantially in excess of contractual policy
benefits or certain other agreements. At December 31, 1999, management is not
aware of any claims for which a material loss is reasonably possible. Clarica
Life-U.S., as a part of the sale agreement, has assumed all accrued, absolute
and contingent liabilities that may arise out of or related to the business of
the Company prior to December 30, 1997.
Assessments are, from time to time, levied on the Company by life and health
guaranty associations in most states in which the Company is licensed to cover
losses of policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. The Company's policy is to accrue for such assessments only when
notice of such assessment is received from a state guaranty fund; accordingly,
no amounts have been provided for in the accompanying financial statements for
estimated future assessments. Assessments paid by the Company amounted to
$14,000 and $10,000 in 1999 and 1998, respectively.
73
<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 0.74% 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 1999 the total fees and expenses ranged from
an annual rate of 0.30% to an annual rate of 1.05% of average daily net
assets. For information on Investment Option expenses, see "SUMMARY AND
DIAGRAM OF THE POLICY" and 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 Joint Insureds. 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 0.74% 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 -1.79%, 2.21%, 6.21% and 10.21%, respectively, on a guaranteed
basis, and -1.64%, 2.36%, 6.36% and 10.36%, respectively, on a current
basis. If any Investment Option's expense reimbursement arrangement was
discontinued, the average Investment Option fees and expenses would be
higher and the resulting net annual rates of return would be lower.
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
A-1
<PAGE>
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 Joint Insureds' age, sex and premium class, the Specified
Amount or premium requested, and the proposed frequency of premium payments.
A-2
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 0% HYPOTHETICAL GROSS RETURN, ASSUMING 0% HYPOTHETICAL GROSS RETURN, NON-
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, GUARANTEED CURRENT COST OF INSURANCE CHARGES,
AND GUARANTEED MAXIMUM EXPENSE CHARGES AND NON-GUARANTEED CURRENT 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.............. $ 2,273 $ 1,067 $ 0 $251,067 $ 1,351 $ 0 $251,351
2.............. 4,660 2,667 0 252,667 3,086 0 253,086
3.............. 7,166 4,201 0 254,201 4,778 0 254,778
4.............. 9,798 5,661 141 255,661 6,425 905 256,425
5.............. 12,561 7,041 2,218 257,041 8,024 3,202 258,024
6.............. 15,462 8,327 4,232 258,327 9,571 5,476 259,571
7.............. 18,509 9,508 6,168 259,508 11,062 7,722 261,062
8.............. 21,708 10,563 8,008 260,563 12,490 9,935 262,490
9.............. 25,066 11,468 9,728 261,468 13,850 12,110 263,850
10............... 28,593 12,198 11,310 262,198 15,135 14,248 265,135
15............... 49,053 12,063 12,063 262,063 19,976 19,976 269,976
20............... 75,167 409 409 250,409 20,110 20,110 270,110
25............... 108,496 * * * 10,356 10,356 260,356
30............... * * * * * * *
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65.............. 28,593 12,198 11,310 262,198 15,135 14,248 265,135
Age 70.............. 49,053 12,063 12,063 262,063 19,976 19,976 269,976
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 THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATES OF RETURN OF 0% SHOWN ABOVE CORRESPOND TO NET ANNUAL RATES OF
RETURN OF -1.79% ON A GUARANTEED BASIS AND -1.64% 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-3
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 4% HYPOTHETICAL GROSS RETURN, ASSUMING 4% HYPOTHETICAL GROSS RETURN, NON-
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, GUARANTEED CURRENT COST OF INSURANCE CHARGES,
AND GUARANTEED MAXIMUM EXPENSE CHARGES AND NON-GUARANTEED CURRENT 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.............. $ 2,273 $ 1,128 $ 0 $251,128 $ 1,418 $ 0 $251,418
2.............. 4,660 2,844 0 252,844 3,284 0 253,284
3.............. 7,166 4,560 0 254,560 5,179 0 255,179
4.............. 9,798 6,268 748 256,268 7,102 1,582 257,102
5.............. 12,561 7,957 3,134 257,957 9,049 4,227 259,049
6.............. 15,462 9,614 5,519 259,614 11,015 6,920 261,015
7.............. 18,509 11,222 7,882 261,222 12,996 9,656 262,996
8.............. 21,708 12,759 10,204 262,759 14,985 12,430 264,985
9.............. 25,066 14,197 12,457 264,197 16,975 15,235 266,975
10............... 28,593 15,503 14,616 265,503 18,958 18,070 268,958
15............... 49,053 18,630 18,630 268,630 28,232 28,232 278,232
20............... 75,167 9,533 9,533 259,533 33,936 33,936 283,936
25............... 108,496 * * * 29,539 29,539 279,539
30............... 151,032 * * * 3,837 3,837 253,837
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65.............. 28,593 15,503 14,616 265,503 18,958 18,070 268,958
Age 70.............. 49,053 18,630 18,630 268,630 28,232 28,232 278,232
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 THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATES OF RETURN OF 4% SHOWN ABOVE CORRESPOND TO NET ANNUAL RATES OF
RETURN OF 2.21% ON A GUARANTEED BASIS AND 2.36% 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-4
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 8% HYPOTHETICAL GROSS RETURN, ASSUMING 8% HYPOTHETICAL GROSS RETURN, NON-
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, GUARANTEED CURRENT COST OF INSURANCE CHARGES,
AND GUARANTEED MAXIMUM EXPENSE CHARGES AND NON-GUARANTEED CURRENT 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.............. $ 2,273 $ 1,189 $ 0 $251,189 $ 1,485 $ 0 $251,485
