PROSPECTUS: FLEXIBLE PREMIUM VARIABLE ANNUITY
Issued Through Banner Life Variable Annuity Account by
Banner Life Insurance Company - 1701 Research Boulevard Rockville,
Maryland 20850
This Prospectus describes a Flexible Premium Variable Annuity (the
"Policy")
offered by Banner Life Insurance Company. The Policy is designed to aid
in
long-term financial planning and provides for the accumulation of
capital by
individuals on a tax-deferred basis for retirement or other long-term
purposes.
The Owner may allocate Premium Payments to one or more Sub-Accounts of
the
Banner Life Variable Annuity Account (the "Variable Account"), to the
General
Account which guarantees a minimum fixed return, or to a combination of
these
Accounts. The Variable Account currently has five different Sub-Accounts.
Assets of each Sub-Account are invested in a corresponding Portfolio of
a
mutual fund, the Scudder Variable Life Investment Fund (the "Fund").
The
following five Portfolios of Class A shares currently are available
under the
Policies: a Money Market Portfolio; a Bond Portfolio; a Capital Growth
Portfolio; a Balanced Portfolio; and an International Portfolio. The
Fund is
described in a separate prospectus that accompanies this Prospectus.
The Account Value will vary in accordance with the investment
performance of
the Account and/or Sub-Accounts selected by the Owner. Therefore, the
Owner
bears the entire investment risk under this Policy for all amounts
allocated
to the Variable Account. Amounts allocated to the General Account are
guaranteed by Banner Life Insurance Company ("Banner Life") and will
earn a
specified rate of interest declared periodically.
The Policies provide for monthly annuity payments to be made by Banner
Life
for the life of the Annuitant or for some other period, beginning on the
Maturity Date selected by the Owner. Both prior to and after the
Maturity
Date, the Owner can transfer amounts between the Accounts or Sub-Accounts
(some restrictions may apply, especially on transfers out of the General
Account). The Owner can also elect to surrender all or a portion of the
Account Value in exchange for a cash withdrawal payment from Banner
Life;
however, withdrawals may be taxable, and subject to a Contingent
Deferred
Sales Charge and a tax penalty. Partial surrenders from the General
Account
may also be subject to restrictions regarding time and amount.
This Prospectus sets forth the information that a prospective investor
should
consider before investing in a Policy. A Statement of Additional
Information
about the Policy and the Variable Account, which has the same date as
this
Prospectus, has been filed with the Securities and Exchange Commission
and is
incorporated herein by reference. The Statement of Additional
Information is
available at no cost to any person requesting a copy by writing Banner
Life
at the address provided above or by calling (800) 638-3350. The table
of
contents of the Statement of Additional Information is included at the
end of
this Prospectus.
This Prospectus and the Statement of Additional Information generally
describe only the Policies and the Variable Account, except when the
General
Account is specifically mentioned.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS
FOR
THE SCUDDER VARIABLE LIFE INVESTMENT FUND. THESE SECURITIES HAVE NOT
BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR
HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS
PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE
RELIED UPON.
The Date of This Prospectus is May 1, 1997.
<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .4
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 13
HISTORICAL PERFORMANCE DATA. . . . . . . . . . . . . . . . . . 13
Standardized Performance Data . . . . . . . . . . . . . . 13
Non-Standardized Performance Data . . . . . . . . . . . . 14
BANNER LIFE INSURANCE COMPANY. . . . . . . . . . . . . . . . . 14
THE BANNER LIFE VARIABLE ANNUITY ACCOUNT . . . . . . . . . . . 15
The Banner Life Variable Annuity Account. . . . . . . . . 15
Scudder Variable Life Investment Fund . . . . . . . . . . 15
The General Account . . . . . . . . . . . . . . . . . . . 18
THE POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Policy Application and Issuance of Policies . . . . . . . 20
Premium Payments. . . . . . . . . . . . . . . . . . . . . 20
Account Value . . . . . . . . . . . . . . . . . . . . . . 21
Transfers . . . . . . . . . . . . . . . . . . . . . . . . 22
Non-Participating Policy. . . . . . . . . . . . . . . . . 23
DISTRIBUTIONS UNDER THE POLICY . . . . . . . . . . . . . . . . 23
Tax Consequences. . . . . . . . . . . . . . . . . . . . . 23
Surrenders. . . . . . . . . . . . . . . . . . . . . . . . 23
Annuity Payments. . . . . . . . . . . . . . . . . . . . . 24
Annuity Payment Plans . . . . . . . . . . . . . . . . . . 24
Death Benefit . . . . . . . . . . . . . . . . . . . . . . 27
Restrictions Under the Texas Optional Retirement Program. 28
Restrictions Under Section 403(b) Plans . . . . . . . . 28
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . 28
Contingent Deferred Sales Charge. . . . . . . . . . . . . 28
Mortality and Expense Risk Charge . . . . . . . . . . . . 29
Administrative Charges. . . . . . . . . . . . . . . . . . 30
Premium Taxes . . . . . . . . . . . . . . . . . . . . . . 30
Federal, State and Local Taxes. . . . . . . . . . . . . . 30
Transfer Charge . . . . . . . . . . . . . . . . . . . . . 31
Other Expenses Including Investment Advisory Fees . . . . 31
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . 31
Taxation of Annuities . . . . . . . . . . . . . . . . . . 32
Qualified Plans . . . . . . . . . . . . . . . . . . . . . 35
General . . . . . . . . . . . . . . . . . . . . . . . . . 36
DISTRIBUTOR OF THE POLICIES. . . . . . . . . . . . . . . . . . 37
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . 37
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 38
STATEMENT OF ADDITIONAL INFORMATION. . . . . . . . . . . . . . 39
<PAGE>
DEFINITIONS
Account Value -- The sum of the Variable Account Value and the General
Account Value.
Accumulation Unit -- An accounting unit of measure used in calculating
the
Variable Account Value.
Administrative Office -- The Administrative Office of Banner Life
Insurance
Company is located at 1701 Research Boulevard, Rockville, Maryland
20850.
Annuitant -- The person entitled to receive Annuity Payments after the
Maturity Date and during whose life any Annuity Payments involving life
contingencies will continue.
Annuity Payment Plan -- A method of receiving a stream of Annuity
Payments.
Annuity Unit -- An accounting unit of measure used in the calculation of
the
amount of the second and each subsequent Variable Annuity Payment.
Annuity Value -- The Policy's value after the Maturity Date.
Banner Life Variable Annuity Account -- A separate account established
by
Banner Life and registered as a unit investment trust under the
Investment
Company Act of 1940 to which Premium Payments under the Policies may be
allocated and which invests in the Scudder Variable Life Investment
Fund.
The separate account meets the definition of a separate account under
federal
securities laws.
Beneficiary -- The person, designated in the application, who has the
right
to the death benefit set forth in the Policy.
Cash Surrender Value -- The Account Value less the Contingent Deferred
Sales
Charge, if any, and a pro rata portion of the Administrative Charge.
Code -- The Internal Revenue Code of 1986, as amended.
Due Proof of Death -- A certified copy of a death certificate, a
certified
copy of a decree of a court of competent jurisdiction as to the finding
of
death, a written statement by the attending physician, or any other
proof
satisfactory to Banner Life will constitute Due Proof of Death.
Fixed Annuity Payments -- Payments made pursuant to an Annuity Payment
Plan
which do not fluctuate in amount.
Fund -- The Scudder Variable Life Investment Fund, a diversified, open-end
management company in which the Variable Account invests.
<PAGE>
General Account -- All of the assets of Banner Life that are not in
separate
accounts.
Maturity Date -- The date upon which the Account Value is applied to
provide
an Annuity Payment Plan. The Maturity Date is elected by the
Policyowner and
is shown in the Policy Schedule. Annuity years and anniversaries are
measured from this date.
Nonqualified Policy -- A Policy other than a Qualified Policy.
Policy -- One of the flexible premium variable annuity policies offered
by
this Prospectus.
Policy Date -- The date the Policy becomes a binding legal contract, as
shown
on the Policy Schedule Page. Policy years and anniversaries are
measured
from the Policy Date.
Policyowner or Owner -- The person who may exercise all rights and
privileges
under the Policy. The Policyowner during the lifetime of the Annuitant
and
prior to the Maturity Date is the person designated as the Policyowner
in the
application; the Policyowner on and after the Maturity Date is the
Annuitant.
Premium Payment -- An amount paid to Banner Life by the Policyowner or
on the
Policyowner's behalf as consideration for the benefits provided by the
Policy.
Qualified Policy -- A policy that is issued in connection with plans
that
qualify for special federal income tax treatment under section 401, 403,
408
or 457 of the Internal Revenue Code of 1986, as amended. See "Certain
Federal Income Tax Consequences."
Sub-Account -- A division within the Variable Account which invests in a
specified Portfolio of the Fund.
Valuation Day -- Any day that the New York Stock Exchange is open for
trading
and Banner Life is open for business.
Valuation Period -- The period of time from the end of one valuation day
to
the end of the next valuation day.
Variable Annuity Payments -- Payments made pursuant to an Annuity
Payment
Plan which fluctuate as to dollar amount in relation to the investment
performance of the specified Sub-Accounts within the Variable Account.
Written Notice or Request -- Written notice in a form satisfactory to
Banner
Life, signed by the Policyowner, and received and recorded at the
Administrative Office.
<PAGE>
SUMMARY
The Policy
The Policy is a flexible premium variable annuity which can be purchased
on
a non-tax qualified basis ("Nonqualified Policy") or with the proceeds
from
certain plans qualifying for favorable federal income tax treatment
("Qualified Policy"). The Owner allocates the Premium Payments among
the
Variable and the General Accounts of Banner Life Insurance Company
("Banner
Life").
The Accounts
The Variable Account. The Banner Life Variable Annuity Account is a
separate
account of Banner Life, which invests exclusively in shares of the
Scudder
Variable Life Investment Fund (the "Fund"), a mutual fund managed by
Scudder,
Stevens & Clark, Inc., which also provides investment advisory services
for
the Fund. The following five portfolios of Class A shares of the Fund
are
available under the policies: the Money Market Portfolio, the Bond
Port-
folio, the Capital Growth Portfolio, the Balanced Portfolio, and the
International Portfolio. Each of the Sub-Accounts of the Variable
Account
invests solely in a corresponding Portfolio of the Fund. Because
Account
Values may depend on the investment experience of the selected Sub-Accounts,
the Owner bears the entire investment risk with respect to Premium
Payments
allocated to, and amounts transferred to, the Variable Account. (See
The
Variable Account.)
The General Account. The General Account guarantees safety of principal
and
a minimum 4% Guaranteed Interest Rate on Premium Payments allocated to,
and
amounts transferred to, the General Account. Banner Life may, in its
sole
discretion, declare a higher Current Interest Rate which is not
guaranteed
for any length of time. (See The General Account.)
Premium Payments
A Policy may be purchased with a minimum initial Premium of $1,000. An
owner
may make additional Premium Payments of at least $50 at any time before
the
Maturity Date.
On the Policy Date, a state premium tax may be deducted, if applicable.
The
remaining initial Net Premium Payment is allocated among the Accounts
and
Sub-Accounts according to the Owner's instructions in the application.
The
initial premium allocation percentages may be changed by sending Written
Notice to Banner Life's Administrative Office. Any allocation must be
in
whole numbers and at least 10%, and of course the sum of the percentages
allocated to all of the accounts must equal 100%. Net Premiums and
Account
Value may not be allocated to more than five accounts among the General
Account and the Sub-Accounts of the Variable Account. (See Premium
Payments.)
<PAGE>
Transfers
Prior to the Maturity Date, an owner can transfer some or all of the
Account
Value among the Sub-Accounts of the Variable Account or between one or
more
Sub-Accounts and the General
Account, with certain limitations. Similarly, after the maturity date,
the
owner can transfer some or all of the Annuity Value among the Sub-Accounts of
the Variable Account or between one or more Sub-Accounts and the General
Account, within certain limitations.
The amount transferred from the General Account or any Sub-Account of
the
Variable Account must be at least $500 or the value in that Account, if
less.
Transfers out of the General Account are restricted to one per Policy or
Annuity Year, on the Policy or Annuity Anniversary, and the transfer
request
must be received at least 30 days prior to the Anniversary. The maximum
amount that may be transferred out of the General Account is limited to
the
greater of 25% of the General Account value on the Anniversary and $500.
Banner Life reserves the right to restrict the number of transfers out
of a
Sub-Account of the Variable Account in a Policy Year (both before and
after
the Maturity Date). Transfers may be subject to a service charge, which
will
be deducted from the amount transferred. (See Transfers.)
Surrenders
The Owner may elect to surrender all or a portion of the Cash Surrender
Value
($500 minimum) in the Variable Account at any time prior to the Maturity
Date. The Cash Surrender Value equals the Account Value less any
applicable
Contingent Deferred Sales Charge and a pro rata portion of the annual
Administrative Charge (described below). The amount of a partial
surrender
may not exceed the Account Value on the date of partial surrender less
$1,000. A surrender request must be made by Written Request, and a
request
for a partial surrender can specify the Accounts or Sub-Accounts from
which
the withdrawal is requested. There is currently no limit on the
frequency or
timing of withdrawals from the Variable Account. (Surrenders from the
General Account are subject to the same restrictions as transfers
described
above). Surrenders may be taxable transactions, and in certain cases a
penalty tax may apply. (See Certain Federal Income Tax Consequences.)
Charges and Deductions
Contingent Deferred Sales Charge. Banner Life does not deduct sales
charges
at the time of investment. Instead, a Contingent Deferred Sales Charge
is
imposed on certain full or partial withdrawals of Premium Payments in
order
to cover expenses relating to the sale of the Policies. However, once
each
Policy Year, up to 10% of total premiums paid can be withdrawn free of
the
surrender charge, and there is no surrender charge after the ninth
Policy
Year. Amounts withdrawn in the first nine Policy Years, after the first
withdrawal in the current Policy Year, or in excess of 10% of the total
Premiums paid, may be subject to a Contingent Deferred Sales Charge of
up to
7.5%. For a full surrender, the charge is a percentage of total
premiums
paid less prior partial surrenders. For a partial surrender, the charge
is
a percentage of the lesser of (a) the amount withdrawn, or (b) total
premiums
paid less prior partial surrenders. There is no sales charge on amounts
withdrawn after the ninth Policy Year, regardless of how long such
amounts
have been invested in the Policy.
<PAGE>
Account Charges. Banner Life deducts a daily charge equal to a
percentage of
the net assets in the Variable Account for the mortality and expense
risks
assumed by Banner Life. The effective annual rate of this charge
currently
is 1.15% and it is guaranteed never to exceed 1.25% of the value of the
Accounts' net assets. (See Mortality and Expense Risk Charge.)
Policy Charges. There is also an Annual Administrative Charge each year
for
Policy maintenance and related administrative expenses. This charge
currently is $30 per year. This charge may be increased in the future
but it
will never exceed $40 per year. (See Administrative Charge.)
Taxes. Banner Life may incur premium taxes relating to the Policies.
Banner
Life will deduct any premium taxes related to a particular Policy from
the
Premiums before allocating the Premiums to the Accounts. (See Premium
Taxes.)
No charges are currently made against any of the Accounts for federal,
state,
or local income taxes. Should Banner Life determine that any such taxes
may
be imposed with respect to any of the Accounts, Banner Life may deduct
such
taxes from amounts held in the relevant Account. (See Federal, State
and
Local Taxes.)
Transfer Fees. Currently, there is no charge for the first four
transfers in
a Policy Year. There is a charge of $15 for the fifth and subsequent
transfers in a Policy Year. This fee may be increased in the future
(and/or
applied to all transfers), but it will never exceed $25.00.
Charges Against the Fund. The value of the net assets of the Sub-Accounts of
the Variable Account will reflect the investment advisory fee and other
expenses incurred by the Fund. (See Other Expenses Including Investment
Advisory Fees.)
<PAGE>
<TABLE>
<CAPTION>
Expense Data. The charges and deductions are summarized in the
following tables.
This tabular information regarding expenses assumes that the entire
Account Value
is in the Variable Account (1).
Money Capital
Policyowner Transaction Expenses Market Bond Growth
Balanced International
<S> <C> <C> <C>
<C> <C>
Sales Load On Purchase Payments 0 0 0 0
0
Maximum Contingent Deferred 7.5% 7.5% 7.5%
7.5% 7.5%
Sales Load (as a % of
Premium Payment Surrendered)(2)
</TABLE>
Annual Administrative Fee $30 Per Policy
(current)
Transfer Fee (current) First Four Per Year - $0
After Four Per Year - $15
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C> <C>
Variable Account Annual Expenses
(as a percentage of Account Value)
(current)
Mortality and Expense Risk Fees 1.15% 1.15% 1.15%
1.15% 1.15%
Scudder Variable Life Investment
Fund Annual Expenses
(as a percentage of average net assets)
Management Investment
Advisory Fees .370% .475% .475%
.485% .875%
Other Expenses(3) .090% .135% .055%
.125% .175%
Total Scudder Variable Life .46% .61% .53%
.60% 1.05%
Investment Fund Annual Expenses
<FN>
(1) The Policy Owner Transaction Expenses apply to each Policy,
regardless of how Account Value
is allocated among the Variable Account and the General Account. The
Variable Account Annual
Expenses do not apply to the General Account (see Other Expenses
Including Investment Advisory Fees).
(2) The contingent deferred sales load is decreased based on the Policy
Year in which the withdrawal
is made. For issue ages 0-57, the load is 7.5% of premiums (minus
partial surrenders) in the first
five Policy Years and decreases by 1.5% each subsequent year to 0% in
the tenth Policy Year and
thereafter. For issue ages 58-80, the load is 7.5% of premiums (minus
partial surrenders) in the first
two Policy Years, 7.0% in third Policy Year and decreases by 1.0% each
subsequent year to 0% in
the tenth Policy Year and thereafter.
(3) The expenses listed for the Scudder Variable Life Investment Fund
are actual, historical expenses
for the year ended December 31, 1996, after reimbursement. Future
expenses may be lower or higher.