2.............. 4,660 3,027 0 253,027 3,488 0 253,488
3.............. 7,166 4,940 0 254,940 5,603 0 255,603
4.............. 9,798 6,925 1,405 256,925 7,835 2,315 257,835
5.............. 12,561 8,975 4,152 258,975 10,187 5,364 260,187
6.............. 15,462 11,081 6,986 261,081 12,661 8,566 262,661
7.............. 18,509 13,232 9,892 263,232 15,260 11,920 265,260
8.............. 21,708 15,407 12,852 265,407 17,986 15,431 267,986
9.............. 25,066 17,581 15,841 267,581 20,838 19,098 270,838
10............... 28,593 19,723 18,836 269,723 23,816 22,928 273,816
15............... 49,053 28,476 28,476 278,476 40,340 40,340 290,340
20............... 75,167 26,575 26,575 276,575 57,681 57,681 307,681
25............... 108,496 * * * 69,468 69,468 319,468
30............... 151,032 * * * 62,746 62,746 312,746
35............... 205,321 * * * 17,226 17,226 267,226
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65.............. 28,593 19,723 18,836 269,723 23,816 22,928 273,816
Age 70.............. 49,053 28,476 28,476 278,476 40,340 40,340 290,340
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 THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATES OF RETURN OF 8% SHOWN ABOVE CORRESPOND TO NET ANNUAL RATES OF
RETURN OF 6.20% ON A GUARANTEED BASIS AND 6.35% 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-5
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 12% HYPOTHETICAL GROSS RETURN, ASSUMING 12% HYPOTHETICAL GROSS RETURN, NON-
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, GUARANTEED CURRENT COST OF INSURANCE CHARGES,
AND GUARANTEED MAXIMUM EXPENSE CHARGES AND NON-GUARANTEED CURRENT 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.............. $ 2,273 $ 1,250 $ 0 $251,250 $ 1,552 $ 0 $251,552
2.............. 4,660 3,214 0 253,214 3,697 0 253,697
3.............. 7,166 5,340 0 255,340 6,049 0 256,049
4.............. 9,798 7,634 2,114 257,634 8,626 3,106 258,626
5.............. 12,561 10,104 5,281 260,104 11,448 6,626 261,448
6.............. 15,462 12,753 8,658 262,753 14,535 10,440 264,535
7.............. 18,509 15,584 12,244 265,584 17,908 14,568 267,908
8.............. 21,708 18,593 16,038 268,593 21,591 19,036 271,591
9.............. 25,066 21,771 20,031 271,771 25,607 23,867 275,607
10............... 28,593 25,102 24,215 275,102 29,983 29,096 279,983
15............... 49,053 43,189 43,189 293,189 58,118 58,118 308,118
20............... 75,167 57,622 57,622 307,622 98,559 98,559 348,559
25............... 108,496 47,026 47,026 297,026 151,847 151,847 401,847
30............... 151,032 * * * 214,131 214,131 464,131
35............... 205,321 * * * 276,118 276,118 526,118
40............... 274,608 * * * 326,997 326,997 576,997
45............... 363,038 * * * 351,058 351,058 601,058
50............... 475,900 * * * 325,066 325,066 575,066
55............... 619,944 * * * 246,188 246,188 496,188
60............... 803,784 * * * 94,760 94,760 344,760
Age 65.............. 28,593 25,102 24,215 275,102 29,983 29,096 279,983
Age 70.............. 49,053 43,189 43,189 293,189 58,118 58,118 308,118
Age 115.............. 803,784 * * * 94,760 94,760 344,760
</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 THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATES OF RETURN OF 12% SHOWN ABOVE CORRESPOND TO NET ANNUAL RATES OF
RETURN OF 10.21% ON A GUARANTEED BASIS AND 10.36% 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-6
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 0% HYPOTHETICAL GROSS RETURN, ASSUMING 0% HYPOTHETICAL GROSS RETURN, NON-
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, GUARANTEED CURRENT COST OF INSURANCE CHARGES,
AND GUARANTEED MAXIMUM EXPENSE CHARGES AND NON-GUARANTEED CURRENT 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.............. $ 2,273 $ 1,067 $ 0 $250,000 $ 1,351 $ 0 $250,000
2.............. 4,660 2,667 0 250,000 3,086 0 250,000
3.............. 7,166 4,203 0 250,000 4,779 0 250,000
4.............. 9,798 5,666 146 250,000 6,427 907 250,000
5.............. 12,561 7,051 2,229 250,000 8,029 3,206 250,000
6.............. 15,462 8,346 4,251 250,000 9,579 5,484 250,000
7.............. 18,509 9,540 6,200 250,000 11,075 7,735 250,000
8.............. 21,708 10,614 8,059 250,000 12,511 9,956 250,000
9.............. 25,066 11,546 9,806 250,000 13,883 12,143 250,000
10............... 28,593 12,312 11,424 250,000 15,184 14,296 250,000
15............... 49,053 12,570 12,570 250,000 20,218 20,218 250,000
20............... 75,167 1,524 1,524 250,000 20,944 20,944 250,000
25............... 108,496 * * * 12,348 12,348 250,000
30............... * * * * * * *
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65.............. 28,593 12,312 11,424 250,000 15,184 14,296 250,000
Age 70.............. 49,053 12,570 12,570 250,000 20,218 20,218 250,000
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 THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATES OF RETURN OF 0% SHOWN ABOVE CORRESPOND TO NET ANNUAL RATES OF
RETURN OF -1.79% ON A GUARANTEED BASIS AND -1.64% 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-7
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 4% HYPOTHETICAL GROSS RETURN, ASSUMING 4% HYPOTHETICAL GROSS RETURN, NON-
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, GUARANTEED CURRENT COST OF INSURANCE CHARGES,
AND GUARANTEED MAXIMUM EXPENSE CHARGES AND NON-GUARANTEED CURRENT 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.............. $ 2,273 $ 1,128 $ 0 $250,000 $ 1,418 $ 0 $250,000
2.............. 4,660 2,845 0 250,000 3,284 0 250,000
3.............. 7,166 4,563 0 250,000 5,180 0 250,000
4.............. 9,798 6,274 754 250,000 7,104 1,584 250,000
5.............. 12,561 7,969 3,146 250,000 9,054 4,231 250,000
6.............. 15,462 9,636 5,541 250,000 11,024 6,929 250,000
7.............. 18,509 11,260 7,920 250,000 13,012 9,672 250,000
8.............. 21,708 12,822 10,267 250,000 15,011 12,456 250,000
9.............. 25,066 14,295 12,555 250,000 17,016 15,276 250,000
10............... 28,593 15,651 14,764 250,000 19,020 18,133 250,000
15............... 49,053 19,396 19,396 250,000 28,587 28,587 250,000
20............... 75,167 11,836 11,836 250,000 35,349 35,349 250,000
25............... 108,496 * * * 33,814 33,814 250,000
30............... 151,032 * * * 12,694 12,694 250,000
35............... * * * * * * *
40............... * * * * * * *
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65.............. 28,593 15,651 14,764 250,000 19,020 18,133 250,000
Age 70.............. 49,053 19,396 19,396 250,000 28,587 28,587 250,000
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 THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATES OF RETURN OF 4% SHOWN ABOVE CORRESPOND TO NET ANNUAL RATES OF
RETURN OF 2.21% ON A GUARANTEED BASIS AND 2.36% 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-8
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 8% HYPOTHETICAL GROSS RETURN, ASSUMING 8% HYPOTHETICAL GROSS RETURN, NON-
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, GUARANTEED CURRENT COST OF INSURANCE CHARGES,
AND GUARANTEED MAXIMUM EXPENSE CHARGES AND NON-GUARANTEED CURRENT 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.............. $ 2,273 $ 1,189 $ 0 $250,000 $ 1,485 $ 0 $250,000
2.............. 4,660 3,027 0 250,000 3,488 0 250,000
3.............. 7,166 4,943 0 250,000 5,604 0 250,000
4.............. 9,798 6,931 1,411 250,000 7,837 2,317 250,000
5.............. 12,561 8,988 4,166 250,000 10,192 5,370 250,000
6.............. 15,462 11,107 7,012 250,000 12,672 8,577 250,000
7.............. 18,509 13,278 9,938 250,000 15,280 11,940 250,000
8.............. 21,708 15,484 12,929 250,000 18,018 15,463 250,000
9.............. 25,066 17,705 15,965 250,000 20,890 19,150 250,000
10............... 28,593 19,915 19,028 250,000 23,897 23,009 250,000
15............... 49,053 29,635 29,635 250,000 40,860 40,860 250,000
20............... 75,167 31,052 31,052 250,000 60,099 60,099 250,000
25............... 108,496 3,492 3,492 250,000 78,468 78,468 250,000
30............... 151,032 * * * 89,811 89,811 250,000
35............... 205,321 * * * 82,457 82,457 250,000
40............... * * * * 29,849 29,849 250,000
45............... * * * * * * *
50............... * * * * * * *
55............... * * * * * * *
60............... * * * * * * *
Age 65.............. 28,593 19,915 19,028 250,000 23,897 23,009 250,000
Age 70.............. 49,053 29,635 29,635 250,000 40,860 40,860 250,000
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 THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATES OF RETURN OF 8% SHOWN ABOVE CORRESPOND TO NET ANNUAL RATES OF
RETURN OF 6.21% ON A GUARANTEED BASIS AND 6.36% 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-9
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 12% HYPOTHETICAL GROSS RETURN, ASSUMING 12% HYPOTHETICAL GROSS RETURN, NON-
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, GUARANTEED CURRENT COST OF INSURANCE CHARGES, AND
AND GUARANTEED MAXIMUM EXPENSE CHARGES NON-GUARANTEED CURRENT 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.............. $ 2,273 $ 1,250 $ 0 $250,000 $ 1,552 $ 0 $ 250,000
2.............. 4,660 3,215 0 250,000 3,697 0 250,000
3.............. 7,166 5,343 0 250,000 6,050 0 250,000
4.............. 9,798 7,641 2,121 250,000 8,629 3,109 250,000
5.............. 12,561 10,119 5,297 250,000 11,454 6,632 250,000
6.............. 15,462 12,783 8,688 250,000 14,547 10,452 250,000
7.............. 18,509 15,639 12,299 250,000 17,931 14,591 250,000
8.............. 21,708 18,688 16,133 250,000 21,630 19,075 250,000
9.............. 25,066 21,926 20,186 250,000 25,672 23,932 250,000
10............... 28,593 25,350 24,463 250,000 30,087 29,200 250,000
15............... 49,053 44,938 44,938 250,000 58,886 58,886 250,000
20............... 75,167 66,018 66,018 250,000 102,723 102,723 250,000
25............... 108,496 78,141 78,141 250,000 170,585 170,585 250,000
30............... 151,032 51,128 51,128 250,000 285,198 285,198 299,458
35............... 205,321 * * * 472,732 472,732 496,369
40............... 274,608 * * * 776,679 776,679 784,446
45............... 363,038 * * * 1,275,909 1,275,909 1,288,668
50............... 475,900 * * * 2,084,037 2,084,037 2,104,878
55............... 619,944 * * * 3,392,537 3,392,537 3,426,462
60............... 803,784 * * * 5,511,213 5,511,213 5,566,325
Age 65.............. 28,593 25,350 24,463 250,000 30,087 29,200 250,000
Age 70.............. 49,053 44,938 44,938 250,000 58,886 58,886 250,000
Age 115.............. 803,784 * * * 5,511,213 5,511,213 5,566,325
</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 THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATES OF RETURN OF 12% SHOWN ABOVE CORRESPOND TO NET ANNUAL RATES OF
RETURN OF 10.21% ON A GUARANTEED BASIS AND 10.36% 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-10
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
DEATH BENEFIT OPTIONS
OPTION A EXAMPLE. For purposes of this example, assume that the Joint
Insureds' Joint Equal 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 surrenders, 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 Joint Insureds' Joint Equal
Attained Age increases. If the Joint Equal Attained Age of the Joint
Insureds 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 Joint
Insureds' Joint Equal 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 surrenders, 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 Joint Insureds' Joint Equal
Attained Age increases. If the Joint Equal Attained Age of the Joint
Insureds 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
B-1
<PAGE>
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).