</TABLE>
<PAGE>
Examples
An Owner would pay the following expenses on a $1,000 investment,
assuming a
5% annual return on assets:
1. If the Policy is surrendered or annuitized over less than a five
year
period at the end of the applicable time period:
1 Year 3 Years 5 Years 10 Years
Money Market Portfolio* $ 85 $ 123 $ 168 $ 247
Bond Portfolio* $ 86 $ 128 $ 177 $ 267
Capital Growth Portfolio* $ 85 $ 125 $ 172 $ 256
Balanced Portfolio* $ 87 $ 128 $ 176 $ 265
International Portfolio* $ 91 $ 142 $ 201 $ 324
2. If the Policy is not surrendered or is annuitized over at least a
five
year period at the end of the applicable time period:
1 Year 3 Years 5 Years 10 Years
Money Market Portfolio* $ 17 $ 56 $ 101 $ 247
Bond Portfolio* $ 19 $ 60 $ 109 $ 267
Capital Growth Portfolio* $ 18 $ 58 $ 105 $ 256
Balanced Portfolio* $ 19 $ 60 $ 109 $ 265
International Portfolio* $ 23 $ 74 $ 134 $ 324
*Class A shares
The above tables are intended to assist the Owner in understanding the
costs
and expenses that will be borne, directly or indirectly, including the
expenses of the Scudder Variable Life Investment Fund. Note that the
tables
are based on a policy issued through age 57 and are thus the maximum
illustrative charges and the fixed Administrative Charge is expressed as
.1%
based on an anticipated average account value of $25,000 and is also a
percentage of the anticipated average Account Value. See Charges and
Deductions, and the Scudder Variable Life Investment Fund prospectus.
In
addition to the expenses listed above, premium taxes may be applicable.
The Examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or lesser than those shown.
Death Benefit
Upon receipt of Due Proof of Death of the Annuitant or Owner while the
Policy
is in force prior to the Maturity Date, a Death Benefit will be paid to
the
Beneficiary. The Death Benefit will be the Account Value of the Policy
as of
the date of the death. No Contingent Deferred Sales Charge is imposed
upon
amounts received as a Death Benefit. The Death Benefit may be paid as
<PAGE>
either lump sum cash benefit or, if the beneficiary is an individual, as
an Annuity Payment Plan. (See Death Benefit.)
Right to Return the Policy
The Policyowner may cancel the Policy within twenty (20) days after it
is
received by the Policyowner by returning it to the agent through whom it
was
purchased or delivering or mailing the Policy and a Written Notice of
Cancellation to Banner Life at its Administrative Office or such other
methods as described in the contract. In the event of cancellation,
Banner
Life generally will return the sum of all Premium Payments made under
the
Policy and the accumulated gains or losses in the Variable Account, if
Premium Payments were allocated to that account. However, if required
by
state law, Banner Life will refund the premium(s) paid or, if greater,
the
Account Value.
Federal Income Tax Consequences of Investment in the Policy
With respect to Owners who are natural persons, there should be no
federal
income tax on increases in the Account Value until a distribution under
the
Policy occurs (e.g., a surrender or Annuity Payment) or is deemed to
occur
(e.g., a pledge, loan, or assignment of a Policy). Generally, a portion
of
any distribution or deemed distribution will be taxable as ordinary
income.
The taxable portion of certain distributions will be subject to
withholding
unless the recipient elects otherwise (withholding is mandatory for
certain
Qualified Policies). In addition, a penalty tax may apply to certain
distributions or deemed distributions under the Policy. (See Certain
Federal
Income Tax Consequences.)
Inquiries and Written Notices and Requests
Any questions about procedures or the Policy, or any Written Notice or
Written Request required to be sent to Banner Life, should be sent to
Banner
Life's Administrative Office, 1701 Research Boulevard, Rockville,
Maryland
20850. Telephone requests and inquires may be made by calling (800)
638-3350.
All inquiries, Notices and Requests should include the Policy number,
the Owner's name and the Annuitant's name.
Note: The foregoing summary is qualified in its entirety by the
detailed
information in the remainder of this Prospectus and in the prospectuses
for
the Scudder Variable Life Investment Fund, and in the Policy, all of
which
should be referred to for more detailed information. This Prospectus
gener-
ally describes only the Policy and the Variable Account. A separate
prospectus describes the Scudder Variable Life Investment Fund. (There
is no
prospectus for the General Account since interests in the General
Account are
not securities. See The General Account.)
<PAGE>
CONDENSED FINANCIAL INFORMATION
Banner Life Variable Annuity Account
The following information relating to accumulated unit values and number
of
accumulation units for the life of the account is derived from the
Variable
Account's financial statements. The information relating to
accumulation
unit values and number of accumulation units should be read in
conjunction
with the Variable Account's financial statements and notes in the
Statement
of Additional Information.
<TABLE>
<CAPTION>
Money Capital
1996 Market Bond Growth Balanced
International
Portfolio Portfolio Portfolio Portfolio
Portfolio
<S> <C> <C> <C> <C> <C>
Accumulation
Unit Value
-Beginning of Period $1.2077 $1.2263 $1.6444 $1.4039
$1.2737
-End of Period $1.2549 $1.2483 $1.9404 $1.5488
$1.4345
Number of
Accumulation Units
-End of Period 386,380 247,053 1,241,979 2,076,499
994,670
</TABLE>
<TABLE>
<CAPTION>
Money Capital
1995 Market Bond Growth Balanced
International
Portfolio Portfolio Portfolio Portfolio
Portfolio
<S> <C> <C> <C> <C> <C>
Accumulation
Unit Value
-Beginning of Period $1.1562 $1.0495 $1.2708 $1.1155
$1.1454
-End of Period $1.2077 $1.2263 $1.6444 $1.4039
$1.2737
Number of
Accumulation Units
-End of Period 82,581 262,550 1,449,832 2,421,201
1,064,079
</TABLE>
<PAGE>
<TABLE>
Money Capital
1994 Market Bond Growth Balanced
International
Portfolio Portfolio Portfolio Portfolio
Portfolio
<S> <C> <C> <C> <C> <C>
Accumulation
Unit Value
- Beginning of Period $1.1254 $1.1178 $1.4322 $1.1535
$1.1722
- End of Period $1.1562 $1.0495 $1.2708 $1.1155
$1.1454
Number of
Accumulation Units
- End of Period 86,096 284,000 1,234,715 2,454,916
1,261,525
</TABLE>
FINANCIAL STATEMENTS
The consolidated financial statements for Banner Life Insurance Company
as of
December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996, the financial statements of the Banner
Life
Variable Annuity Account as of December 31, 1996, and for each of the
two
years in the period ended December 31, 1996 and the related reports of
the
independent accountants are contained in the Statement of Additional
Information.
HISTORICAL PERFORMANCE DATA
Standardized Performance Data
From time to time, Banner Life may advertise historical yields and total
returns for the Sub-Accounts of the Variable Account. In addition,
Banner
Life may advertise the effective yield of the Money Market Sub-Account.
These figures will be calculated according to standardized methods
prescribed
by the Securities and Exchange Commission ("SEC"). They will be based
on
historical earnings and are not intended to indicate future performance.
The yield of the Money Market Sub-Account refers to the annualized
income
generated by an investment under a Policy in that Sub-Account over a
specified seven-day period. The yield is calculated by assuming that
the
income generated for that seven-day period is generated each seven-day
period
over a 52-week period and is shown as a percentage of the investment.
The
effective yield is calculated similarly but, when annualized, the income
earned by an investment under a Policy in the Money Market Sub-Account
is
assumed to be reinvested. The effective yield will be slightly higher
than
the yield because of the compounding effect of this assumed
reinvestment.
<PAGE>
The yield of a Sub-Account of the Variable Account (other than the Money
Market Sub-Account) refers to the annualized income generated by an
invest-
ment under a Policy in the Sub-Account over a specified thirty-day
period.
The yield is calculated by assuming that the income generated by the
invest-
ment during that thirty-day period is generated each thirty-day period
over
a 12-month period and is shown as a percentage of the investment.
The total return of a Sub-Account of the Variable Account refers to
return
quotations assuming an investment under a Policy has been held in the
Sub-Account for various periods of time including, but not limited to,
a period measured from the date the Sub-Account commenced operations.
When a Sub-Account has been in operation for one, five, and ten years,
respectively, the total return for these periods will be provided. The
total
return quotations for a Sub-Account will represent the average annual
compounded rates of return that equate an initial investment of $1,000
in the
Sub-Account to the redemption value of that investment as of the first
day of
each of the periods for which total return quotations are provided.
The yield and total return calculations for a Sub-Account do not reflect
the
effect of any premium taxes that may be applicable to a particular
Policy.
The yield calculations also do not reflect the effect of any Contingent
Deferred Sales Charge that may be applicable to a particular Policy. To
the
extent that a premium tax and/or Contingent Deferred Sales Charge is
applic-
able to a particular Policy, the yield and/or total return of that
Policy
will be reduced. For additional information regarding yields and total
returns calculated using the standard formats briefly summarized above,
please refer to the Statement of Additional Information, a copy of which
may
be obtained from Banner Life.
Non-Standardized Performance Data
Banner Life may from time to time also advertise or disclose average
annual
total return or other performance data in non-standard formats for a
Sub-Account of the Variable Account. The non-standard performance data
may
assume that no Contingent Deferred Sales Charge is applicable, and may
also
make other assumptions.
All non-standard performance data will be advertised only if the
standard
performance data is also disclosed. For additional information
regarding the
calculation of other performance data, please refer to the Statement of
Additional Information, a copy of which may be obtained from Banner
Life.
BANNER LIFE INSURANCE COMPANY
Banner Life Insurance Company ("Banner Life") is a stock life insurance
company that is a wholly owned subsidiary of Legal and General Life
Insurance
Company of America, Inc., which in turn is a wholly owned subsidiary of
Legal
and General America, Inc., which in turn is wholly owned by Legal and
General
Netherlands Holding BV, which is a wholly-owned subsidiary of Legal &
General, International Limited, a United Kingdom based holding company.
The
ultimate controlling entity is Legal and General Group Plc, a United
Kingdom
company. Banner Life is principally engaged in offering life insurance
and
annuities and is licensed in the District of Columbia and all states
except
Maine and New York.
<PAGE>
Banner Life is the successor to Government Employees Life Insurance
Company
("GELICO"), which was a subsidiary of GEICO Corporation. GELICO was
organized as a District of Columbia corporation on April 28, 1949.
GELICO
changed its name to Banner Life Insurance Company, and became a wholly
owned
indirect subsidiary of Legal and General Group Plc on December 1, 1983.
THE BANNER LIFE VARIABLE ANNUITY ACCOUNT
Premiums paid under a Policy may be allocated to the Variable Account or
to
the General Account, or to a combination of these Accounts.
The Banner Life Variable Annuity Account
The Banner Life Variable Annuity Account (the "Variable Account") is
currently divided into five Sub-Accounts. Each Sub-Account invests
exclusively in shares of a single portfolio of Class A shares of the
Scudder
Variable Life Investment Fund. Income and both realized and unrealized
gains
or losses from the assets of each Sub-Account are credited to or charged
against that Sub-Account without regard to income, gains or losses from
any
other Sub-Account of the Variable Annuity Account or arising out of any
other
business Banner Life may conduct.
Although the assets in the Variable Account are the property of Banner
Life,
the assets in the Variable Account attributable to the Policies are not
chargeable with liabilities arising out of any other business which
Banner
Life may conduct. The Variable Account was established by Banner Life
as a
segregated asset account on June 14, 1989. The Variable Account will
receive
and invest the premiums allocated to it under the Policies. The
obligations
under the Policies are obligations of Banner Life Insurance Company.
The Variable Account has been registered as a unit investment trust
under the
Investment Company Act of 1940. Registration with the Securities and
Exchange Commission does not involve supervision of the management or
investment practices or policies of the Variable Account or Banner Life
by
the Commission.
Scudder Variable Life Investment Fund
The Variable Account invests in shares of the Scudder Variable Life
Investment Fund (the "Fund"), a mutual fund of the series type. The
Fund
consists of the following portfolios of Class A shares: a Money Market
Portfolio, a Bond Portfolio, a Capital Growth Portfolio, a Balanced
Portfolio, and a International Portfolio (collectively, the
"Portfolios").
The assets of each Portfolio of the Fund are held separate from the
assets of
the other Portfolios. Thus, each Portfolio operates as a separate
investment
portfolio, and the income or losses of one Portfolio have no effect on
the
investment performance of any other Portfolio.
The investment objectives and policies of each Portfolio are summarized
below. There is no assurance that any of the Portfolios will achieve
their
stated objectives. More detailed information, including a description
of
risks, is in the Fund's prospectus, which accompanies this
<PAGE>
Prospectus and which should be read carefully in conjunction with this
Prospectus and kept for future reference.
The Fund is designed to provide investment vehicles for variable annuity
or
variable life insurance contracts of various insurance companies. For
more
information about the risks associated with the use of the same funding
vehicle for both variable annuity and variable life insurance contracts
of
various insurance companies, see the Fund's prospectus.
Portfolios of the Fund. The following five Portfolios of the Fund are
available under the Policies:
Money Market Portfolio (Class A Shares). This Portfolio seeks to
maintain
stability of capital and, consistent therewith, to maintain liquidity of
capital and to provide current income. The Portfolio purchases money
market
securities such as U.S. Treasury obligations, commercial paper, and
certificates of deposit and banker's acceptances of domestic and foreign
banks, including foreign branches of domestic banks, and enters into
repurchase agreements.
An investment in this Portfolio is neither insured nor guaranteed by the
U.S.
government, and there is no assurance that the portfolio will be able to
maintain a stable net asset value.
Bond Portfolio (Class A Shares). This Portfolio pursues a policy of
investing for a high level of income consistent with a high quality
portfolio
of securities. Under normal circumstances, the Portfolio invests at
least
65% of its assets in bonds, including U.S. Government, corporate, and
other
notes and bonds paying high current income. The Portfolio may also
invest in
preferred stocks consistent with the Portfolio's objectives.
Capital Growth Portfolio (Class A Shares). This Portfolio seeks long-term
capital appreciation and, consistent therewith, current income through a
broad and flexible investment program. The Portfolio seeks to achieve
these
objectives by investing primarily in income producing, publicly-traded
equity
securities, such as common stocks and securities convertible into common
stock, with an emphasis on securities of established companies.
However, in
order to reduce risk, as market or economic conditions may periodically
warrant, the Portfolio may also invest up to 25% of its assets in short-term
indebtedness.
Balanced Portfolio (Class A Shares). The investment objective of this
Portfolio is to realize a high level of long-term total rate of return
consistent with prudent investment risk. The assets of this Portfolio
will
be invested in the following three market sectors: (1) common stock,
preferred stock, and other equity securities; (2) bonds and other debt
se-
curities with maturities generally exceeding one year; and (3) money
market
instruments and other debt securities with maturities generally not
exceeding
one year.
<PAGE>
International Portfolio (Class A Shares). This Portfolio seeks long-term
growth of capital primarily through diversified holdings of marketable
foreign equity investments. The Portfolio invests in companies,
wherever
organized, which do business primarily outside the United States. The
Portfolio intends to diversify investments among several countries and
not to
concentrate investments in any particular industry. The Portfolio
primarily
invests in equity securities, and it may also invest in fixed income
securities of foreign governments and companies.
Fund Management and Fees. Scudder, Stevens & Clark, Inc. (the
"Adviser")
provides management and investment advisory services to the Fund. The
Adviser provides investment research and portfolio management services
to a
number of mutual funds and other clients. Each Portfolio pays the
Adviser a
fee for its investment advisory services at the following annual rates:
Percentage of the Portfolio's
Portfolio Average Daily Net Asset Value
Money Market Portfolio* .370%
Bond Portfolio* .475%
Capital Growth Portfolio* .475%
Balanced Portfolio* .475%
International Portfolio* .875%
* Class A Shares
Addition, Deletion, or Substitution of Investments. Banner Life does
not
control the Fund and cannot guarantee that it or any Portfolio thereof
will
be available for investment in the future or that it or any Portfolio
thereof
will accept premiums or transfers. In the event that the Fund or any
Port-
folio is not available, Banner Life may take reasonable action to secure
a
comparable or otherwise appropriate funding vehicle, although it is not
required to and may not do so. In the unlikely event that the Fund is
not
available in the future and a substitute funding vehicle is not
obtained,
then all Account Values could be maintained in the General Account. If
the
Fund or other funding vehicle restricts or refuses to accept transfers
or
other transactions, then the transfer privilege may be modified or
revoked or
other changes made.
Banner Life reserves the right, subject to compliance with applicable
law, to
make additions to, deletions from, or substitutions for the shares of
the
Fund that are held by the Variable Account (or any Sub-Account) or that
the
Variable Account (or any Sub-Account) may purchase. Banner Life
reserves the
right to eliminate the shares of any of the Portfolios of the Fund and
to
substitute shares of another Portfolio of the Fund or any other
investment
vehicle or of another open-end, registered investment company if laws or
regulations are changed, if the shares of the Fund or a Portfolio are no
longer available for investment, or if in our judgment further
investment in
any Portfolio should become inappropriate in view of the purposes of the
Sub-Account. Banner Life will not substitute any shares attributable to
a
Policyowner's interest in a Sub-Account of the Variable Account without
notice and prior approval of the Securities and Exchange Commission
<PAGE>
and the insurance regulator of the state where the Policy was delivered,
if
and where required. Nothing contained herein 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.
Banner Life also reserves the right to establish additional Sub-Accounts
of
the Variable Account, each of which would invest in a new Portfolio of
the
Fund, or in shares of another investment company or suitable investment,
with
a specified investment objective. New Sub-Accounts may be established
when,
in the sole discretion of Banner Life, marketing needs or investment
condi-
tions warrant, and any new Sub-Account will be made available to
existing
Policyowners on a basis to be determined by Banner Life. Banner Life
may
also eliminate one or more Sub-Accounts if, in its sole discretion,
marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, Banner Life may, by
appropriate endorsement, make such changes in this and other policies as
may
be necessary or appropriate to reflect such substitution or change. If
deemed by Banner Life to be in the best interests of persons having
voting
rights under the Policies, the Variable Account may be operated as a
manage-
ment company under the Investment Company Act of 1940, it may be
deregistered
under that Act in the event such registration is no longer required, or
it
may be combined with other Banner Life separate accounts.
The General Account
This Prospectus is generally intended to serve as a disclosure document
only
for the Policy and the Variable Account. For complete details regarding
the
General Account, see the Policy itself.
Premiums allocated and amounts transferred to the General Account become
part
of the general account of Banner Life, which supports insurance and
annuity
obligations. Interests in the general account have not been registered
under
the Securities Act of 1933 (the "1933 Act"), nor is the general account
registered as an investment company under the Investment Company Act of
1940
(the "1940 Act"). Accordingly, neither the general account nor any
interests
therein are generally subject to the provisions of the 1933 or 1940 Acts
and
Banner Life has been advised that the staff of the Securities and
Exchange
Commission has not reviewed the disclosures in this Prospectus which
relate
to the fixed portion.
The General Account is made up of all the general assets of Banner Life,
other than those in the Variable Account, or in any other segregated
asset
account. The Policyowner may allocate Premium Payments to the General
Account at the time of Premium Payment or by subsequent transfers from
the
Variable Account. Instead of the Policyowner bearing the investment
risk as
is the case for values in the Variable Account, Banner Life bears the
full
investment risk for all values in the General Account. Banner Life has
sole
discretion to invest the assets of its general account subject to
applicable
law.
<PAGE>
The allocation or transfer of funds to the General Account does not
entitle
the Policyowner to share in the investment experience of the General
Account.
Instead, Banner Life guarantees that the General Account Value will
accrue
interest at an effective annual rate of at least 4%, without regard to
the
actual investment experience of the General Account. Consequently, if
the
Policyowner allocates all net premiums only to the General Account and
makes
no transfers, the minimum amount of the Account Value will be
determinable
and guaranteed.
General Account Value. The General Account Value is the sum of (1) plus
(2)
plus (3) minus the sum of (4) plus (5) where:
(1) is the General Account Value on the prior Policy Anniversary, plus
interest from that day, less the proportion of the annual
administrative
charge attributable to the General Account;
(2) are net premiums credited to the General Account since the prior
Policy
Anniversary, plus interest from the day net premiums are credited;
(3) are transfers from the Variable Account to the General Account
since the
prior Policy Anniversary, plus interest from the date of the
transfer;
(4) are transfers to the Variable Account from the General Account
since the
prior Policy Anniversary, plus interest from the date of transfer;
and
(5) are partial surrenders from the General Account together with any
partial surrender charges, plus interest from the date of partial
surrender.
The guaranteed interest rate used in the calculation of the General
Account
Value is .32737% a month, compounded monthly. This is equivalent to 4%
per
year, compounded yearly. Interest in excess of the guaranteed rate, if
any,
may be used in the calculation of the General Account Value at such
increased
rate and in such manner as determined by Banner Life in its sole
discretion.
Transfers From the General Account. Prior to the Maturity Date,
transfers
from the General Account may be made once per Policy Year, only on the
Policy
Anniversary, and Banner Life must receive the transfer request at least
30
days prior to the Policy Anniversary. The minimum amount that may be
transferred from the General Account is the lesser of: (1) $500; or (2)
the
entire General Account Value. The maximum amount that may be
transferred
from the General Account is the greater of: (1) $500; or (2) 25% of
General
Account Value.
After the maturity date, transfers from the General Account may be made
once
per Annuity Year, on the Annuity Anniversary, and Banner Life must
receive
the transfer request at least 30 days prior to the Annuity Anniversary.
The
maximum amount that may be transferred out of the General Account each
year
is 25% of the Annuity Value in the General Account.
<PAGE>
Banner Life may postpone the calculation and payment of surrender values
or
transfers from the General Account for up to 6 months. Transfers may be
subject to a service charge.
Banner Life guarantees that, at any time prior to the Maturity Date, the
amount in the General Account allocable to a particular Policy will be
not
less than the amount of the Premium Payments allocated or transferred to
the
General Account, plus interest at the rate of 4.0% per year, plus any
excess
interest credited to amounts in the General Account, less the sum of all
Administrative Charges (See Administrative Charges) allocated to the
General
Account, and any applicable premium or other taxes allocable to the
General
Account, and less any amounts deducted from the General Account in
connection
with partial surrenders (including any Contingent Deferred Sales
Charges) or
transfers to the Variable Account.
THE POLICY
The rights and benefits under the Flexible Premium Variable Annuity
Policy
are summarized below. However, the description of the Policy contained
in
this Prospectus is qualified in its entirety by the Policy itself, a
copy of
which is available upon request from Banner Life.
Policy Application and Issuance of Policies
Before it will issue a Policy, Banner Life must receive a completed
Policy
application and a minimum initial Premium of at least $1,000. A Policy
ordinarily will be issued only in respect of Annuitants Age 0 through
80.
Acceptance or declination of an application or premium payment shall be
based
on the Company's underwriting standards and the Company reserves the
right to
reject any application or premium payment based on those standards.
If the application can be accepted in the form received, the initial
Premium
Payment will be credited to the Account Value not later than two
business
days after the later of the date of receipt of the application or
receipt of
the initial Premium Payment. If the initial Premium Payment cannot be
credited within two days because the application or other issuing
require-
ments are incomplete, and the incomplete application is not made
complete
within five business days after receipt, then the applicant will be
contacted
and given an explanation for the delay and the initial Premium Payment
will
be returned within five days unless the applicant consents to Banner
Life's
retaining the initial Premium Payment and crediting it as soon as the
necessary requirements are fulfilled.
The date on which the initial Premium Payment is credited to the Account
Value is the Policy Date. The Policy Date is the date used to determine
Policy Years and Policy Anniversaries.
Premium Payments
All Premium Payment checks or drafts should be made payable to Banner
Life
Insurance Company. Except for the initial Premium Payment, all Premium
Payments should be sent to the Administrative Office.
<PAGE>
Initial Premium Payment. The minimum initial Premium Payment that
Banner
Life currently will accept under a Policy is $1,000. Banner Life
reserves
the right to increase or decrease this amount for a class of Policies
issued
after some future date. The initial Premium Payment is the only Premium
Payment required to be paid under a Policy.
Additional Premium Payments. While the Annuitant is living and prior to
the
Maturity Date, the Owner may make additional Premium Payments at any
time,
and in any frequency. The amount of each additional premium payment
must be
at least $50 and not more than $100,000 without Banner Life's approval.
Additional Premium Payments will be credited to the Policy and added to
the
Account Value as of the Valuation Day when they are received. Banner
Life
reserves the right to reject any Premium Payment. If no Premiums
Payments
are made for any three year consecutive period and if the Account Value
of
the Policy falls below $500 during that period, Banner Life reserves the
right to terminate the Policy and pay the Cash Surrender Value to the
Policyowner.
Allocation of Premium Payments. On the date of issue, Banner Life will
allocate Premium Payments to the Sub-Accounts of the Variable Account
and the
General Account in accordance with the initial Net Premium Allocation
Percentages. The initial net premium allocation percentages are set
forth in
the application. The Policyowner may change this allocation by giving
Written Notice to Banner Life. Net premiums may not be allocated to
more
than five accounts among the General Account and the Sub-Accounts of the
Variable Account. The Policyowner may allocate any whole percentages of
at
least 10%, and the total allocation must equal 100%. Any allocation
will be
used for additional Premium Payments until and unless the Owner requests
a
change of allocation. All additional Premium Payments will be allocated
and
credited to the Owner's Policy at the end of the Valuation Period during
which they are received. The Owner may change the allocation
instructions
for future additional Premium Payments by sending Written Notice, signed
by
the Owner, to Banner Life's Administrative Office. The allocation
change
will apply to payments received after the date the Written Notice is
received.
Payment Not Honored by Bank. Any payment due under the Policy which is
derived, all or in part, from any amount paid to Banner Life by check or
draft may be postponed until such time as Banner Life determines that
such
instrument has been honored.
Account Value
On the Policy Date, the Account Value equals the net premium(s) received
by
Banner Life on or before that date. Thereafter, the Account Value
equals the
sum of the Variable Account value and General Account value. The
Account
Value will increase by (1) any additional Premium Payments received by
Banner
Life; and (2) any increases in the Account Value due to investment
results of
the selected Account(s). The Account Value will decrease by (1) any
surrenders; (2) any decreases in the Account Value due to investment
results
of the selected Accounts or Sub-Accounts; and (3) the charges imposed by
Banner Life.
<PAGE>
The Account Value is expected to change from Valuation Period to
Valuation
Period, reflecting the investment experience of the selected Account(s)
and/or Sub-Account(s), as well as the deductions for charges. A
Valuation
Period is the period between successive Valuation Days. It begins at
the
close of business on each Valuation Day and ends at the close of
business on
the next succeeding Valuation Day. A Valuation Day is each day that
both the
New York Stock Exchange and Banner Life's Administrative Office are open
for
business. Holidays are generally not Valuation Days.
The Variable Account Value. When a Premium is allocated or an amount is
transferred to a Sub-Account of the Variable Account, it is credited to
the
Policy in the form of Accumulation Units. Each Sub-Account of the
Variable
Account has a distinct Accumulation Unit value (the "Unit Value"). The
number of units credited is determined by dividing the Premium Payment
or
amount transferred by the Unit Value of the Sub-Account as of the end of
the
Valuation Period during which the allocation is made. When amounts are
transferred out of, or surrendered or withdrawn from an Account or
Sub-Account,
units are canceled or redeemed in a similar manner.
For each Sub-Account, the Unit Value for a given Valuation Day is based
on
the net asset value of a share of the corresponding Portfolio of the
Fund.
Therefore, the Unit Values will fluctuate from day to day based on the
investment experience of the corresponding Portfolio. The determination
of
Sub-Account Unit Values is described in detail in the Statement of
Additional
Information.
Transfers
An Owner can transfer Account Value from one Account or Sub-Account to
another Account or Sub-Account prior to or after the Maturity date,
within
certain limits.
Subject to the limitations and restrictions described below, transfers
from
an Account or Sub-Account may be made by sending Written Notice, signed
by
the Policyowner, to the Administrative Office. The minimum amount which
may
be transferred is the lesser of $500 or the entire value of the account
or
sub-account. In other words, a minimum of $500 must be transferred,
unless
the value in an account or sub-account before the transfer is less than
$500.
Transfers out of a Sub-Account of the Variable Account currently may be
made
as often as the Owner wishes, subject to the minimum amount specified
above
(Banner Life reserves the right to otherwise limit or restrict transfers
in
the future). Transfers are subject to the Postponement of Payments
provision
(see page 4 of the Statement of Additional Information, which is
available
from Banner Life upon request).
Transfers from the General Account are subject to the restrictions
described
above under "Transfers From the General Account."
A transfer charge may be imposed for any transfer. Currently, there is
a
transfer charge of $15 for the fifth and subsequent transfer in a Policy
Year, which will be deducted from the amount transferred. The maximum
transfer charge that will be imposed is $25 per transfer.
<PAGE>
Banner Life reserves the right to revoke or modify the transfer
privilege in
any way, such as limiting the number or frequency of transfers.
Non-participating Policy
The Policy does not participate or share in the profits or surplus
earnings
of Banner Life. No dividends are payable on the Policy.
DISTRIBUTIONS UNDER THE POLICY
Tax Consequences
Certain distributions may have tax consequences. See the discussion
below
under Certain Federal Income Tax Consequences.
Surrenders
The Owner may surrender the Policy for the Cash Surrender Value in
exchange
for a cash withdrawal payment from Banner Life at any time prior to the
Maturity Date. The Cash Surrender Value is the Account Value on the
surrender date less any applicable Contingent Deferred Sales Charge and
the
pro rata portion of the Administrative Charge. The Owner may, if an
individual, elect to receive the Cash Surrender Value in the form of one
of
the Annuity Payment Plans described below. After the Maturity Date, the
Policy cannot be surrendered unless Annuity Option E (Income for a
period
certain) has been selected.
Since the Owner assumes the investment risk with respect to Premium
Payments
allocated to the Variable Account, and because withdrawals are subject
to a
Contingent Deferred Sales Charge, the total amount paid upon total
surrender
of the Policy (taking any prior surrenders into account) may be more or
less
than the total Premium Payments made. Following a surrender of the
Policy,
or if the Policy terminates for any other reason, all rights of the
Owner and
Annuitant will terminate.
Partial Surrender. The Owner may withdraw a portion of the Cash
Surrender
Value from the Variable Account at any time prior to the Maturity Date
by
sending a Written Request to Banner Life's Administrative Office. The
minimum amount that can be withdrawn from any Sub-Account or Account is
$500,
and the amount withdrawn cannot exceed the Account Value on the date of
partial surrender less $1,000. The Owner may specify the Accounts or
Sub-Accounts from which partial surrender amounts should be taken. If
an
allocation for a partial surrender is not made, the amount withdrawn
will be
allocated in proportion to the Account Values in the Sub-Accounts and
the
General Account. After the Maturity Date, partial surrenders are not
per-
mitted (See Annuity Payments.)
Surrender Charge. The only charge for surrenders is the Contingent
Deferred
Sales Charge, if it applies. Accordingly, the amount available for
surrender
is the Cash Surrender Value, which is the Account Value less any
applicable
Contingent Deferred Sales Charge and less the pro rata portion of the
annual
Administrative Charge. However, an Owner may surrender up to 10% of
<PAGE>
the premiums paid without a Contingent Deferred Sales Charge if no
withdrawal
has been made in the current Policy Year. Amounts withdrawn in excess
of this
free withdrawal amount or withdrawn in the same Policy Year as a
previous
withdrawal are subject to the Contingent Deferred Sales Charge, but only
during the first nine Policy Years. In addition, a Contingent Deferred
Sales
Charge will not be assessed if Account Value is applied to an Annuity
Payment
Plan with payments over at least a five year period. For a discussion
of the
Contingent Deferred Sales Charge. (See Contingent Deferred Sales
Charge.)
Annuity Payments
Maturity Date. Annuity Payments under a Policy will begin on the
Maturity
Date, which is selected by the Policyowner at the time the Policy is
applied
for. The Owner may change the Maturity Date by Written Notice to Banner
Life, provided that notice of each change is received by Banner Life at
its
Administrative Office at least thirty (30) days prior to the then
current
Maturity Date.
The Maturity Date must be:
For issue ages 0-57: at least 13 years after the Policy Date, and
cannot be
later than the Policy Anniversary following the Annuitant's 95th
birthday.
For issue ages 58-80: at least 10 years after the Policy Date, and
cannot be
later than the Policy Anniversary following the Annuitant's 95th
birthday.
Election of Annuity Payment Plan. The Policyowner will choose an
Annuity
Payment Plan in the application. However, during the lifetime of the
Annuitant and at any time prior to the Maturity Date, the Policyowner
may
change the election. If no election is made prior to the Maturity Date,
Annuity Payments will be made under Option B (described below).
If the Annuitant or Owner dies before the Maturity Date, the Beneficiary
will
receive the Death Benefit in a lump sum. However, if the beneficiary is
an
individual receiving payment in his or her own right, then the
Beneficiary
can elect to receive the Death Benefit under one of the Annuity Payment
Plans, to the extent allowed by law and subject to the terms of any
settlement agreement. (See Death Benefit.) Annuity Payments will be
made on
either a fixed basis or a variable basis as selected by the Policyowner
(or
the Beneficiary, after the Annuitant's or Owner's death).
Annuity Payment Plans
The Policy provides five Annuity Payment Plans which are described
below.
The Policyowner may elect a Fixed Payment Option, a Variable Payment
Option,
or a combination of both. If the Policyowner elects a combination, he
must
specify what part of the Account Value is to be applied to the Fixed and
Variable Options. If the Owner does not specify fixed or variable
payments,
then the separate account value will be applied to provide a variable
annuity, and the general account value will be applied to provide a
fixed
annuity. Under the variable annuity, a maximum of three of the
Portfolios of
the Fund then available can be selected by the Owner. If Account Value
is in
more than three Sub-Accounts at the Maturity Date, the annuity payments
will
not begin until the Owner specifies the allocation.
<PAGE>
The effect of choosing a Fixed Annuity Option is that the minimum amount
of
each payment will be set on the Maturity Date and will not change. If a
Fixed Annuity Option is selected, the Account Value will be transferred
to
the general account of Banner Life, and the Annuity Payments will be
fixed in
minimum amount by the Account Value, the Annuity Payment Plan selected,
and
the age and sex of the Annuitant. For further information, contact
Banner
Life at its Administrative Office.
The following options are currently available:
Option A -- Life Income. Monthly payments will be made during the
lifetime
of the Annuitant. Payments will end with the last monthly payment
before his
or her death.
Option B -- Life Income with 10 Years Certain. Monthly payments will be
made
during the lifetime of the Annuitant. If death of the Annuitant occurs
before the end of the ten year certain period, payments will continue
during
the remainder of the ten year period.
Option C -- Life Income with 20 Years Certain. Monthly payments will be
made
during the life of the Annuitant. If death of the Annuitant occurs
before
the end of 20 year certain period, payments will continue during the
remainder of the 20 year period.
Option D -- Joint Life Income. Monthly payments are made for the
lifetime of
the first of two people named. If the second person survives the first,
payments will continue for his or her life.
Option E -- Income for a Period Certain. Monthly payments will be made
to
the Annuitant for a specified period certain. Payments are guaranteed
for
that specified period. Under this option, the Policy can be surrendered
for
its Annuity Value after Annuity Payments begin. (See Annuity Value.)
The
Annuity Value may be reduced by a Contingent Deferred Sales Charge,
depending
upon the Policy Year of Surrender. Although this Option does not
involve a
life contingency, if variable payments are selected the amount of the
payments will reflect the deduction for mortality and expense risks,
since
that charge is included in the calculation of Annuity Unit values.