<TABLE>
<CAPTION>
JOINT EQUAL 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.
<TABLE>
<CAPTION>
NON-TOBACCO
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10 11+
--------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 11.25 10.35 9.37 8.35 7.30 6.20 5.05 3.86 2.63 1.34 0.00
30 13.67 12.61 11.42 10.18 8.89 7.55 6.15 4.71 3.20 1.63 0.00
40 17.62 16.30 14.76 13.16 11.50 9.76 7.96 6.09 4.14 2.11 0.00
50 24.28 22.58 20.45 18.23 15.92 13.52 11.03 8.43 5.73 2.92 0.00
60 36.13 33.88 30.66 27.33 23.87 20.28 16.55 12.68 8.64 4.42 0.00
70 54.10 51.00 46.06 41.01 35.84 30.54 25.07 19.37 13.36 6.95 0.00
80 51.96 47.73 43.12 38.44 33.91 29.44 24.86 19.97 14.49 8.04 0.00
<CAPTION>
TOBACCO
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10 11+
--------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 12.10 11.14 10.09 8.99 7.86 6.67 5.44 4.16 2.83 1.44 0.00
30 15.00 13.84 12.53 11.17 9.76 8.29 6.76 5.17 3.51 1.79 0.00
40 19.74 18.29 16.56 14.76 12.90 10.95 8.93 6.83 4.64 2.37 0.00
50 27.59 25.71 23.28 20.75 18.12 15.40 12.56 9.61 6.54 3.34 0.00
60 41.03 38.50 34.83 31.04 27.12 23.06 18.85 14.47 9.89 5.08 0.00
70 53.81 50.57 45.64 40.67 35.62 30.45 25.11 19.51 13.55 7.10 0.00
80 51.77 47.50 42.93 38.42 34.07 29.74 25.27 20.42 14.91 8.31 0.00
<CAPTION>
COMBINED
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10 11+
--------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 11.61 10.69 9.68 8.63 7.53 6.40 5.22 3.99 2.71 1.38 0.00
30 14.23 13.13 11.89 10.60 9.26 7.86 6.41 4.90 3.33 1.70 0.00
40 18.52 17.14 15.52 13.84 12.09 10.26 8.37 6.40 4.35 2.22 0.00
50 25.68 23.91 21.65 19.30 16.85 14.32 11.68 8.93 6.07 3.10 0.00
60 38.26 35.88 32.47 28.94 25.28 21.49 17.55 13.45 9.17 4.70 0.00
70 53.97 50.81 45.87 40.85 35.74 30.49 25.08 19.42 13.44 7.01 0.00
80 51.87 47.62 43.02 38.42 33.98 29.58 25.05 20.18 14.69 8.16 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
EquiTrust Life Insurance Company represents that the aggregate charges under the
Policies 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 86 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
Representations pursuant to Section 26(e)(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>
<C> <C> <S>
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. (2)
(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.)
2. *Opinion and Consent of Stephen M. Morain.
3. None.
4. Not applicable.
5. Not applicable.
6. *Opinion and Consent of Christopher G. Daniels, FSA, MSAA, Life Product
Development and Pricing Vice President.
7. *(a) Consent of Ernst & Young LLP.
*(b) Consent of Messrs. Sutherland, Asbill & Brennan LLP.
8. Memorandum describing the Company's conversion procedure (included in
Exhibit 9 hereto). (1)
9. *Memorandum describing the Company's issuance, transfer and redemption
procedures for the Policy.
10. Powers of Attorney. (1)
</TABLE>
- ------------------------
* Attached as an exhibit.
(1) Incorporated herein by reference to the initial filing of the Registration
Statement on Form S-6 (File No. 333-62221) on August 25, 1998.
(2) Incorporated herein by reference to the Initial Filing of this Registration
Statement on Form S-6 (File No. 333-31446) filed with the SEC on March 1,
2000.
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 25th day of April, 2000.
EquiTrust Life Insurance Company
EquiTrust Life Variable Account II
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------
Edward M. Wiederstein
PRESIDENT
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ EDWARD M. WIEDERSTEIN President & Director
- ----------------------------------- [Principal Executive April 25, 2000
Edward M. Wiederstein Officer]
Senior Vice President,
/s/ JERRY C. DOWNIN Secretary-Treasurer &
- ----------------------------------- Director [Principal April 25, 2000
Jerry C. Downin Financial Officer]
/s/ JAMES W. NOYCE Chief Financial Officer &
- ----------------------------------- Director [Principal April 25, 2000
James W. Noyce Accounting Officer]
- ----------------------------------- Chief Executive Officer & April 25, 2000
William J. Oddy* Director
- ----------------------------------- Executive Vice President April 25, 2000
JoAnn Rumelhart* & Director
- ----------------------------------- Chief Administrative April 25, 2000
Timothy J. Hoffman* Officer & Director
Senior Vice President,
- ----------------------------------- General Counsel & April 25, 2000
Stephen M. Morain* Director
* By /s/ STEPHEN M. MORAIN
-----------------------
Stephen M. Morain
Attorney-In-Fact,
pursuant to Power of Attorney.