Option F -- Single Sum Payment. Payment will be made in a single sum.
Other Options may be arranged by agreement with Banner Life.
Note Carefully: Under Payment Options A and D, it would be possible for
only
one Annuity Payment to be made if the Annuitant(s) were to die before
the due
date of the second annuity payment, only two Annuity Payments if the
Annuitant(s) were to die before the due date of the third annuity
payment,
and so forth.
Variable Payment Options. The dollar amount of the first Variable
Annuity
Payment will be determined in accordance with the annuity payment rates
based
on the assumed interest rate of 4%. The dollar amount of every
subsequent
Variable Annuity Payment will vary based on the investment performance
of the
Sub-Account(s) of the Variable Account selected by the Annuitant or
Beneficiary.
<PAGE>
The amount of the variable payments will be based on the table in the
Policy
for the variable option selected. If the actual investment performance
exactly matched the assumed interest rate of 4% at all times, the amount
of
each Variable Annuity Payment would remain equal. If actual investment
per-
formance exceeds the assumed interest rate, the amount of the payments
would
increase. Conversely, if actual investment performance is worse than
the
assumed interest rate, the amount of the payments would decrease.
Determination of the First Variable Payment. The amount of the first
variable payment depends upon the Account Value, sex and age of the
Annuitant
on the Maturity Date, and on the Annuity Payment Plan.
Determination of Subsequent Variable Payments. All Variable Annuity
Payments
other than the first are calculated using "Annuity Units" which are
allocated
to the Policy. The number of Annuity Units to be allocated in respect
of a
particular Sub-Account is determined by dividing that portion of the
first
Variable Annuity Payment attributable to that Sub-Account by the Annuity
Unit
value of that Sub-Account for the Valuation Day on which the initial
payment
is determined. The number of Annuity Units of each particular Sub-Account
allocated to the Policy then remains fixed. The dollar value of
variable
annuity units in the chosen Sub-Account will increase or decrease
reflecting
the investment experience of the chosen Sub-Account. The dollar amount
of
each Variable Annuity Payment after the first may increase, decrease or
remain constant, and is equal to the sum of the amounts determined by
multiplying the number of Annuity Units of each particular Sub-Account
credited to the Policy by the Annuity Unit Value for the particular
Sub-Account on the date the payment is made. The calculation of Annuity
Unit
Values is described in the Statement of Additional Information.
A portion or the entire amount of the Annuity Payments may be taxable as
ordinary income. If, at the time the Annuity Payments begin, the
Policyowner
has not provided Banner Life with a written election not to have federal
income taxes withheld, Banner Life must by law withhold such taxes from
the
taxable portion of such annuity payments and remit that amount to the
federal
government. (See Certain Federal Income Tax Consequences.)
Adjustment of Annuity Payments. If the initial monthly Annuity Payment
is
less than $50, Banner Life will reduce the frequency of payments to
quarterly, semi-annually, or annually, until the initial payment is not
less
than $50. If the initial annual Annuity Payment is less than $50,
Banner
Life will pay the Account Value at maturity. If Banner Life pays the
account
value, Banner Life will have no further obligation under this policy.
Annuity Value. The Annuity Value is the sum of the annuity values in
the
General Account and the Variable Account. In the General Account, the
Annuity Value on the Maturity Date is the Account Value allocated to the
General Account on the Maturity Date. Thereafter, the Annuity value is
decreased when annuity payments are made from the General Account, and
increased or decreased when transfers are made to or from the General
Account. Remaining General Account Annuity Values are credited with 4%
interest, compounded annually. Banner Life may credit additional
interest to
the General Account Annuity Value.
<PAGE>
In any Sub-Account of the Variable Account, the Annuity Value equals the
product of the Accumulation Unit Value and the annuity unit balance.
The
annuity unit balance on the Maturity Date equals the Account Value
allocated
to the Sub-Account divided by the Accumulation Unit Value. Thereafter,
the
annuity unit balance is decreased when annuity payments are made, and
increased or decreased when transfers to or from the sub-account are
made.
Accumulation unit values are described in the Statement of Additional
Information.
Death Benefit
Death of Annuitant or Owner Prior to Maturity Date. If the Annuitant or
Owner dies prior to the Maturity Date, a Death Benefit will be paid to
the
Beneficiary. The Death Benefit will equal the Account Value of the
Policy
(without any deduction of a Contingent Deferred Sales Charge) as of the
date
of death.
The Death Benefit is payable upon receipt of Due Proof of Death of the
Annuitant or Owner as well as proof that the Annuitant or Owner died
prior to
the commencement of Annuity Payments. The Beneficiary may receive the
amount
payable in a lump sum cash benefit, or, if the Beneficiary is an
individual
receiving payment in his or her right, subject to any limitation under
any
state or federal law, rule, or regulation, under one of the Annuity
Payment
Plans described above, unless a settlement agreement is effective at the
death of the Annuitant or Owner preventing such election.
If the beneficiary is not an individual, then only a single sum payment
will
be made.
Federal tax law requires that if the Policyowner (or any Contingent
Policyowner) dies before the Maturity Date, the entire value of the
Policy
must generally be distributed within five years of the date of death of
the
Policyowner (or the Contingent Policyowner). Special rules may apply to
the
spouse of the deceased Owner. See the Statement of Additional
Information
for a detailed description of these requirements.
Death of Annuitant On or After Maturity Date. The death benefit payable
if
the Annuitant dies on or after the Maturity Date depends on the Annuity
Payment Plan selected. Upon the Annuitant's death, the remaining
portion of
the Annuitant's interest in the Policy, if any, will be distributed at
least
as rapidly as under the method of distribution being used as of the date
of
the Annuitant's death.
Beneficiary. The Beneficiary designation in the application will remain
in
effect until changed. The Policyowner may change the designated
Beneficiary
by sending Written Notice to Banner Life. The Beneficiary's consent to
such
change is not required unless the Beneficiary was irrevocably designated
or
consent is required by law. (If an irrevocable Beneficiary dies, the
Policyowner may then designate a new Beneficiary.) The change will take
effect as of the date the Policyowner signs the Written Notice, whether
or
not the Policyowner is living when the Notice is received by Banner
Life.
Banner Life will not be liable for any payment made before the Written
Notice
is received. If more than one Beneficiary is designated, and the
Policyowner
fails to specify their interests, they will share equally.
<PAGE>
Restrictions Under the Texas Optional Retirement Program
Section 36.105 of the Texas Educational Code permits participants in the
Texas Optional Retirement Program (ORP) to withdraw their interest in a
variable annuity Policy issued under the ORP only upon (1) termination
of
employment in the Texas public institutions of higher education; (2)
retirement; or (3) death. Accordingly, a participant in the ORP (or the
participant's estate if the participant has died) will be required to
obtain
a certificate of termination from the employer or a certificate of death
before the account can be redeemed.
Restrictions Under Section 403(b) Plans
Section 403(b) of the Internal Revenue Code provides for tax-deferred
retirement savings plans for employees of certain non-profit and
educational
organizations. In accordance with the requirements of Section 403(b),
any
Policy used for a 403(b) plan will prohibit distributions of elective
contributions and earnings on elective contributions except upon death
of the
employee, attainment of age 59.5, separation from service, disability,
or
financial hardship. In addition, income attributable to elective
contributions may not be distributed in the case of hardship.
CHARGES AND DEDUCTIONS
Banner Life will make certain charges and deductions in connection with
the
Policy in order to compensate it for incurring expenses in distributing
the
Policy, bearing mortality and expense risks under the Policy, and
administering the Accounts and the Policies. Charges may also be made
for
premium taxes, federal, state or local taxes, or for certain transfers
or
other transactions.
Contingent Deferred Sales Charge
Banner Life will incur expenses relating to the sale of Policies,
including
commissions to registered representatives and other promotional
expenses.
Banner Life may apply a Contingent Deferred Sales Charge to any Account
Value
surrendered (i.e., withdrawn) in connection with a full or partial
Policy
surrender in order to cover distribution expenses. A Contingent
Deferred
Sales Charge will not be applied to a withdrawal of up to 10% of the
Premiums
Paid, if it is the first withdrawal in the current Policy Year. A
Contingent
Deferred Sales Charge will also not be applied if Account Value is
applied to
an Annuity Payment Plan with payments over at least a five year period.
The amount of the Contingent Deferred Sales Charge is determined by
multiplying the applicable Contingent Deferred Sales Charge Percentage
by
total premiums paid less prior partial surrenders, for full surrenders;
or by
the lesser of (a) the amount withdrawn, or (b) total premiums paid less
prior
partial surrenders, for partial surrenders. The applicable Contingent
Deferred Sales Charge Percentage will depend upon the Policy Year and
age at
issue of the annuitant. The charge will be: for issue ages 0-57, 7.5%
for
the first five years, then decreasing by 1.5% per year to 0% at the 10th
Policy Year; for issue ages 58-80, 7.5% for the first two years, 7.0% in
the
third year, then decreasing by 1.0% per year to 0% at the 10th Policy
Year.
There is no charge after the Policy has been in effect for nine full
years.
Premium Payments are deemed to be withdrawn before earnings, and after
all
Premium Payments have been withdrawn, the remaining Account
<PAGE>
Value may be
withdrawn without any Contingent Deferred Sales Charge. In no event
will the
aggregate Contingent Deferred Sales Charges exceed 7.5% of aggregate
premiums
paid. The following is the table of Contingent Deferred Sales Charge
Percentages:
Applicable Contingent Deferred
Policy Year Sales Charge Percentage
Issue ages 0-57: Issue ages 58-80:
1 7.5% 7.5%
2 7.5% 7.5%
3 7.5% 7.0%
4 7.5% 6.0%
5 7.5% 5.0%
6 6.0% 4.0%
7 4.5% 3.0%
8 3.0% 2.0%
9 1.5% 1.0%
10 and 0.0% 0.0%
thereafter
The Contingent Deferred Sales Charge applies to both total and partial
surrenders and to Annuity Payment Plans that cover less than five years.
For
partial surrenders, the charge will usually be deducted from the Account
Value remaining after Banner Life pays the Policyowner the requested
amount.
Banner Life anticipates that the Contingent Deferred Sales Charge will
not
generate sufficient funds to pay the cost of distributing the Policies.
If
this charge is insufficient to cover the distribution expenses, the
deficiency will be met from Banner Life's general funds, which will
include
amounts derived from the charge for mortality and expense risks.
Mortality and Expense Risk Charge
Banner Life imposes a daily charge as compensation for bearing certain
mortality and expense risks in connection with the Policies. This
charge
currently is equal to an effective annual rate of 1.15% of the value of
net
assets in the Variable Account. This rate may increase but it is
guaranteed
not to exceed 1.25% for the duration of the Policy. The Mortality and
Expense Risk Charge is reflected in the Accumulation or Annuity Unit
Values
for the Policy for each Sub-Account; accordingly, this charge is imposed
both
before and after the Maturity Date.
Account Values and Annuity Payments are not affected by changes in
actual
mortality experience nor by actual expenses incurred by Banner Life.
The
mortality risks assumed by Banner Life arise from its contractual
obligations
to make Annuity Payments (determined in accordance with the Annuity
tables
and other provisions contained in the Policy) and to pay Death Benefits
prior
to the Maturity Date. Thus, Owners are assured that neither an
Annuitant's
own longevity nor an
<PAGE>
unanticipated improvement in general life expectancy
will adversely affect the monthly Annuity payments that the Annuitant
will
receive under the Policy.
Banner Life also bears substantial risk in connection with the Death
Benefit
guarantee since Banner Life will pay a Death Benefit equal to the
Account
Value, without deducting any applicable Contingent Deferred Sales
Charge.
The expense risk assumed by Banner Life is the risk that Banner Life's
actual
expenses in administering the Policy and the Accounts will exceed the
amount
recovered through the Administrative Charges.
If the Mortality and Expense Risk Charge is insufficient to cover Banner
Life's actual costs, Banner Life will bear the loss; conversely, if the
charge is more than sufficient to cover costs, the excess will be profit
to
Banner Life. Banner Life expects a profit from this charge. To the
extent
that the Contingent Deferred Sales Charge is insufficient to cover the
actual
cost of Policy distribution, the deficiency will be met from Banner
Life's
general corporate assets, which may include amounts, if any, derived
from the
Mortality and Expense Risk Charge.
Administrative Charges
In order to cover the costs of administering the Policies and the
Accounts,
Banner Life deducts an annual Administrative Charge from the Account
Value of
each Policy prior to the Maturity Date.
The annual Administrative Charge is deducted from the Account Value of
each
Policy at the end of each Policy Year prior to the Maturity Date. If
the
Policy is surrendered during a Policy Year, this charge will be deducted
on
a pro rata basis based on the number of months elapsed in the Policy
Year.
After the Maturity Date, the charge is not deducted. This annual Admin-
istrative Charge currently is $30 and may be increased but will never
exceed
$40. Banner Life does not anticipate realizing any profit from this
charge.
The Administrative Charge will be deducted from the General Account and
the
Sub-Accounts of the Variable Account in the same proportion that the
Policyowner's interest in each bears to the total Account Value.
Premium Taxes
For those contracts subject to premium tax, the tax will be deducted
either
from the premium payment when paid or from the Account Value upon
annuitization as determined in accordance with applicable law. Banner
Life
believes that as of the date of this prospectus, premium taxes range
from 0%
to 3.0%.
Federal, State and Local Taxes
No charges are currently made for federal, state, or local taxes other
than
premium taxes. However, Banner Life reserves the right to deduct such
taxes
from the Accounts or Sub-Accounts in the future.
<PAGE>
Transfer Charge
Transfers may be subject to a service charge which will be deducted from
the
amount transferred. Currently, there is no charge for the first four
transfers each Policy Year. The current charge is $15 for the fifth and
subsequent transfer in a Policy Year (the charge may increase but the
maximum
transfer charge which will be made for any transfer is $25). For the
purpose
of determining whether a transfer charge is payable, initial Premium
Payment
allocations are not considered transfers. All transfer requests made
simultaneously will be treated as a single request.
No transfer charge will be imposed for any transfer which is not at the
Owner's request. Banner Life reserves the right to revoke or modify the
transfer privilege. For example, the number or frequency of transfers
could
be restricted, or charges could be imposed for all transfers. The
amount of
the charge may be increased in the future.
Other Expenses Including Investment Advisory Fees
Each Portfolio of the Fund is responsible for all of its expenses. In
addition, charges will be made against each Portfolio of the Fund for
investment advisory services provided to the Account or Portfolio. The
net
assets of each Portfolio of the Fund will reflect deductions in
connection
with the investment advisory fee and other expenses.
For more information concerning the investment advisory fee and other
charges
against the Portfolios, see the prospectus for the Fund, a current copy
of
which accompanies this Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general description of federal tax
considerations relating to the Policy and is not intended as tax advice.
This discussion is not intended to address the tax consequences
resulting
from all of the situations in which a person may be entitled to or may
receive a distribution under the Policy. Any person concerned about
these
tax implications should consult a competent tax adviser before
initiating any
transaction. This discussion is based upon Banner Life's understanding
of
the present Federal income tax laws as they are currently interpreted by
the
Internal Revenue Service. No representation is made as to the
likelihood of
the continuation of the present Federal income tax laws or of the
current
interpretation by the Internal Revenue Service. Moreover, no attempt
has
been made to consider any applicable state or other tax laws.
The Policy may be purchased on a non-qualified tax basis ("Nonqualified
Policy") or purchased and used in connection with plans qualifying for
favorable tax treatment ("Qualified Policy"). Qualified Policies are
designed for use by individuals whose premium payments are comprised
solely
of proceeds from and/or contributions under retirement plans which are
intended to qualify as plans entitled to special income tax treatment
under
Sections 401(a), 403(b), 408, or 457 of the Internal Revenue Code of
1986, as
amended (the "Code"). The ultimate effect of Federal income taxes on
the
amounts held under a Policy, on annuity payments, and on the economic
benefit
to the Owner, the Annuitant, or the Beneficiary depends on the type of
retirement plan, on the tax and employment status of the individual
concerned
and on the Employer's tax status. In addition, certain requirements
must be
satisfied in purchasing a Qualified Policy with proceeds from a tax
<PAGE>
qualified
plan and receiving distributions from a Qualified Policy in order to
continue
receiving favorable tax treatment. Therefore, purchasers of Qualified
Policies should seek competent legal and tax advice regarding the
suitability
of the Policy for their situation, the applicable requirements, and the
tax
treatment of the rights and benefits of the Policy. The following
discussion
assumes that a Qualified Policy is purchased with proceeds from and/or
contributions under retirement plans that qualify for the intended
special
Federal income tax treatment.
The following discussion is based on the assumption that the Policy
qualifies
as an annuity contract for federal income tax purposes. The Statement
of
Additional Information discusses the requirements for qualifying as an
annuity.
Taxation of Annuities
1. In General
Section 72 of the Code governs taxation of annuities in general.
Banner
Life believes that an Owner who is a natural person generally is
not
taxed on increases in the value of a Policy until distribution
occurs by
withdrawing all or part of the Account Value (e.g., partial
withdrawals
and surrenders) or as Annuity Payments under the Annuity Payment
Plan
elected. For this purpose, the assignment, pledge, or agreement to
assign or pledge any portion of the Account Value (and in the case
of a
Qualified Policy, any portion of an interest in the qualified plan)
gen-
erally will be treated as a distribution. The taxable portion of a
distribution (in the form of a single sum payment or an annuity) is
taxable as ordinary income.
The Owner of any annuity contract who is not a natural person
generally
must include in income any increase in the excess of the Policy's
Account Value over the "investment in the contract" (discussed
below)
during the taxable year. There are some exceptions to this rule
and a
prospective Owner that is not a natural person may wish to discuss
these
with a competent tax adviser.
The following discussion generally applies to a Policy owned by a
natural
person.
2. Surrenders
In the case of a surrender under a Qualified Policy (other than a
section 457 plan), under section 72(e) of the Code a ratable
portion of
the amount received is taxable, generally based on the ratio of the
"investment in the contract" to the individual's total accrued
benefit
or balance under the retirement plan. The "investment in the
contract"
is generally the amount of any premium payments paid by or on
behalf of
any individual. For a Policy issued in connection with qualified
plans,
the "investment in the contract" can be zero. Special tax rules
may be
available for certain distributions from a Qualified Policy.
In the case of a surrender under a Nonqualified Policy before the
Maturity Date, under Code section 72(e) amounts received are
generally
first treated as taxable income to the
<PAGE>
extent that the Account Value
immediately before the surrender exceeds the "investment in the
contract" at that time. Any additional amount withdrawn is not
taxable.
3. Annuity Payments
Although tax consequences may vary depending on the annuity option
elected under the Policy, under Code section 72(b), generally gross
income does not include that part of any amount received as an
annuity
under an annuity contract that bears the same ratio to such amount
as
the investment in the contract bears to the expected return at the
Maturity Date. In this respect (prior to recovery of the
investment in
the contract), there is generally no tax on the amount of each
payment
which represents the same ratio that the "investment in the
contract"
bears to the total expected value of the annuity payments for the
term
of the payments; however, the remainder of each income payment is
taxable. In all cases, after the "investment in the contract" is
recovered, the full amount of any additional annuity payments is
taxable.
4. Taxation of Death Benefit Proceeds
Amounts may be distributed from a policy because of the death of an
owner or the annuitant. Generally, such amounts are includible in
the
income of the recipients as follows:
(1) if a lump sum, the amounts received are taxed in the same
manner
as in a full surrender of the policy;
(2) if distributed under an annuity payment option, the amounts
received are taxed in the same manner as annuity payments.
5. Penalty Tax
In the case of a distribution pursuant to a Nonqualified Policy,
there
may be imposed a Federal penalty tax equal to 10% of the amount
treated
as taxable income. In general, however, there is no penalty tax on
distributions: (1) made on or after the date on which the Owner
attains
age 59.5; (2) made as a result of death or disability of the Owner;
(3) received in substantially equal periodic payments as a life
annuity
or a joint and surviving annuity for the lives or life expectancies
of
the Owner and a "designated beneficiary"; (4) from a qualified
plan; (5)
allocable to investment in the contract before August 14, 1982; (6)
under a qualified funding asset (as defined in Code section
130(d));
(7) under an immediate annuity (as defined in Code section
72(u)(4)), or
(8) which are purchased by an employer on termination of certain
types
of qualified plans and which are held by the employer until the
employee
separates from service. Other tax penalties may apply to certain
distributions under a Qualified Policy.
<PAGE>
6. Transfers, Assignments, or Exchanges of the Policy
A transfer of ownership of a Policy, the designation of an
Annuitant or
other Beneficiary who is not also the Owner, the selection of
certain
maturity dates, or the exchange of a Policy may result in certain
tax
consequences to the Owner that are not discussed herein. An Owner
contemplating any such transfer, assignment, or exchange of a
Policy
should contact a competent tax adviser with respect to the
potential tax
effects of such a transaction.
7. Multiple Policies
All non-qualified deferred annuity contracts that are issued by
Banner
Life (or its affiliates) to the same Owner during any calendar year
are
treated as one annuity contract for purposes of determining the
amount
includible in gross income under section 72(e) of the Code. In
addition, the Treasury Department has specific authority to issue
regulations that prevent the avoidance of section 72(e) through the
serial purchase of annuity contracts or otherwise. Congress has
also
indicated that the Treasury Department may have authority to treat
the
combination purchase of an immediate annuity contract and a
separate
deferred annuity contract as a single annuity contract under its
general
authority to prescribe rules as may be necessary to enforce the
income
tax laws.
8. Withholding
Pension and annuity distributions generally are subject to
withholding
for the recipient's federal income tax liability at rates that vary
according to the type of distribution and the recipient's tax
status.
Recipients, however, generally are provided the opportunity to
elect not
to have tax withheld from distributions.
9. Other Tax Consequences
As noted above, the foregoing discussion of the Federal income tax
consequences under the Policy is not exhaustive and special rules
are
provided with respect to other tax situations not discussed in this
prospectus. Further, the Federal income tax consequences discussed
herein reflect Banner Life's understanding of current law and the
law
may change. Federal estate and state and local estate,
inheritance, and
other tax consequences of ownership or receipt of distributions
under
the Policy depend on the individual circumstances of each Owner or
recipient of the distribution. A competent tax adviser should be
consulted for further information.
10. Possible Changes in Taxation
In past years, legislation has been proposed that would have
adversely
modified the federal taxation of certain annuities. For example,
one
such proposal would have changed the tax treatment on non-qualified
annuities that did not have "susbstantial life contingnecies" by
taxing
income as it is credited to the annuity. Although as of the date
of
this prospectus Congress is not considering any legislation
regarding
taxation of
<PAGE>
annuities, there is always the possibility that the tax
treatment of annuities could change by legislation or other means
(such
as IRS regulations, revenue rulings, judicial decisions, etc.).
Moreover, it is also possible that any change could be retroactive
(that
is, effective prior to the date of the change).
Qualified Plans
The Policy is designed for use with several types of qualified plans.
The
tax rules applicable to Owners in qualified plans, including
restrictions on
contributions and benefits, taxation of distributions, and any tax
penalties,
vary according to the type of plan and the terms and conditions of the
plan
itself. Various tax penalties may apply to contributions in excess of
specified limits, aggregate distributions in excess of $150,000
annually,
distributions that do not satisfy specified requirements, and certain
other
transactions with respect to qualified plans. Therefore, no attempt is
made
to provide more than general information about the use of the Policy
with the
various types of qualified plans. Owners, Annuitants and Beneficiaries
are
cautioned that the rights of any person to any benefits under qualified
plans
may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Policy. Following are
brief
descriptions of the various types of qualified plans in connection with
which
Banner Life will issue the Policy. Policies for all types of qualified
plans
may not be available in all states. When issued in connection with a
qualified plan, the Policy will be amended as necessary to conform to
the
requirements of the plan.
H.R. 10 Plans. The Self-Employed Individuals' Tax Retirement Act of
1962, as
amended, commonly referred to as "H.R. 10," permits self-employed
individuals
to establish qualified plans for themselves and their employees. In
order to
establish such a plan, a plan document, often in prototype form
preapproved
by the Internal Revenue Service, is adopted and implemented by or for
the
self-employed person. Purchasers of a Policy for use with H.R. 10 Plans
should seek competent advice regarding the suitability of the proposed
plan
documents and of the Policy to their specific needs.
Individual Retirement Annuities and Individual Retirement Accounts.
Section
408 of the Code permits eligible individuals to contribute to an
individual
retirement program known as an Individual Retirement Annuity or
Individual
Retirement Account (each hereinafter referred to as "IRA"). Also,
distributions from certain other types of qualified plans may be "rolled
over" on a tax-deferred basis into an IRA. The sale of a Policy for use
with
an IRA may be subject to special disclosure requirements of the Internal
Revenue Service. Purchasers of the Policy for use with IRAs will be
provided
with supplemental information required by the Internal Revenue Service
or
other appropriate agency. Such purchasers will have the right to revoke
their purchase within 7 days of the earlier of the establishment of the
IRA
or their purchase. Purchasers should seek competent advice as to the
suitability of the Policy for use with IRAs.
Corporate Pension and Profit Sharing Plans. Sections 401(a) of the Code
permits corporate employers to establish various types of retirement
plans
for employees. Corporate employers intending to use the Policy in
connection
with such plans should seek competent advice.
<PAGE>
Tax-Sheltered Annuities. Section 403(b) of the Code permits public
school
employees and employees of certain types of religious, charitable,
educa-
tional, and scientific organizations specified in Section 501(c)(3) of
the
Code to purchase annuity contracts and, subject to certain limitations,
exclude the amount of premiums from gross income for tax purposes.
These
annuity contracts are commonly referred to as "Tax-Sheltered Annuities."
Premiums excluded from gross income will be subject to FICA taxes.
Subject
to certain exceptions, withdrawals under Tax-Sheltered Annuities which
are
attributable to contributions made pursuant to salary reduction
agreements
are prohibited unless made after the Owner attains age 59.5, upon the
Owner's
separation of service, upon the Owner's death or disability, or for an
amount
not greater than the total of such contributions in the case of
hardship.
Section 457 Deferred Compensation ("Section 457") Plans. Under Section
457
of the Code, employees of (and independent contractors who perform
services
for) certain state and local governmental units or certain tax-exempt
employers may participate in a Section 457 plan of their employer
allowing
them to defer part of their salary or other compensation. The amount
deferred and any income on such amount will not be taxable until paid or
otherwise made available to the employee. In general, all amounts
received
under a section 457 plan are taxable and are subject to federal income
tax
withholding as wages.
The maximum amount that can be deferred under a Section 457 plan in any
tax
year is ordinarily one-third of the employee's includible compensation,
up to
$7,500. Includible compensation means earnings for services rendered to
the
employer which is includible in the employee's gross income, but
excluding
any contributions under the Section 457 plan or a Tax-Sheltered Annuity.
During the last three years before an individual attains normal
retirement
age additional "catch-up" deferrals are permitted.
The deferred amounts will be used by the employer to purchase the
Policy.
The Policy will be issued to the employer, and all Account Values will
be
subject to the claims of the employer's creditors. The employee has no
rights or vested interest in the Policy and is only entitled to payment
in
accordance with the Section 457 plan provisions. Depending on the
terms of
the particular plan, the employer may be entitled to draw on deferred
amounts
for purposes unrelated to its section 457 plan obligations. Present
federal
income tax law does not allow tax-free transfers or rollovers for
amounts
accumulated in a Section 457 plan except for transfers to other Section
457
plans in certain limited cases.
General
At the time the initial Premium Payment is paid, a prospective purchaser
must
specify whether he or she is purchasing a Nonqualified Policy or a
Qualified
Policy. If the initial Premium Payment is derived from an exchange or
surrender of another annuity Policy, Banner Life may require that the
prospective purchaser provide information with regard to the federal
income
tax status of the previous annuity Policy. Banner Life will require
that
persons purchase separate Policies if they desire to invest monies
qualifying
for different annuity tax treatment under the Code. Each such separate
Policy would require the minimum initial Premium Payment stated above.
Additional Premium Payments under a Policy must qualify for the same
federal
income tax treatment as the
<PAGE>
initial Premium Payment under the Policy; Banner
Life will not accept an additional Premium Payment under a Policy if the
federal income tax treatment of such Premium Payment would be different
from
that of the initial Premium Payment.
DISTRIBUTOR OF THE POLICIES
Banner Financial Services Group, Inc., ("Banner Financial") an affiliate
of
Banner Life, is the principal underwriter and the distributor of the
Policies. Banner Financial may enter into contracts with various
broker-dealers to aid in the distribution of the Policies. The
commissions paid to dealers are no greater than 5% of Premium Payments.
VOTING RIGHTS
To the extent required by law, Banner Life will vote the Fund shares
held by
the Variable Account at regular and special shareholder meetings of the
Fund
in accordance with instructions received from persons having voting
interests
in the portfolios. If, however, the 1940 Act or any regulation
thereunder
should be amended or if the present interpretation thereof should
change, and
as a result Banner Life determines that it is permitted to vote the
Fund's
shares in its own right, it may elect to do so.
Before the Maturity Date, the Policyowner holds the voting interest in
the
selected Portfolios. The number of votes that an Owner has the right to
instruct will be calculated separately for each Sub-Account. The number
of
votes that an Owner has the right to instruct for a particular Sub-Account
will be determined by dividing his or her Account Value in the Sub-Account by
the net asset value per share of the corresponding Portfolio in which
the
Sub-Account invests. Fractional shares will be counted.
After the Maturity Date, the person receiving Annuity Payments has the
voting
interest, and the number of votes decreases as Annuity Payments are made
and
as the reserves for the Policy decrease. The person's number of votes
will
be determined by dividing the reserve for the Policy allocated to the
applicable Sub-Account by the net asset value per share of the
corresponding
Portfolio of the Fund. Fractional shares will be counted.
The number of votes that the Owner or annuitant has the right to
instruct
will be determined as of the date established by the Fund for
determining
shareholders eligible to vote at the meeting of the Fund. Banner Life
will
solicit voting instructions by sending Owners or other persons entitled
to
vote written requests for instructions prior to that meeting in
accordance
with procedures established by the Fund. Portfolio shares as to which
no
timely instructions are received and shares held by Banner Life in which
Owners or other persons entitled to vote have no beneficial interest
will be
voted in proportion to the voting instructions that are received with
respect
to all Policies participating in the same Sub-Account.
Each person having a voting interest in a Sub-Account will receive proxy
material, reports, and other materials relating to the appropriate
Portfolio.
<PAGE>
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
or to
which the assets of the Account are subject. Banner Life is not
involved in
any litigation that is of material importance in relation to its total
assets
or that relates to the Variable Account.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available (at no cost) which
contains more details concerning the subjects discussed in this
Prospectus.
The following is the Table of Contents for that Statement:
TABLE OF CONTENTS
Page
THE POLICY-GENERAL PROVISIONS. . . . . . . . . . . . . . . . . .3
Owner . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Policy. . . . . . . . . . . . . . . . . . . . . . . . . . .3
Right to Contest. . . . . . . . . . . . . . . . . . . . .3
Non-Participating Policy. . . . . . . . . . . . . . . . . .3
Postponement of Payments . . . . . . . . . . . . . . . . .3
Misstatement of Age or Sex. . . . . . . . . . . . . . . . .4
Assignment. . . . . . . . . . . . . . . . . . . . . . . . .4
Evidence of Survival. . . . . . . . . . . . . . . . . . . .4
FEDERAL TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . .5
Tax Status of the Policy. . . . . . . . . . . . . . . . . .5
Taxation of Banner Life . . . . . . . . . . . . . . . . . .6
INVESTMENT EXPERIENCE. . . . . . . . . . . . . . . . . . . . . .6
Accumulation Units. . . . . . . . . . . . . . . . . . . . .7
Annuity Payment Provisions. . . . . . . . . . . . . . . . .7
STATE REGULATION OF BANNER LIFE. . . . . . . . . . . . . . . . .8
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . .8
RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . .9
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . .9
CUSTODY OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . .9
HISTORICAL PERFORMANCE DATA. . . . . . . . . . . . . . . . . . .9
Money Market Yields . . . . . . . . . . . . . . . . . . . .9
Other Sub-Account Yields. . . . . . . . . . . . . . . . . 10
Total Returns . . . . . . . . . . . . . . . . . . . . . . 11
Other Performance Data. . . . . . . . . . . . . . . . . . 12
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 12
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 13
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SENIOR OFFICERS AND DIRECTORS OF BANNER LIFE INSURANCE COMPANY 13
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PREMIUM VARIABLE ANNUITY
Issued through
BANNER LIFE VARIABLE
ANNUITY ACCOUNT
Offered by
BANNER LIFE INSURANCE COMPANY
1701 Research Boulevard
Rockville, Maryland 20850
This Statement of Additional Information expands upon subjects discussed
in
the current Prospectus for the Flexible Premium Variable Annuity Policy
(the
"Policy") offered by Banner Life Insurance Company. You may obtain a
copy of
the Prospectus dated May 1, 1997 by calling (800) 638-7069, or by
writing to
Banner Life Insurance Company, 1701 Research Boulevard, Rockville,
Maryland
20850. Terms used in the current Prospectus for the Policy are
incorporated
in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD
BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY AND THE
VARIABLE
ACCOUNT.
Dated: May 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
THE POLICY-GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . .3
Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Right to Contest. . . . . . . . . . . . . . . . . . . . . . . .3
Non-Participating Policy. . . . . . . . . . . . . . . . . . . .3
Postponement of Payments. . . . . . . . . . . . . . . . . . . .3
Misstatement of Age or Sex. . . . . . . . . . . . . . . . . . .4
Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Evidence of Survival. . . . . . . . . . . . . . . . . . . . . .4
FEDERAL TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . .5
Tax Status of the Policy. . . . . . . . . . . . . . . . . . . .5
Taxation of Banner Life . . . . . . . . . . . . . . . . . . . .6
INVESTMENT EXPERIENCE. . . . . . . . . . . . . . . . . . . . . . . .6
Accumulation Units. . . . . . . . . . . . . . . . . . . . . . .7
Annuity Payment Provisions. . . . . . . . . . . . . . . . . . .7
STATE REGULATION OF BANNER LIFE. . . . . . . . . . . . . . . . . . .8
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . .8
RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . . . .9
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . .9
CUSTODY OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . .9
HISTORICAL PERFORMANCE DATA. . . . . . . . . . . . . . . . . . . . .9
Money Market Yields . . . . . . . . . . . . . . . . . . . . . .9
Other Sub-Account Yields 10
Total Returns . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Performance Data. . . . . . . . . . . . . . . . . . . . 12
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . 13
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SENIOR OFFICERS AND DIRECTORS OF BANNER LIFE INSURANCE COMPANY . . 13
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
In order to supplement the description in the Prospectus, the following
provides additional information about Banner Life and the Policy which
may be
of interest to an Owner.
THE POLICY - GENERAL PROVISIONS
Owner
The Owner is entitled to the benefits, rights and privileges of
ownership and
can exercise the rights described in the Policy. The Owner can transfer
ownership by Written Notice to Banner Life at its Administrative Office.
The
transfer will not affect the interest of a beneficiary. While the
Annuitant
is living, the Owner may assign the Policy (see Assignment, below).
The Policy
The Policy, attached riders, amendments, benefits, and the application,
and
any supplemental applications for additional amounts, form the entire
contract. Only the President, a Vice President, or the Secretary of
Banner
Life may change or waive any provision in the Policy. Any changes or
waivers
must be in writing.
Banner Life may change or amend the Policy if such change or amendment
is
necessary for the Policy to comply with or take advantage of any state
or
federal law, rule or regulation.
Right to Contest
Unless the Policyowner fails to pay the initial premium, Banner Life
does not
have the right to contest this policy.
Non-participating Policy
The Policy does not participate or share in the profits or surplus
earnings
of Banner Life. No dividends are payable on the Policy.