<PAGE>
[EquiTrust letterhead]
April 26, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statement on Form S-6 filed by EquiTrust Life
Insurance Company ("Company") and its EquiTrust Life Variable Account II with
the Securities and Exchange Commission covering certain last survivor variable
universal life insurance policies, I have examined such documents and such law
as I considered necessary and appropriate, and on the basis of such
examinations, it is my opinion that:
(1) Company is duly organized and validly existing under the laws of the State
of Iowa.
(2) The survivor variable universal life policies, when issued as contemplated
by the said Form S-6 Registration Statement will constitute legal, validly
issued and binding obligations of EquiTrust Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to the said Form
S-6 Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Prospectus contained in the said Registration Statement.
In giving this consent, I am not admitting that I am in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Stephen M. Morain
Stephen M. Morain
Senior Vice President
& General Counsel
<PAGE>
[EquiTrust letterhead]
April 26, 2000
EquiTrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by EquiTrust Life
Insurance Company of a flexible premium last survivor 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 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 accumulated 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
<PAGE>
[Ernst & Young Letterhead]
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Financial Statements" and to the use of our reports dated March 10, 2000 with
respect to the financial statements of EquiTrust Life Variable Account II and
February 14, 2000 with respect to the statutory-basis financial statements of
EquiTrust Life Insurance Company, in Pre-Effective Amendment No. 1 to the
Registration Statement (Form S-6 No. 333-31446) and related Prospectus of
EquiTrust Life Variable Account II dated May 1, 2000.
Ernst & Young LLP
Des Moines, Iowa
April 24, 2000
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LLP]
April 25, 2000
Equitrust Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for EquiTrust Life Variable Account II (File
No. 333-31446). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ STEPHEN E. ROTH
----------------------------
Stephen E. Roth, Esq.
<PAGE>
MEMORANDUM DESCRIBING EQUITRUST LIFE
INSURANCE COMPANY'S ISSUANCE, TRANSFER AND REDEMPTION
PROCEDURES FOR ITS INDIVIDUAL FLEXIBLE PREMIUM
LAST SURVIVOR VARIABLE LIFE INSURANCE POLICIES (VARIABLE ACCOUNT II)
This memorandum sets forth the administrative procedures that will be
followed by EquiTrust Life Insurance Company (the "Company") in connection with
the issuance of its individual flexible premium last survivor variable life
insurance policy (the "Policy") and acceptance of payments thereunder, the
transfer of assets held thereunder and the redemption by policyowners of their
interests in the Policies. Certain terms used herein have the same definition as
in the prospectus for the Policy that is included in the registration statement
on Form S-6 (File No. 333-31446) as filed with the Securities and Exchange
Commission ("Commission" or "SEC").
1. PURCHASE AND RELATED TRANSACTIONS.
Set forth below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction. The summary shows that, because of the
insurance nature of the Policies, the procedures involved necessarily differ in
certain significant respects from the purchase procedures for mutual funds and
annuity plans.
(a) PREMIUM PAYMENTS. Premiums for the Policies will not be the same
for all policyowners selecting the same specified amount. An initial premium,
together with a completed application, must be received by the Company before a
Policy will be issued. The minimum amount of an initial premium is equal to the
greater of (1) $100, or (2) an amount that, when
1
<PAGE>
reduced by the premium expense charge, will be sufficient to pay the monthly
deduction for the first policy month. Other than the initial premium, the
Company does not require the payment of an additional premium, and failure to
pay an additional premium will not of itself cause a Policy to lapse. The
Company expects that most policyowners will choose to pay planned periodic
premiums -- that is, level premiums at regular intervals. The Policy provides,
however, that a policyowner may pay premiums in addition to planned periodic
premiums (i.e., unscheduled premiums) if (i) either Joint Insured is then
living; (ii) the additional premium is at least $100; and (iii) the premium does
not cause total premiums paid to exceed the maximum premium limitation for the
Policy established by federal tax law. The Company reserves the right to limit
the number and amount of unscheduled premium payments. In the event that a
tendered premium causes total premiums paid to exceed the maximum premium
limitation for the Policies established by federal tax law, the Company will
return the portion of such premium which causes total premiums to exceed such
limitation.
The Policy will remain in force so long as the net accumulated value
(the accumulated value reduced by any policy debt and increased by any unearned
loan interest) is sufficient to pay the monthly deduction which consists of
charges for the cost of insurance, additional insurance benefits and
administrative expenses. Thus, the amount of the premium, if any, that must be
paid to keep the Policy in force depends upon the amount of the monthly
deduction and the net accumulated value of the Policy, which in turn depends
upon the investment experience of the Subaccounts of the Variable Account (see
"Allocating Net Premiums" in the prospectus).
The cost of insurance rate utilized in computing the cost of insurance
charge will not be the
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same for each policyowner. The chief reason is that the principle of pooling and
distribution of mortality risks is based upon the assumption that the cost of
insuring each insured is commensurate with his or her mortality risk, which is
actuarially determined based upon factors such as the Joint Insured's Joint
Equal Attained Age, sex and premium class. Accordingly, while not all Joint
Insureds will be subject to the same cost of insurance rate, there will be a
single rate for all Joint Insureds in a given actuarial category.