Postponement of Payments
Banner Life may postpone the calculation and payment of surrender
values,
loans, transfers or Death Benefits from the Variable Account if:
(1) The New York Stock Exchange is closed on other than customary week-end
and holiday closures, or trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission
("SEC"); or
(2) The SEC by order permits postponement for the protection of
Policyholders; or
<PAGE>
(3) An emergency exists, as determined by the SEC, as a result of
which
disposal of securities is not reasonable, or practicable, or it is
not
reasonable or practicable to determine the value of the net assets
of
the Variable Account.
In addition, while it is Banner Life's current intent to process all
transfers from Sub-Accounts immediately upon receipt of a transfer
request,
Banner Life reserves the right to delay effecting a transfer from a
Sub-Account
for up to seven days. Banner Life may delay effecting such a
transfer to avoid severe disruptions to the Portfolios of the Fund if
one of
the Portfolios must sell portfolio securities in order to make funds
available for large amounts of redemptions or transfers being made at
the
same time by or on behalf of Policyowners. If this happens, Banner Life
will
calculate the dollar value or number of units involved on or as of the
date
Banner Life receives a written transfer request, but will not process
the
transfer to the transferee Sub-Account or the General Account until a
later
date during the 7-day delay period when the Portfolio underlying the
transferring Sub-Account obtains liquidity to fund the transfer request
through sales of portfolio securities, new Premium payments, transfers
by
Policyowners or otherwise. During this delay period, the amount
transferred
will not be invested in a Sub-Account or the General Account.
Banner Life may postpone the payment of proceeds or surrender values or
transfers from the General Account for up to six months from the date
Written
Request for such is received at the Administrative Office. However, a
partial surrender used to pay a premium on any Policy issued by Banner
Life
will not be postponed. Payments from the Policy of any amounts derived
from
premiums paid by check may be delayed until such time as the check has
cleared.
Misstatement of Age or Sex
If the annuitant's age or sex has been misstated, any payments under the
Policy will be those the premiums paid would have purchased at the
correct
age or sex.
Assignment
During the lifetime of the Annuitant the Policyowner may assign any
rights
under the Policy as security for a loan or other reasons. This does not
change the ownership of the Policy, but the rights of the Owner and any
Beneficiary are subject to the terms of the assignments. An assignment
will
not be binding on Banner Life until a copy has been filed at its
Administrative Office. Banner Life is not responsible for the validity
of
the assignment. An assignment may have tax consequences.
Evidence of Survival
Banner Life reserves the right to require satisfactory evidence that a
person
is alive if a payment is based on that person being alive. No payment
will
be made until Banner Life receives such evidence.
<PAGE>
FEDERAL TAX MATTERS
Tax Status of the Policy
Diversification Requirements. Section 817(h) of the Code provides that
in
order for a variable contract which is based on a segregated asset
account to
qualify as an annuity contract under the Code, the investments made by
such
account must be "adequately diversified" in accordance with Treasury
regulations. The Treasury regulations issued under Section 817(h)
(Treas.
Reg. 1.817-5) apply a diversification requirement to each of the Sub-Accounts
of the Variable Account. The Variable Account, through the Fund and
its Portfolios, intends to comply with the diversification requirements
of
the Treasury. Banner Life and the Fund have entered into an agreement
regarding participation in the Fund that requires the Fund and its
Portfolios
to be operated in compliance with the Treasury regulations.
Owner Control.
In certain circumstances, owners of variable life insurance contracts
may be
considered the owners, for federal income tax purposes, of the assets of
the
separate account used to support their contracts. In those
circumstances,
income and gains from the separate account assets would be includible in
the
variable contract owner's gross income. The IRS has stated in published
rulings that a variable contract owner will be considered the owner of
separate account assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise investment
control
over the assets. The Treasury Department also announced , in connection
with
the issuance of regulations concerning diversification, that those
regulations "do not provide guidance concerning the circumstances in
which
investor control of the investments of a segregated asset account may
cause
the investor (i.e., the Policyowner), rather than the insurance company,
to
be treated as the owner of the assets in the account." This
announcement
also stated that guidance would be issued by way of regulations or
rulings on
the "extent to which policyholders may direct their investments to
particular
subaccounts without being treated as owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it
was
determined that Policyowners were not owners of separate account assets.
For
example, a Policyowner has additional flexibility in allocating premium
payments and policy values. These differences could result in a
Policyowner
being treated as the owner of a pro rata portion of the assets of the
Variable Account. In addition, we do not know what standards will be
set
forth, if any, in the regulations or rulings which the Treasury
Department
has stated it expects to issue. Banner Life therefore reserves the
right to
modify the Policy as necessary to attempt to prevent a Policyowner from
being
considered the owner of a pro rata share of the assets of the Variable
Account.
Distribution Requirements. In order to be treated as an annuity
contract for
Federal income tax purposes, section 72(s) of the Code requires any
Non-qualified Policy to provide that (a) if any Owner dies on or after
the
Maturity Date but prior to the time the entire interest in the Policy
<PAGE>
has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution
being
used as of the date of that Owner's death; and (b) if any Owner dies
prior to
the Maturity Date, the entire interest in the Policy will be distributed
within five years after the date of the Owner's death. These
requirements
will be considered satisfied as to any portion of the Owner's interest
which
is payable to or for the benefit of a "designated beneficiary" and which
is
distributed over the life of such "designated beneficiary" or over a
period
not extending beyond the life expectancy of that beneficiary, provided
that
such distributions begin within one year of that Owner's death. The
Owner's
"designated beneficiary" is the person designated by such owner as a
Beneficiary and to whom ownership of the Policy passes by reason of
death and
must be a natural person. However, if the Owner's "designated
beneficiary"
is the surviving spouse of the Owner, the Policy may be continued with
the
surviving spouse as the new Owner.
The Policy contains provisions which are intended to comply with the
requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. Banner Life
intends to
review such provisions and modify them if necessary to assure that they
comply with the requirements of Code section 72(s) when clarified by
regulation or otherwise.
Similar rules may apply to a Qualified Policy.
Taxation of Banner Life
Banner Life at present is taxed as a life insurance company under part I
of
Subchapter L of the Code. The Variable Account is treated as part of
Banner
Life and, accordingly, will not be taxed separately as "regulated
investment
companies" under Subchapter M of the Code. Banner Life does not expect
to
incur any federal income tax liability with respect to investment income
and
net capital gains arising from the activities of the Variable Account
retained as part of the reserves under the Policy. Based on this
expectation, it is anticipated that no charges will be made against the
Variable Account for federal income taxes. If, in future years, any
federal
income taxes are incurred by Banner Life with respect to the Variable
Account, Banner Life may make a charge to the Variable Account.
Under current laws, Banner Life may incur state and local taxes in
certain
states. At present, these taxes are not significant. If there is a
material
change in applicable state or local tax laws, charges may be made for
such
taxes or reserves for such taxes, if any, attributable to the Variable
Account.
INVESTMENT EXPERIENCE
On any Valuation Day, the separate account value is equal to the totals
of
the values allocated to the Policy in each Sub-Account. The Account
Value
held in any Sub-Account is equal to the number of Sub-Account units
allocated
to this Policy multiplied by the Sub-Account accumulation unit value as
described below.
<PAGE>
The number of Sub-Account units will increase when:
(1) Net premiums are credited to that Sub-Account; or
(2) Transfers from other Sub-Accounts, or from the General Account, are
credited to that Sub-Account.
The number of Sub-Account units will decrease when:
(1) A partial surrender, including the applicable surrender charge,
is
taken from that Sub-Account;
(2) A proportion of the annual administrative charge is taken from
that
Sub-Account; or
(3) A transfer is made from that Sub-Account to other Sub-Accounts or
to
the General Account.
Accumulation Units
Accumulation unit values are determined for each Sub-Account at the end
of
each Valuation Day before the transfer or allocation of any amounts to
or
from the Sub-Accounts. Each Sub-Account accumulation unit value may
increase
or decrease on each Valuation Day and is equal to the accumulation unit
value
for the Sub-Account at the end of the immediately preceding valuation
period
multiplied by the "Net Investment Factor" for the current valuation
period.
The Net Investment Factor is used to determine the value of Accumulation
Units and Annuity Units.
The Net Investment Factor for any Sub-Account for any valuation period
is
determined by dividing (1) minus (2) by (3) and then subtracting (4),
where:
(1) Is the value of the net assets of the shares of the investment
company
portfolio in which the Sub-Account invests, determined at the end
of the
valuation period;
(2) Is any reserve for taxes which we may consider necessary;
(3) Is the value of the net assets of the shares of the Fund Portfolio
in
which the Sub-Account invests, determined at the end of the
preceding
valuation period; and
(4) Is the charge for mortality and expense risks. The effective
annual
rate of this charge currently is 1.15% and it is guaranteed never
to
exceed 1.25% of the value of the net assets in the Sub-Account.
Annuity Payment Provisions
On the Valuation Day that the initial annuity payment is determined, the
number of annuity units in each Sub-Account is determined by dividing
the
portion of the initial annuity payment allocated to the Sub-Account by
the
annuity unit value for that Sub-Account. Transfers between Sub-
<PAGE>
Accounts in
the Separate Account may increase or decrease the number of annuity
units in
the Sub-Account. After the initial annuity payment, each subsequent
annuity
payment will be determined by the product of the number of annuity units
and
the annuity unit value of each Sub-Account. The annuity unit value of
the
Sub-Account is the product of (1), (2), and (3), where:
(1) Is the annuity unit value as of the preceding Valuation Day;
(2) Is the net investment factor for the valuation period of the Sub-Account
in the Variable Account; and
(3) Is .9998926 per day of the valuation period. This is an adjustment
corresponding to the assumed rate of 4% on a yearly basis, which is
used
in the calculation of the initial annuity payment.
The valuation period is the period from the close of the immediately
preceding Valuation Day to the close of the current Valuation Day.
STATE REGULATION OF BANNER LIFE
Banner Life is subject to regulation by the Maryland Insurance
Administration
(Banner Life's state of domicile). An annual statement is filed with
the
Maryland Insurance Administration each year covering the operations and
reporting on the financial condition of Banner Life as of December 31 of
the
preceding year. Periodically, the Maryland Insurance Administration or
other
authorities examine the reserves of Banner Life and certifies their
adequacy.
A full examination of Banner Life's operations is conducted periodically
by
the Maryland Insurance Administration.
In addition, Banner Life 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.
A Policy is governed by the law of the state in which it is delivered.
The
values and benefits of each policy are at least equal to those required
by
such state.
ADMINISTRATION
Banner Life will perform administrative services itself. Such services
include issuance of the Policies, maintenance of records concerning the
Policies, and certain valuation services.
Banner Life may, at some time in the future, enter into an
administration
services agreement to secure administrative services from other sources.
Services would be purchased on a basis which, in Banner Life's sole
discre-
tion, affords the best service at the lowest cost. Banner Life,
however,
reserves the right to select a provider of services which Banner Life,
in its
sole discretion, considers best able to perform such services in a
satis-
factory manner even though the costs for the service may be higher than
would
prevail elsewhere.
<PAGE>
RECORDS AND REPORTS
All records and accounts relating to the Variable Account will be
maintained
by Banner Life. As presently required by the Investment Company Act of
1940
and regulations promulgated thereunder, Banner Life will mail to all
Policyowners at their last known address of record, at least annually,
reports containing such information as may be required under that Act or
by
any other applicable law or regulation. Policyowners will also receive
confirmations of each financial transaction and any other reports
required by
federal or state law or regulation.
DISTRIBUTION OF THE POLICIES
The Policies are offered to the public through brokers licensed under
the
federal securities laws and state insurance laws.
The Policies will be sold by individuals who are registered
representatives
of Banner Financial Services Group, Inc. ("Banner Financial"), the
principal
underwriter of the Policies, or of broker-dealers who have entered into
written sales agreements with Banner Financial. Banner Financial is
registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities
Dealers. Banner Financial is an affiliate of Banner Life. The amount
of
commissions payable to Banner Financial in 1996, 1995, and 1994 were
$309,375, $209,060, and $168,014 respectively.
CUSTODY OF ASSETS
The assets of the Sub-Accounts of the Variable Account are held by
Banner
Life. The assets of the Sub-Accounts of the Variable Account are held
separate and apart from the assets of any other segregated asset
accounts and
from Banner Life's general account assets. Banner Life maintains
records of
all purchases and redemptions of shares of the Fund held by each of the
Sub-Accounts. Additional protection for the assets of the and Variable
Account
is afforded by Banner Life's fidelity bond, presently in the amount of
$5,000,000, covering the acts of officers and employees of Banner Life.
HISTORICAL PERFORMANCE DATA
The Scudder Variable Life Investment Fund commenced operations in 1985,
and
therefore figures based on the Fund's past performance, adjusted for the
charges under the Policies, may be advertised or otherwise made
available.
Money Market Yields
Banner Life may from time to time disclose the current annualized yield
of
the Money Market Sub-Account, which invests in the Money Market
Portfolio,
for a 7-day period in a manner which does not take into consideration
any
realized or unrealized gains or losses on shares of the Money Market
Port-
folio or on its portfolio securities. This current annualized yield is
computed by determining the net change (exclusive of realized gains and
losses on the sale of securities and
<PAGE>
unrealized appreciation and
depreciation) at the end of the 7-day period in the value of a
hypothetical
account having a balance of 1 unit of the Money Market Sub-Account at
the
beginning of the 7-day period, dividing such net change in account value
by
the value of the account at the beginning of the period to determine the
base
period return, and annualizing this quotient on a 365-day basis. The
net
change in account value reflects (i) net income from the Portfolio
attributable to the hypothetical account; and (ii) charges and
deductions
imposed under a Policy that are attributable to the hypothetical
account.
Banner Life may also disclose the effective yield of the Money Market
Sub-Account for the same 7-day period, determined on a compounded basis.
The
effective yield is calculated by compounding the unannualized base
period
return by adding one to the base period return, raising the sum to a
power
equal to 365 divided by 7, and subtracting one from the result.
The effective yield is calculated by compounding the unannualized base
period
return according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] - 1
The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any
given
past period is not an indication or representation of future yields or
rates
of return. The Money Market Sub-Account's actual yield is affected by
changes in interest rates on money market securities, average portfolio
maturity of the Money Market Portfolio, the types and quality of
portfolio
securities held by the Money Market Portfolio and its operating
expenses.
Other Sub-Account Yields
Banner Life may from time to time advertise or disclose the current
annualized yield of one or more of the Sub-Accounts of the Variable
Account
(except the Money Market Sub-Account) for 30-day periods. The
annualized
yield of a Sub-Account refers to income generated by the Sub-Account
over a
specific 30-day period. Because the yield is annualized, the yield
generated
by a Sub-Account during the 30-day period is assumed to be generated
each 30-day
period over a 12-month period. The yield is computed by: (i) dividing
the net investment income per accumulation unit earned during the period
by
the price per unit on the last day of the period, according to the
following
formula:
<PAGE>
Yield = 2 [(a - b + 1)^6 - 1]/cd
Where:
a = Net investment income earned during the period attributable
to
shares of the Sub-Account.
b = Expenses accrued for the period.
c = The average number of accumulation units outstanding during
the
period.
d = The maximum offering price per accumulation unit on the last
day
of the period.
Because of the charges and deductions imposed by the Variable Account,
the
yield for a Sub-Account of the Variable Account will be lower than the
yield
for its corresponding Portfolio. The yield calculations do not reflect
the
effect of any premium taxes or Contingent Deferred Sales Charges that
may be
applicable to a particular Policy. Contingent Deferred Sales Charges
range
from 7.5% to 0% of the amount surrendered or the total premiums paid
less
prior partial surrenders, based on the Policy Year of surrender.
The yield on amounts held in the Sub-Accounts of the Variable Account
normally will fluctuate over time. Therefore, the disclosed yield for
any
given past period is not an indication or representation of future
yields or
rates of return. A Sub-Account's actual yield is affected by the types
and
quality of the Portfolio's investments and its operating expenses.
Total Returns
Banner Life may from time to time also advertise or disclose total
returns
for one or more of the Sub-Accounts of the Variable Account for various
periods of time. When a Sub-Account has been in operation for 1, 5 and
10
years, respectively, the total return for these periods will be
provided.
Total returns for other periods of time may from time to time also be
disclosed. Total returns represent the average annual compounded rates
of
return that would equate the initial amount invested to the redemption
value
of that investment as of the last day of each of the periods.
Total returns will be calculated using Sub-Account Unit Values which
Banner
Life calculates on each Valuation Day based on the performance of the
Sub-Account's underlying Portfolio, and the deductions for the Mortality
and
Expense Risk Charge and the Administrative Charges. Total return
calcula-
tions will reflect the effect of Contingent Deferred Sales Charges that
may
be applicable to a particular period. The total return will then be
calculated according to the following formula:
<PAGE>
P(1 + T)^n = ERV
Where:
P = A hypothetical initial payment of $1,000.
T = Average annual total return.
n = Number of years in the period.
ERV = Ending redeemable value of a hypothetical $1,000 payment made
at
the beginning of the one, five or ten-year period, at the end
of
the one, five or ten-year period (or fractional portion
thereof).
Other Performance Data
Banner Life may from time to time also disclose average annual total
returns
in a non-standard format in conjunction with the standard format
described
above. The non-standard format will be identical to the standard format
except that the Contingent Deferred Sales Charge percentage will be
assumed
to be 0%.
Banner Life may from time to time also disclose cumulative total returns
in
conjunction with the standard format described above. The cumulative
returns
will be calculated using the following formula assuming that the
Contingent
Deferred Sales Charge percentage will be 0%.
CTR = (ERV / P) - 1
Where:
CTR = The cumulative total return net of Sub-Account recurring
charges
for the period.
ERV = The ending redeemable value of the hypothetical investment made
at
the beginning of the one, five or ten-year period, at the end
of
the one, five or ten-year period (or fractional portion
thereof).
P = A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the
standard
performance data for the same period, as well as for the required
period, is
also disclosed.
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal
securities
laws applicable to the issuance of the Policy described in this
Prospectus
has been provided by Sutherland, Asbill & Brennan, Washington, D.C. All
matters of Maryland law pertaining to the Policy, including the
<PAGE>
validity of
the Policy and Banner Life's right to issue the Policy under Maryland
Insurance Law and any other applicable state insurance or securities
laws,
have been passed upon by Mark A. Canter, Vice President, Secretary &
General
Counsel of Banner Life.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party
or to
which the assets of the Variable Account are subject. Banner Life is
not
involved in any litigation that is of material importance in relation to
its
total assets or that relates to the Variable Account.
EXPERTS
The consolidated financial statements of Banner Life Insurance Company
as of
December 31, 1996 and 1995, and for each of the three years in the
period ended
December 31, 1996, and the financial statements of the Banner Life
Variable
Annuity Account as of December 31, 1996 and for each of the two years in
the period then ended included in this Prospectus have been so
included in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing
and
accounting.
SENIOR OFFICERS AND DIRECTORS OF BANNER LIFE INSURANCE COMPANY
Name and Position Principal Occupation
with Banner Life<F1> Last Five Years
Mark A. Canter Vice President, Secretary &
Vice President, Secretary General Counsel
and General Counsel Banner Life
Barbara A. Esau Vice President - Human
Resources
Vice President and Banner Life
Director
Robert E. Freeman President and Chief Operating
Officer
Director (now retired)
William Penn Life Insurance
Company
of New York,
Garden City, New York
<F1>
1 The principal business address of each person listed, unless otherwise
indicated, is Banner Life Insurance Company, 1701 Research Boulevard,
Rockville, Maryland, 20850.
<PAGE>
Gene R. Gilbertson Senior Vice President,
Senior Vice President, Chief Banner Life
Financial Officer, Treasurer and
Director
Dewey D. Goodrich, Jr. Senior Vice President -
Information
Senior Vice President and Systems and Services
Director Legal & General America, Inc.
(1995)
Vice President - Information
Services
Interstate Assurance Company
Des Moines, Iowa
Robert L. Hill Vice President & Controller
(1993)
Vice President Assistant Controller
Banner Life
Bentti O. Hoiska Chief Investment Officer and
Executive Vice President Executive Vice President
and Director Legal & General America, Inc.
(1995)
Principal
State Street Global Advisors
Boston, Massachusetts
David S. Lenaburg President and Chief Executive
Chairman, President and Officer
Chief Executive Officer and Banner Life
Director
Charles A. Lingaas<F2> Senior Vice President,Customer
Service
Senior Vice President and William Penn Life Insurance
Company
Director of New York
Garden City, NY
Otto P. Maracello<F2> Senior Vice President -
Underwriting
Senior Vice President and William Penn Life Insurance
Company
Director of New York
Vincent R. McLean Retired
Director
<F2>
2 100 Quentin Roosevelt Boulevard, Garden City, NY 11530
<PAGE>
Michael D. Mullaney Vice President - Corporate
Taxation
Vice President Legal & General America, Inc.
David J. Orr Senior Vice President, Sales
Senior Vice President Banner Life
and Chief Actuary
FINANCIAL STATEMENTS
The consolidated financial statements of Banner Life which are included
in
this Statement of Additional Information should be considered only as
bearing
on the ability of Banner Life to meet the obligations under the
Policies.
They should not be considered as bearing on the investment performance
of the
assets held in the Variable Account.
<PAGE>
BANNER LIFE
VARIABLE ANNUITY ACCOUNT
REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 14, 1997
To the Board of Directors and Shareholder
of Banner Life Insurance Company
and Contract Owners of
The Banner Life Variable Annuity Account
In our opinion, the accompanying statement of assets and liabilities and
the
related statements of operations and of changes in net assets present
fairly,
in all material respects, the financial position of The Banner Life
Variable
Annuity Account and the Money Market, Balanced, Bond, Capital Growth and
International subaccounts thereof at December 31, 1996, and the results
of
their operations for the year then ended and the changes in their net
assets
for each of the two years in the period then ended in conformity with
generally accepted accounting principles. These financial statements
are
the responsibility of Banner Life Insurance Company's management; our
responsibility is to express an opinion on these financial statements
based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included
confirmation of shares held at December 31, 1996 by correspondence with
the
transfer agent, provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
<PAGE>
<TABLE>
BANNER LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1996
<CAPTION>
Subaccounts
Money
Capital
Market Balanced Bond
Growth International Total
<S> <C> <C> <C> <C>
<C> <C>
ASSETS
Money Market Fund, 490,816.6
shares at net asset value
of $1.00 per share (cost
$490,817) $490,817
$490,817
Balanced Fund, 284,306.6
shares at net asset value of
$11.61 per share
cost $2,636,454) $3,300,800
3,300,800
Bond Fund, 47,979.2 shares
at net asset value of
$6.73 per share (cost $320,221) $322,900
322,900
Capital Growth Fund, 151,240.1
shares at net asset value
of $16.50 per share
(cost $1,956,928)
$2,495,462 2,495,462
International Fund, 111,499.9
shares at net asset value of
$13.25 per share (cost
$1,234,468)
$1,477,374 1,477,374
Fund receivable 36,397
9,988 46,385
Total assets 490,817 3,337,197 322,900
2,495,462 1,487,362 8,133,738
LIABILITIES AND NET
ASSETS
Administrative expense fee
payable 206 2,209 206 1,592
925 5,138
Mortality and expense
risk fee payable 5,003 98,307 10,868 68,911
43,904 226,993
Total Liabilities 5,209 100,516 11,074 70,503
44,829 232,131
Net assets $485,608 $3,236,681 $311,826
$2,424,959 $1,442,533 $7,901,607
Number of units
outstanding 386,380 2,076,499 247,053
1,241,979 994,670
Net asset value per unit $1.26 $1.56 $1.26 $1.95
$1.45
<FN>
The accompanying notes are an integral part of these financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
BANNER LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Subaccounts
Money
Capital
Market Balanced Bond
Growth International Total
<S> <C> <C> <C>
<C> <C> <C>
NET INVESTMENT INCOME
Dividends $6,885 $ 90,906 $28,806
$31,204 $33,474 $191,275
Mortality and expense
risk fee 1,409 38,802 3,587
29,219 16,421 89,438
Net investment income 5,476 52,104 25,219
1,985 17,053 101,837
REALIZED AND
UNREALIZED INVESTMENT
GAIN (LOSS)
Net realized gain (loss)
on investments - 77,257 (309)
89,572 20,164 186,684
Net realized gain
distributions - 93,618 -
199,030 - 292,648
Change in unrealized
investment gains (losses) - 129,607 (19,919)
166,422 147,402 423,512
Net gain (loss) on
investments - 300,482 (20,228)
455,024 167,566 902,844
Net increase in net assets
resulting from operations $5,476 $352,586 $4,991
$457,009 $184,619 $1,004,681
<FN>
The accompanying notes are an integral part of these financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
BANNER LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
Money Market
Balanced Bond
Subaccount
Subaccount Subaccount
1996 1995 1996
1995 1996 1995
<S> <C> <C> <C> <C>
<C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income (loss) $5,476 $4,749 $52,104
$58,125 $25,219 $17,787
Net realized gain (loss) on
investments - - 77,257
(2,967) (309) (3,625)
Net realized gain distributions - - 93,618
18,799 - -
Change in unrealized
investment gains (losses) - - 129,607
628,873) (19,919) 37,640
Net increase in net assets resulting
from operations 5,476 4,749 352,586
702,830 4,991 51,802
UNIT TRANSACTIONS
Proceeds from units issued - 474 58,282
96,202 6,096 8,035
Net asset value of units
redeememed (2,310) (44) (593,974)
(178,965) (10,756) (18,699)
Net asset value of units redeemed
for administrative expenses (161) (129) (3,627)
(6,302) (238) (577)
Transfer from (to) other
subaccounts 380,007 (4,752) (1,439)
58,545 (14,313) (13,903)
Transfer from (to) General Account 2,300 - 28,198
(19,965) 517 -
Increase (decrease) in net assets
from unit transactions 379,836 (4,451) (512,560)
(50,485) (18,694) (25,144)
Total increase (decrease)
in net assets 385,312 298 (159,974)
652,345 (13,703) 26,658
NET ASSETS
Beginning of year 100,296 99,998 3,396,655
2,744,310 325,529 298,871
End of year $485,608 $100,296 $3,236,681
$3,396,655 $311,826 $325,529
<FN>
The accompanying notes are an integral part of these financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Growth
International
Subaccount Subaccount
Total
1996 1995 1996
1995 1996 1995
<C> <C> <C>
<C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income (loss) $1,985 ($7,833) $17,053
($9,382) $101,837 $63,446
Net realized gain (loss) on
investments 89,572 (21,677) 20,164
11,604 186,684 (16,665)
Net realized gain distributions 199,030 57,211 -
- 292,648 76,010
Change in unrealized
investment gains (losses) 166,422 442,452 147,402
137,377 423,512 1,246,342
Net increase in net assets resulting
from operations 457,009 470,153 184,619
139,599 1,004,681 1,369,133
UNIT TRANSACTIONS
Proceeds from units issued 45,487 192,991 35,678
128,480 145,543 426,182
Net asset value of units redeemed (142,303) (70,351) (98,965)
(106,372) (848,308) (374,431)
Net asset value of units redeemed
for administrative expenses (3,019) (4,423) (1,982)
(3,322) (9,027) (14,753)
Transfer from (to) other
subaccounts (331,718) 195,622 (32,537)
(235,512) - -
Transfer from (to) General Account 33,867 (555) 6,210
(24,305) 71,092 (44,825)
Increase (decrease) in net assets
from unit transactions (397,686) 313,284 (91,596)
(241,031) (640,700) (7,827)
Total increase (decrease)
in net assets 59,323 783,437 93,023
(101,432) 363,981 1,361,306
NET ASSETS
Beginning of year 2,365,636 1,582,199 1,349,510
1,450,942 7,537,626 6,176,320
End of year $2,424,959 $2,365,636 $1,442,533
$1,349,510 $7,901,607 $7,537,626
<FN>
The accompanying notes are an integral part of these financial
statements.
</FN>
</TABLE>
<PAGE>
BANNER LIFE VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF OPERATIONS
The Banner Life Variable Annuity Account (the Account) is registered
under
the Investment Company Act of 1940, as amended, as a unit investment
trust.
The Account invests in shares of the Scudder Variable Life Investment
Fund
(the Fund), a mutual fund of the series type. The Account contains five
subaccounts - Money Market, Balanced, Bond, Capital Growth and
International.
The assets of each subaccount are held separate from the assets and
liabilities of the other subaccounts. The operations of the
Account are part of Banner Life Insurance Company (the Insurance
Company).
The Account commenced operations on June 1, 1991.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently
followed by the Account in conformity with generally accepted accounting
principles.
Use of estimates
The preparation of financial statements in conformity with generally
accepted
accounting principles requires management to make estimates and
assumptions
that affect the reported amounts of assets and liabilities at the date
of the
financial statements and the reported amounts of revenue and expenses
during
the reporting period. Actual results could differ from those estimates.
Security valuation
Investments are valued at the net asset value of fund shares held which
approximates fair value.
Security transactions and related investment income
Security transactions are accounted for on the trade date (the date the
order
to buy or sell is executed). Dividend distributions received from the
Fund
are reinvested in additional shares of the Fund, and dividend income is
recorded on the ex-dividend date. Gains and losses from sales of
investments
are computed on the basis of average cost.
Federal income taxes
The operations of the Account are taxed as part of the total operations
of
the Insurance Company. The Insurance Company is taxed as a life
insurance
company under the Internal Revenue Code. Under existing Federal income
tax
law, no taxes are payable on the investment income or on the capital
gains
of the Account.
<PAGE>
Annuity reserves
The Account has no contracts receiving annuity payments at December 31,
1996.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of purchases and proceeds from sales of investments
for
the years ended December 31, 1996 and 1995 were as follows:
Subaccounts
Money Capital
Market Balanced Bond Growth International
1996:
Purchases $387,736 $285,113 $35,715 $313,650 $74,262
Sales 2,348 647,359 25,639 480,533 141,456
1995:
Purchases $61,530 $264,386 $43,421 $594,247 $233,276
Sales 59,997 202,339 104,034 189,911 419,643
NOTE 4 - RELATED PARTY TRANSACTIONS
Although variable annuity payments differ according to the investment
performance of the Account, they are not affected by mortality or
expense
experience because the Insurance Company assumes the mortality risk and
the
expense risk under the contracts. The Insurance Company charges the
Account
assets for assuming those risks. For the year ended December 31, 1996
and 1995,
the Account was charged an annual rate of 1.15% of net asset value for
mortality
and expense risk charges.
The expense risk assumed by the Insurance Company is the risk that the
deductions for sales and administrative expenses and for investment
advisory
services provided for in the variable annuity contract may prove
insufficient
to cover the cost of those items.
The mortality risk is the risk that the cost of insurance charges
specified
in the policy may prove insufficient to meet actual claims.
Funds received by the Account for the sale of Account units represent
gross
contract premiums received by the Insurance Company less any applicable
premium taxes. There were no premium tax deductions in 1996 and 1995.
No
charge for sales distribution expense is deducted from premiums paid.
<PAGE>
The Insurance Company may apply a contingent deferred sales charge to
any
Account value surrendered in connection with a full or partial policy
surrender in order to cover distribution expenses. The applicable
contingent
deferred sales charge percentage will depend upon the policy year. The
account has been advised that contingent sales charges of $18,388 and
$21,327
were charged to policyholders in 1996 and 1995, respectively.
In order to cover the costs of administering the policies and the
accounts,
the Insurance Company deducts an annual administrative charge of $30
from the
account value of each policy prior to the maturity date. Administrative
charges were $9,027 and $14,753 in 1996 and 1995, respectively.
Transfers may be made amongst the subaccounts and the general account of
the
Insurance Company. A transfer charge may be imposed for each transfer
request.
The charge will be deducted from the amount transferred to compensate
the
Insurance Company for the costs in effectuating the transfer. There is
no
charge for the first four transfers in each policy year, and a $15
charge is
imposed on each additional transfer request. There were no transfer
charges
in 1996 and 1995.
NOTE 5 - UNIT ACTIVITY
Transactions in units of each subaccount were as follows:
Subaccounts
Money Capital
Market Balanced Bond Growth
International
Units outstanding at
December 31, 1994 86,096 2,454,916 284,000 1,234,715
1,261,525
Units issued 13,723 125,701 14,199 271,885
125,111
Units redeemed (17,238) (159,416) (35,649) (56,768)
(322,557)
Units outstanding at
December 31, 1995 82,581 2,421,201 262,550 1,449,832
1,064,079
Units issued 305,689 61,534 5,509 46,563
31,288
Units redeemed (1,890) (406,236) (21,006) (254,416)
(100,697)
Units outstanding at
December 31, 1996 386,380 2,076,499 247,053 1,241,979
994,670
<PAGE>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary
of Legal & General Group Plc)
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 10, 1997
To the Board of Directors and
Shareholder of Banner Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the
related
consolidated statements of income, of shareholder's equity and of cash
flows
present fairly, in all material respects, the financial position of
Banner
Life Insurance Company (an ultimate wholly-owned subsidiary of Legal &
General Group Plc) and its subsidiaries at December 31, 1996
and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in
conformity
with generally accepted accounting principles. These financial
statements
are the responsibility of the Company's management; our responsiblity
is
to express an opinion on these financial statements based on our
audits.
We conducted our audits of these statements in accordance with
generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement
presentation. We believe that our audits provide a reasonable basis
for
the opinion expressed above.
As discussed in Note 2, the Company, effective January 1, 1994,
adopted
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain
Investments in Debt and Equity Securities."