The Policies will be offered and sold pursuant to established
underwriting standards in accordance with state insurance laws. State insurance
laws prohibit unfair discrimination, but recognize that premiums and charges
must be based upon factors such as age, sex, health and occupation.
(b) INITIAL PREMIUM PROCESSING. Upon receipt of a completed application
for a Policy, the Company will follow certain insurance underwriting (i.e.,
evaluation of risk) procedures designed to determine whether the proposed Joint
Insureds are insurable. This process may involve medical examinations or other
verification procedures and may require that certain further information be
provided by the applicants before a determination can be made. A Policy will not
be issued until this underwriting procedure has been completed. The effective
date of insurance coverage under the Policy will be the latest of (i) the policy
date, (ii) if an amendment to the initial application is required pursuant to
the Company's underwriting rules, the date the Joint Insureds sign the last such
amendment, or (iii) the date on which the full initial premium is received by
the Company at its Administrative Office. The policy date will be the later of
(i) the date of the initial application, or (ii) if additional medical or other
information is required pursuant to the Company's underwriting
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rules, the date such information is received by the Company at its
Administrative Office. The policy date may also be any other date mutually
agreed to by the Company and the policyowner. If the policy date would fall on
the 29th, 30th or 31st of any month, the policy date will instead be the 28th of
such month. Applicants who pay the initial premium at the time of submission of
the application will be issued a conditional receipt which provides that if the
applicant dies during the underwriting period, he or she will receive the death
benefit provided for in such conditional receipt if he or she would have been
found to be insurable under the Company's normal underwriting procedures. The
initial net premium (the initial premium reduced by a premium expense charge of
7%) will be allocated automatically to the Declared Interest Option as of the
policy date. Net premium will be allocated to the Declared Interest Option if
the premium is received either (1) before the date the Company receives a signed
notice from the Joint Insureds that the Policy has been received or (2) before
the end of 25 days after the Delivery Date (the date the policy is issued and
mailed to the Joint Insureds). Upon the earlier of (1) or (2) above, the
accumulated value in the Declared Interest Option will be automatically
allocated, without charge, among the Subaccounts and the Declared Interest
Option in accordance with the Joint Insureds' allocation instructions. Any
premiums received after (1) or (2) above will be allocated in accordance with
the Joint Insureds' instructions.
(c) PREMIUM ALLOCATION. The policyowner may allocate net premiums among
the Subaccounts or the Declared Interest Option. The Variable Account currently
has 15 Subaccounts, each of which invests exclusively in one of the following
Investment Options offered by the Funds:
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- Value Growth Portfolio - International Stock Portfolio
- High Grade Bond Portfolio - Appreciation Portfolio
- High Yield Bond Portfolio - Disciplined Stock Portfolio
- Money Market Portfolio - Growth & Income Portfolio
- Blue Chip Portfolio - International Equity Portfolio
- Equity Income Portfolio - Small Cap Portfolio
- Mid-Cap Growth Portfolio - New America Growth Portfolio
- Personal Strategies Balanced Portfolio.
The Funds are series-type mutual funds and are registered with the Securities
and Exchange Commission as open-end diversified management investment companies.
The policyowner must indicate the initial allocation of premiums in the
application for the Policy. Net premiums will continue to be allocated in
accordance with the policyowner's allocation instructions in the application
unless contrary written instructions are received by the Company. The change
will take effect on the date the written notice is received at the
Administrative Office. Once a change in allocation is made, all future net
premiums will be allocated in accordance with the new allocation instructions,
unless contrary written instructions are provided by the policyowner. The
minimum percentage of each premium that may be allocated to any Subaccount or
the Declared Interest Option is 10%; fractional percentages are not permitted.
No charge is imposed for any change in net premium allocation.
(d) REINSTATEMENT. Prior to the maturity date, a terminated policy
(other than a surrendered Policy) may be reinstated at any time within five
years of the monthly deduction day immediately preceding the grace period which
expired without payment of the required premium (see "Policy Lapse and
Reinstatement" in the prospectus). In order to reinstate a Policy, a policyowner
must submit: (i) a written application for reinstatement signed by the Joint
Insureds and the
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policyowner; (ii) evidence of insurability satisfactory to the Company; (iii)
payment of a premium that, after deduction of the premium expense charge, is at
least sufficient to keep the Policy in force for three months; and (iv) an
amount equal to the monthly cost of insurance charge for the two policy months
prior to lapse. To the extent that the Company did not deduct the First Year
Monthly Administrative Charge for a total of 12 Policy Months prior to lapse,
this administrative charge will continue to be deducted following reinstatement
of the Policy until such charges have been assessed, both before and after the
lapse, for a total of 12 Policy Months. The effective date of reinstatement will
be the monthly deduction day coinciding with or next following the date of
approval by the Company of the application for reinstatement.
(e) REPAYMENT OF POLICY DEBT. A loan made under the Policy will be
subject to interest charges at the loan interest rate stated in the Policy from
the date that the loan is made. The loan interest rate is not fixed. The maximum
annual loan interest rate charged 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%. Outstanding policy debt may be repaid in whole or in part prior to the
maturity date at any time during the Joint Insureds' lifetimes so long as the
Policy is in force. Any payments made by the policyowner while there is
outstanding policy debt are treated first as repayment of policy debt, unless
the owner indicates otherwise. When a repayment of the debt is made, the portion
of the accumulated value in the Declared Interest Option securing the repaid
portion of the policy debt will no longer be segregated within the Declared
Interest Option as security for policy debt, but will remain in the Declared
Interest
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Option unless and until transferred to the Variable Account by the
policyowner.
(f) CORRECTION OF MISSTATEMENT OF AGE OR SEX. If either Joint Insureds'
age or sex was misstated in an application, the Company will recalculate the
accumulated value to be the amount it would have been had the cost of insurance
been based on the correct age and sex of that Joint Insured.
2. TRANSFERS AMONG SUBACCOUNTS.
Amounts may be transferred among the Subaccounts an unlimited number of
times per year. Only one transfer per policy year may be made between the
Declared Interest Option and the Variable Account. The amount of this transfer
must be at least $100 or, if less than $100, the total accumulated value in the
Subaccount, or the total accumulated value in the Declared Interest Option
reduced by any outstanding policy debt. 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
Administrative Office. The first transfer in each policy year will be made
without charge; each time amounts are subsequently transferred in that policy
year, a transfer charge of $25 will be assessed. Transfers resulting from the
making of policy loans will not be considered transfers for the purposes of
these limitations and charges. All transfers effected on the same day will be
considered a single transfer for purposes of these limitations and charges.
Transfers are made by written request to the Administrative Office.
3. REDEMPTION PROCEDURES - SURRENDER AND RELATED TRANSACTIONS
This section outlines those procedures which might be deemed to
constitute redemptions under the Policy. These procedures differ in certain
significant respects from the redemption
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procedures for mutual funds and annuity plans.
(a) SURRENDER FOR ACCUMULATED VALUE. At any time prior to the maturity
date while the Policy is in force, a policyowner may surrender the Policy in
whole or make a partial withdrawal from the policy by sending a written request
to the Company at its Administrative Office. A partial withdrawal fee equal to
the lesser of $25 or 2.0% of the amount requested will be payable upon each
partial withdrawal. A 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. If not paid in cash, the partial withdrawal fee will be
deducted from the accumulated value.
The amount payable on complete surrender of the Policy is the net
accumulated value at the end of the valuation period during which the surrender
request is received, less the surrender charge, if not paid in cash. The Company
will assess the surrender charge during the first ten Policy Years as well as
during the first ten years following an increase in Specified Amount. This
charge is an amount per $1,000 of Specified Amount which declines to $0 in the
eleventh year and varies by Joint Equal Age, underwriting category, and Policy
Year. If the entire net accumulated value is surrendered, all insurance in force
will terminate.
The Policyowner may request that the proceeds of a complete surrender
or partial withdrawal be paid in a lump sum or under one of the payment options
specified in the Policy.
A partial withdrawal will be allocated among the Subaccounts and
Declared Interest Option in accordance with the written instructions of the
policyowner. If no such instructions are received with the request for partial
withdrawal, the partial withdrawal will be allocated among the Subaccounts and
Declared Interest Option in the same proportion that the accumulated value in
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each of the Subaccounts and the accumulated value in the Declared Interest
Option, reduced by any outstanding Policy Debt, bears to the total accumulated
value, reduced by any outstanding Policy Debt, on the date the request is
received at the Administrative Office.
Surrender proceeds ordinarily will be mailed to the policyowner within
seven days after the Company receives a signed request for a surrender at its
Administrative Office, although payments may be postponed whenever: (i) the New
York Stock Exchange is closed other than customary weekend and holiday closing,
or trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission ("Commission"); (ii) the Commission by order
permits postponement for the protection of policyowners; or (iii) an emergency
exists, as determined by the Commission, as a result of which disposal of
securities is not reasonably practicable, or it is not reasonably practicable to
determine the value of the net assets of the Variable Account. Payments under
the Policy which are derived from any amount paid to the Company by check or
draft may be postponed until such time as the Company is satisfied that the
check or draft has cleared the bank upon which it is drawn.
(b) PAYMENT OF DEATH PROCEEDS. So long as the Policy remains in force,
the Company will, upon due proof of the last death of the Joint Insureds, pay
the death proceeds to the primary or a contingent beneficiary (or if no
beneficiary survives the last Joint Insured, to the policyowner or his estate).
If the Joint Insureds die simultaneously, the Company will pay one-half of the
death proceeds to each Joint Insured's beneficiary. In determining the amount of
the death proceeds, the death benefit will be reduced by any outstanding policy
debt and increased by any unearned loan interest and any premiums paid after the
date of death. The amount of the death benefit payable
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under a Policy will depend upon the death benefit option in effect at the time
of the last Joint 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. Under Option B, the death benefit will be equal to the greater of
(i) the current specified amount, or (ii) the accumulated value multiplied by
the specified amount factor. Accumulated value will be determined as of the end
of the Business Day coinciding with or immediately following the date of death.
The specified amount factors referred to above are determined by the "cash value
corridor" mandated by Section 7702 of the Internal Revenue Code. The specified
amount factor is 2.50 for a Joint Insureds' Joint Equal Attained Age 40 or below
on the date of death. For Joint Insureds with a Joint Equal Attained Age over 40
on the date of death, the factor declines with age as shown in the Specified
Amount Factor Table in the Policy.
The death proceeds will be paid to the beneficiary in one lump sum or
under any of the payment options described in the prospectus. The Company may
also provide other payment options in the future.
If either Joint Insured is still alive and the Policy is in force on
the maturity date (i.e., the Joint Insureds' Joint Equal Attained Age 115), the
Company will pay the policyowner the accumulated value of the Policy reduced by
any outstanding policy debt.
All payments of death benefits and maturity proceeds are ordinarily
mailed within seven days after the Company receives due proof of the last death
of the Joint Insureds or within seven days of the maturity date, unless a
payment option is chosen. However, payment may be delayed for more than seven
days under the same circumstances described above with respect to surrender
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payments.
(c) POLICY LOANS. So long as the Policy remains in force and has a
positive net accumulated value, a policyowner may borrow money from the Company
at any time using the Policy as the sole security for the policy loan. The
maximum amount that may be borrowed at any time is 90% of the accumulated value
as of the end of the valuation period during which the request for the policy
loan is received at the Administrative Office, less any previously outstanding
policy debt. Policy debt equals the sum of all unpaid policy loans and any due
and unpaid policy loan interest. Policy debt may be repaid in whole or in part
any time during the Joint Insureds' lifetimes and before the maturity date so
long as the Policy is in force.
When a policy loan is made, an amount equal to the policy loan will be
segregated within the Declared Interest Option as security for the policy loan.
If, immediately prior to the policy loan, the accumulated value in the Declared
Interest Option less policy debt outstanding immediately prior to such policy
loan is less than the amount of such policy loan, the difference will be
transferred from the Subaccounts which have accumulated value in the same
proportions that the Policy's accumulated value in each Subaccount bears to the
Policy's total accumulated value in the Variable Account. No charge will be made
for those transfers. Accumulated values will be determined as of the end of the
valuation period during which the request for the policy loan is received at the
Administrative Office.
Policy loan proceeds normally will be mailed to the policyowner within
seven days after receipt of a written request. Postponement of a policy loan may
take place under the same circumstances described above with respect to
surrender payments.
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Amounts segregated within the Declared Interest Option as security for
policy debt will bear interest at an effective annual rate equal to the greater
of 4% or the current effective loan interest rate minus no more than 3% as
determined and declared by the Company. 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.
The interest rate charged on policy loans is not fixed. Initially, it
will be the rate shown in the Policy on the policy data page. The maximum annual
loan interest rate will be no greater than the "Published Monthly Average
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. An
amount equal to unpaid interest will be segregated within the Declared Interest
Option in the same manner that amounts for policy loans are segregated within
the Declared Interest Option.
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Because interest is charged in advance, any interest that has not been
earned will be added to the death benefit payable at the last death of the Joint
Insureds and to the accumulated value upon complete surrender, and will be
credited to the accumulated value in the Declared Interest Option upon repayment
of policy debt.
(d) POLICY TERMINATION. The Policy will terminate and lapse only when
net accumulated value is insufficient on a monthly deduction day to cover the
monthly deduction and a grace period expires without payment of a sufficient
premium. A grace period of 61 days begins on the date on which the Company sends
written notice of any insufficiency to the policyowner. The notice will be sent
to the policyowner's last known address on file with the Company. The notice
will specify the premium payment that, if received during the grace period, will
be sufficient to keep the Policy in force. If the Company does not receive the
premium payment on or before the last day of the grace period, the Policy will
terminate and insurance coverage and all rights thereunder will cease. Insurance
coverage will continue during the grace period. The amount of the premium
sufficient to keep the Policy in force beyond the grace period, when reduced by
the premium expense charge, is an amount equal to three times the monthly
deduction due on the monthly deduction day immediately preceding the grace
period. A terminated Policy (other than a surrendered Policy) may be reinstated
prior to the maturity date at any time within five years of the monthly
deduction day immediately preceding the grace period which expired without
payment of the required premium (see "Reinstatement" in the prospectus).
(e) CANCELLATION PRIVILEGE. The policyowner may cancel the Policy by
delivering or mailing written notice or sending a telegram to the Company at its
Administrative Office, and
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returning the Policy to the Company at its Administrative Office before midnight
of the 20th day after receipt of the Policy. (Certain states may provide for 30
days in which to cancel a policy in a replacement situation). The Company will
refund, within seven days after receipt of the notice of cancellation and the
returned Policy at its Administrative Office, an amount equal to the greater of
the premiums paid or (a) the accumulated value of the Policy on the business day
on or next following the date the Policy is received by the Company at its
Administrative Office plus (b) any premium expense charges which were deducted
from premiums plus (c) monthly deductions made on the policy date and any
monthly deduction day plus (d) amounts approximating daily charges against the
Variable Account.
(f) SPECIAL TRANSFER PRIVILEGE. A policyowner may, at any time prior to
the maturity date while the Policy is in force, convert the Policy to a flexible
premium fixed-benefit last survivor 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 will automatically be credited to the
Declared Interest Option, until such time as the policyowner requests a change
in allocation. No charge will be imposed for any transfers resulting from the
exercise of this special transfer privilege.
(g) POLICY SPLIT OPTIONS. The Joint Insureds may split the Policy into
two single-life policies, one on each of the Joint Insureds, upon (1) a divorce
or annulment with respect to the marriage of the Joint Insureds, or (2) certain
changes in the Federal Estate Tax Law resulting in reductions in the Unlimited
Marital Deduction, the Federal Unified Credit, or the Federal Estate
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Tax. However, the Policy cannot be split after the first death of the Joint
Insureds.
In order to elect this option, the Joint Insureds must provide the
Company with written notice within 90 days after the effective date of one of
the events listed above. If elected, each new policy will be issued for no more
than one-half of the Specified Amount of the Policy. The Net Surrender Value
will be divided and allocated in proportion to the Specified Amount of each new
policy.
If the Joint Insureds are the owners of this Policy, each will be the
owner of their new policy however, if the Joint Insureds are not the owners of
the Policy, then the owners of the Policy will be the owners of each new policy
(upon which election there will be a taxable event). The new policies will be
issued based on the age and premium class for each Joint Insured on the
effective date of the election. These new policies must fit the Company's
single-life issue limits in effect at the time of the election and will be
subject to the same charges as those in effect for regularly underwritten
policies.
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