/S/ Price Waterhouse LLP
<PAGE>
<TABLE>
<CAPTION>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary of Legal & General Group Plc)
CONSOLIDATED BALANCE SHEETS
(in 000's)
December 31,
<S> 1996
1995
ASSETS <C>
<C>
Investments:
Fixed maturities:
Available-for-sale, at market (amortized cost $1,397,210
and $1,334,453) $1,404,492
$1,401,147
Held-to-maturity, at amortized cost (market $191,489
and $170,526) 190,877
164,195
Equity securities, available-for-sale, at market
(amortized cost $1,220 and $1,543) 2,292
2,878
Mortgage loans 1,251
1,574
Policy loans 131,676
129,070
Other invested assets 398
398
Total investments 1,730,986
1,699,262
Cash and cash equivalents 106,843
153,315
Accrued investment income 25,229
25,582
Reinsurance recoverable 18,246
25,420
Property and equipment 6,080
6,762
Deferred policy acquisition costs 195,067
148,803
Value of business in force 101,640
101,457
Goodwill and other intangibles 37,846
39,787
Separate account assets 36,698
23,933
Other assets 1,485
8,632
Total assets $2,260,120
$2,232,953
LIABILITIES
Life policy reserves $
280,732 $ 286,510
Policy account balances 1,394,931
1,369,483
Accident and health reserves 1,200
1,353
Unearned revenue reserve 3,209
3,682
Claim reserves 36,514
42,678
Deferred Federal income taxes 47,289
49,580
Accounts payable and accrued expenses 5,742
8,333
Reinsurance ceded 6,956
7,811
Separate account liabilities 36,698
23,933
Other liabilities 28,732
28,859
Total liabilities 1,842,003
1,822,222
SHAREHOLDER'S EQUITY
Common stock, $1 par value - 2,500,000 shares authorized, issued and
outstanding 2,500
2,500
Additional paid-in capital 233,659
233,659
Net unrealized investment gains 2,210
15,800
Retained Earnings 179,748
158,772
Total shareholder's equity 418,117
410,731
Total liabilities and shareholder's equity $2,260,120
$2,232,953
<FN>
The accompanying notes are an integral part of these financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary of Legal & General Group Plc)
CONSOLIDATED STATEMENTS OF INCOME
(in 000's)
For the Year Ended
December 31,
1996
1995 1994
<S> <C>
<C> <C>
Insurance revenues:
Life insurance premiums $ 39,386 $
38,678 $41,855
Universal life and investment product policy charges 50,863
51,619 46,663
Accident and health premiums 277
382 425
Net investment income 121,563
122,610 117,300
Reinsurance allowance 12,137
11,347 12,170
Realized investment gains 11,430
18,264 974
Other income 1,028
726 1,229
Total revenue 236,684
243,626 220,616
BENEFITS AND EXPENSES
Benefits to policyholders and beneficiaries
Life insurance benefits 44,376
57,247 53,745
Universal life and investment product benefits 100,802
98,072 84,850
Accident and health benefits 1,468
415 439
Change in policy and other reserves:
Life (10,778)
(13,527) (5,851)
Accident and health (153)
(62) (42)
Commissions 36,705
40,087 46,588
Expenses and taxes 38,547
46,601 42,270
Increase in deferred policy acquisition costs (22,166)
(17,725) (31,179)
Amortization of value of business in force 14,391
5,532 1,010
Amortization of goodwill and other intangibles 1,941
1,941 1,941
Total benefits and expenses 205,133
218,581 193,771
Operating income before Federal income taxes 31,551
25,045 26,845
Provision for Federal income taxes:
Current 5,451
7,017 337
Deferred 5,124
1,382 8,715
Total provision for Federal income taxes 10,575
8,399 9,052
Net income $20,976
$16,646 $17,793
<FN>
The accompanying notes are an integral part of these financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary
of Legal & General Group Plc)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in 000's)
Net
Additional Unrealized
Total
Common Paid in Investment
Retained Shareholder's
Stock Capital Gains (Losses)
Earnings Equity
<S> <C> <C> <C> <C>
<C>
Balance at December 31, 1993 $2,500 $233,165 $1,107
$130,633 $367,405
Net income
17,793 17,793
Effect of adoption of SFAS 115
on January 1, 1994 7,056
7,056
Dividend payment to parent
(6,300) (6,300)
Change in net unrealized
(depreciation) on investments (18,663)
(18,663)
Balance at December 31, 1994 2,500 233,165 (10,500)
142,126 367,291
Net income
16,646 16,646
Shawfield, Inc. merger 494
494
Change in net unrealized
investment gains (losses) 26,300
26,300
Balance at December 31, 1995 2,500 233,659 15,800
158,772 410,731
Net income
20,976 20,976
Change in net unrealized
investment gains (losses) (13,590)
(13,590)
Balance at December 31, 1996 $2,500 $233,659 $2,210
$179,748 $418,117
<FN>
The accompanying notes are an integral part of these financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary of Legal & General Group Plc)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in 000's)
Year ended
December 31,
1996
1995 1994
<S> <C> <C>
<C>
Cash flows from operating activities:
Net income $20,976
$16,646 $17,793
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,211
10,729 5,965
Realized investment gains (11,430)
(18,264) (974)
Provision for deferred Federal income taxes 5,124
1,382 8,715
Decrease (increase) in accrued investment income 353
1,367 (2,178)
Increase in deferred policy acquisition costs (22,166)
(17,725) (31,179)
Decrease (increase) in other assets 14,325
(4,684) 2,846
Increase in reserves 12,880
80,667 110,594
(Decrease) increase in accounts payable and other
liabilities (3,581)
12,645 (1,109)
Total adjustments 14,716
66,117 92,680
Net cash provided by operating activities 35,692
82,763 110,473
Cash flows from investing activities:
Proceeds from sale of securities 5,503,134
2,625,802 84,501
Maturities of securities 465
8,415 36,400
Purchases of securities (5,582,917)
(2,612,530) (189,628)
Purchases of property and equipment, net (240)
(823) (525)
(Increase) decrease in policy loans (2,606)
1,295 (2,669)
Net cash (used in) provided by investing activities (82,164)
22,159 (71,921)
Cash flows from financing activities:
Dividend paid to parent - -
(6,300)
Capital Contribution - Shawfield, Inc. merger - 494
-
Net cash provided by (used in) financing activities - 494
(6,300)
Net (decrease)increase in cash and cash equivalents (46,472)
105,416 32,252
Cash and cash equivalents at beginning of year 153,315
47,899 15,647
Cash and cash equivalents at end of year $ 106,843 $
153,315 $ 47,899
<FN>
The accompanying notes are an integral part of these financial
statements.
</FN>
</TABLE>
<PAGE>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary
of Legal & General Group Plc)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - ORGANIZATION AND DESCRIPTION OF OPERATIONS
Banner Life Insurance Company (the Company) is a wholly-owned subsidiary
of
Legal & General America, Inc. (Legal & General America), which, in turn,
is an ultimate wholly-owned subsidiary of
Legal & General Group Plc (Legal & General).
On December 31, 1995, the Company's parent, Legal & General Life
Insurance
Company of America, Inc. (Legal & General Life), merged with its parent
Legal & General
America, Inc., a Delaware corporation. Legal & General America now owns
all
outstanding shares of Banner. Full control of Legal & General America
ultimately resides with Legal & General.
Legal & General was founded in 1836 and is a United Kingdom company with
primary insurance activities in pension, accident, life and general
insurance.
The Company operates predominantly in the individual traditional life,
universal life and annuity markets of the life insurance industry and
has
two wholly-owned subsidiaries: William Penn Life Insurance Company of
New York (William Penn New York)and Group Concepts, Inc. (Group
Concepts)
which in turn wholly-owns Banner Financial Services Group, Inc. The
Company
and its life insurance subsidiary, William Penn New York, on a combined
basis are licensed to transact business in every state except Maine.
On September 30, 1996, two wholly-owned subsidiaries of the Company,
European
Life Insurance Company and First British American Life Insurance
Company,
were dissolved. The assets of the dissolved companies were distributed
to
the Company.
On December 31, 1995, Shawfield, Inc. (an ultimate wholly-owned
subsidiary
of Legal & General) was merged into Group Concepts. The merger is
expected
to provide additional operating and investment opportunities to the
Company.
Shawfield's income and net assets in 1995 and 1994 were immaterial.
NOTE 2 - SIGNIFICANT ACCOUNTING PRACTICES
The significant accounting policies followed by the Company and its
consolidated subsidiaries are described below.
Basis of Financial Reporting
The preparation of financial statements in conformity with generally
accepted
accounting principles 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 financial statement
and the reported amounts of revenues and expenses during the reporting
period.
Actual results could differ from those estimates.
<PAGE>
The accompanying financial statements have been prepared in accordance
with
generally accepted accounting principles. These accounting principles
differ
in many respects from the statutory accounting practices applicable to
the
Company and its life subsidiaries which are prescribed or permitted by
regulatory authorities and are primarily designed to demonstrate
solvency.
Under statutory reporting practices, statutory capital and surplus of
the
Company, including equity investments in subsidiaries, at December 31,
1996
and 1995 was $129,888,000 and $95,277,000 respectively. Statutory net
income
of the Company was $31,103,000, $11,981,000 and $2,081,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The maximum amount of dividends that may be paid by State of Maryland
insurance companies to shareholders without prior approval of the
Insurance
Commissioner is subject to restrictions relating to statutory capital
and
surplus and statutory gains from operations. The maximum dividend
payout
which may be made in 1997 without prior approval is $32,473,000.
Regulatory risk-based capital rules require a specified level of capital
depending on the types and quality of investments held, the types of
business
written and the types of liabilities maintained. Depending on the ratio
of
an insurer's surplus to its risk-based capital, the insurer could be
subject
to various regulatory actions ranging from increased scrutiny to
conservatorship. The Company's risk-based capital ratios for 1996 and
1995
are significantly above the regulatory action levels.
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company
and its subsidiaries. All significant intercompany accounts and
transactions
have been eliminated.
Investments
At January 1, 1994, the Company adopted Statement of Financial
Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity
Securities," which expanded the use of fair value accounting for those
securities that a company does not have positive intent and ability to
hold
to maturity. Accordingly, fixed maturities (comprised of bonds and
redeemable preferred stocks) which the Company has both the ability and
intent to hold to maturity are stated at amortized cost. Fixed
maturities and
equity securities which have been identified as available for sale are
reported at fair value. Unrealized holding gains or losses for the
securities
classified as available for sale are reported in shareholder's equity,
net of
the effect of the gains or losses on deferred acquisition costs and
value of
business in force, as well as net of deferred Federal income tax. Fixed
maturities reported at amortized cost are reduced to estimated net
realizable
value when necessary for impairments in value considered to be other
than
temporary. Implementation of this statement increased shareholder's
equity
by $7,056,000, net of deferred policy acquisition costs, value of
business in force and deferred Federal income tax.
Mortgage loans on real estate are stated at unpaid balances adjusted for
amortization of discount. Policy loans are carried at the aggregate of
unpaid
balances with interest. Prepayment assumptions for loan-backed bonds
and
structured securities were obtained from broker-dealer survey values or
internal estimates. These are consistent with the current interest rate
and economic environment.
<PAGE>
Interest on bonds and policy loans is recorded as income when it is
earned.
Purchase premium or discount is amortized over the life of the
investment
utilizing the effective interest method. Realized gains and losses are
reported as a component of revenue based upon specific identification of
the
investments sold. When impairment of the value of an investment is
considered
other than temporary, the decrease in value is reported as a realized
investment loss and a new cost basis is established.
Cash Equivalents
The Company considers short-term investments with original maturities of
three
months or less to be cash equivalents.
Reinsurance
In the normal course of business, the Company seeks to limit its
exposure to
loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance enterprises or reinsurers under
excess coverage and coinsurance contracts.
Amounts paid or deemed to have been paid for reinsurance contracts are
recorded as reinsurance receivables. The cost of reinsurance related
to long-duration contracts is accounted for over the life of the
underlying
reinsured policies using assumptions consistent with those used to
account
for the underlying policies.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is charged to operations using the straight-line method
over
their estimated useful lives of twenty-five years for the Company's
building
and five to ten years for furniture, equipment and automobiles. Gains
and
losses upon disposition are included in other operating income.
Separate Accounts
The separate account assets and liabilities reflected in the financial
statements represent funds for which the holder of the policy or
contract,
rather than the Company, bears the investment risk. These include
separately
administered group retirement annuity contracts, variable universal life
and
variable annuity products. Such amounts are stated at market value.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions, and
certain policy underwriting and issue costs, all of which vary with and
are primarily related to the production of new business, have been
deferred.
Deferred policy acquisition costs for traditional life policies are
amortized
through the use of factors in a manner which charges each year's
operations
with costs in proportion to the receipt of policy premiums. The factors
were
developed consistent with the same assumptions as to interest, mortality
and withdrawals used in computing the liability for future policy
benefits.
<PAGE>
Deferred policy acquisition costs for universal life-type and
investment-type
policies are amortized in relation to the present value of estimated
gross
profits from the related contracts. The Company annually performs
analyses
of actual experience on each block of business with respect to interest
rates,
mortality, terminations and expenses, and adjusts the amortization and
the assets accordingly.
The Company incurred and deferred total policy acquisition costs of
$46,832,000, $40,214,000, and $42,628,000 for the years ended December
31,
1996, 1995 and 1994, respectively. The related amortization expense was
$24,666,000, $22,489,000, and $11,449,000 in 1996, 1995 and 1994,
respectively.
Value of Business in Force
The value of business in force represents the remaining unamortized
portion
of actuarially determined fair market values of blocks of business,
including
the Company's original block of business, valued at acquisition date.
Amortization of the value of business in force for traditional life
blocks of
business is based on factors developed using the defined valuation
premium
method to estimate the value of business in force at durations
subsequent to
the purchase date. The value of business in force for the interest
sensitive
blocks of business is amortized in relation to the present value of
estimated
gross profits from the related purchased blocks of business. The
Company
annually performs analyses of actual experience on each block of
business
with respect to interest rates, mortality, terminations and expenses,
and
adjusts the amortization and the value of business in force accordingly.
Goodwill and Other Intangibles
Goodwill represents the excess of acquisition cost over the net fair
value
of assets acquired and liabilities assumed in the acquisition of the
Company's
subsidiaries. Goodwill and other intangible assets are amortized
by the straight-line method over the periods ranging from 5 to 40 years.
On a periodic basis, the Compnay estimates the future undiscounted cash
flows
of the businesses to which goodwill relates, in order to ensure that the
carrying value of goodwill has not been impaired. Accumulated
amortization
was $26,783,000 and $24,842,000 as of December 31, 1996 and 1995,
respectively.
Reserve for Life Policies
The reserve for individual traditional life policies is primarily
computed
utilizing the net level premium method based upon assumptions regarding
interest rates, mortality and withdrawals, including provisions for
unfavorable deviations from such assumptions. Level interest rates of
9.0%,
7.0% or 6.25% for certain products are assumed for all years
of issue. For all other products, a graded scale is assumed which
begins at
rates ranging from 8.5% to 10.0% and grades to rates ranging from 7.0%
to
8.0% over periods of five to twenty years. Mortality assumptions are
based
on multiples of the 1965 - 1970 and 1975 - 1980 select and ultimate
tables.
The multiples vary with the characteristics of the risks assumed and are
adjusted for non-smoker mortality where applicable.
<PAGE>
The reserves for universal life-type policies consist primarily of the
accumulated policy account balances computed utilizing the retrospective
deposit method based upon policy account values as defined in the
contracts
before surrender charges.
Recognition of Premium Revenue and Costs
For individual traditional life policies, premiums are recognized as
income
when due. Benefits and expenses associated with such premiums are
allocated
over the life of the policies. This allocation is accomplished by means
of
the reserving method and the amortization of deferred policy acquisition
costs.
For universal life-type policies, revenues are generally recognized as
mortality, expense and surrender charges and are assessed against
universal
life-type policyholder account balances, while excess policy loads are
earned
over the life of the policy. For annuity contracts, revenues are
recognized
as policy loads and expense charges are assessed against annuity
contract holder account balances. Benefits expense consists of interest
credited to the policy account balances and benefit claims incurred in
excess of policy account balances. Such expenses are recognized as
incurred.
Claim reserves include amounts for claims in course of settlement and
claims
incurred but not reported.
Unearned Revenue Reserve
Amounts assessed against policyholder account balances as front-load
charges
are accounted for as unearned revenues and are credited to income in the
same
manner as deferred policy acquisition costs are amortized.
Income Taxes
The Company accounts for certain income and expense items differently
for
financial reporting and income tax purposes. Deferred tax assets and
liabilities
are determined based on the difference between the financial statement
and tax
bases of assets and liabilities using enacted tax rates and laws.
Reclassification
Certain prior year amounts were reclassified to conform to current year
presentation.
NOTE 3 - REINSURANCE
During 1996, the Company increased its retention limit from $200,000 to
$250,000 for each life insured. Business purchased from Monarch is
currently
subject to retention limits up to $400,000, although a spread loss
reinsurance
treaty (coinsurance basis) is in effect, which reduces the net liability
to a $200,000 retention limit.
<PAGE>
The principal reinsurance treaties of William Penn New York function to
distribute the risk among William Penn New York and the reinsurance pool
members, of the first dollar of insurance issued up to a retention limit
of $250,000. These risks are ceded principally under treaties with
pools
each consisting of four or five reinsurance companies. The universal
life
products are reinsured on a yearly renewable term basis while the term
insurance products are reinsured on a coinsurance basis. Each five
member
and four member pool functions to share proportionately in the
reinsurance at
16.67% and 20% of the policy face amount up to William Penn New York's
retention limit and at 20% and 25% of the policy face amount in excess
of
William Penn New York's retention limit, respectively.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could
result
in losses to the Company; consequently, allowances are established for
amounts deemed uncollectible. The Company evaluates the financial
condition
of its reinsurers and monitors concentrations of credit risk arising
from
similar geographic regions, activities or economic characteristics of
the
reinsurers to minimize its exposure to significant losses from
reinsurers'
insolvencies. Reinsurance recoverables with a carrying value of $18.2
million
and $25.4 million were associated with five reinsurers who compose 57%
and
68% of all reinsurance activities of the Company at December 31, 1996
and 1995,
respectively. The Company holds collateral under related reinsurance
agreements in the form of letters of credits and trust agreements
totaling
$110.5 million that can be drawn on for amounts that remain unpaid for
more
than 120 days.
Approximately 63%, 64% and 64% of the amount of life insurance in force
at
December 31, 1996, 1995 and 1994, respectively, was reinsured.
The effect of reinsurance on premiums earned and benefits incurred for
the
years ended December 31, 1996, 1995 and 1994 are as follows (in 000's):
Year Ended December
31,
1996 1995
1994
Direct premiums and amounts assessed against
policyholders $172,412 $169,497
$164,123
Reinsurance assumed (841) 907
1,001
Reinsurance ceded (81,045) (79,725)
(76,181)
Net premiums $ 90,526 $ 90,679 $
88,943
Direct benefits paid and assessed against
policyholders $201,176 $216,934
$190,581
Reinsurance assumed 133 80
170
Reinsurance ceded (54,663) (61,280)
(51,717)
Net benefits $146,646 $155,734
$139,034
<PAGE>
NOTE 4 - INVESTMENTS
The sources of net investment income are summarized as follows (in
000's):
Year Ended December 31,
1996 1995 1994
Investment income:
Fixed maturities $108,321 $111,052 $108,218
Equity securities 156 517 302
Mortgage loans 131 154 211
Policy loans 8,365 8,202 8,540
Short-term investments 6,080 4,663 1,581
Other 52 80 29
Gross investment income 123,106 124,668 118,881
Less investment expense (1,543) (2,058) (1,581)
Net investment income $121,563 $122,610 $117,300
Investment gains (losses) are summarized as follows (in 000's):
Year Ended December 31,
1996 1995 1994
Realized investment gains (losses)
Fixed maturities $ 10,974 $ 18,127 $ 708
Equity securities 468 182 278
Other (12) (45) (12)
Gross realized investment gains $ 11,430 $ 18,264 $ 974
Net unrealized investment gains (losses), included in the consolidated
balance sheets as a component of equity, and the changes for
corresponding
years, are summarized as follows (in 000's):
1996 1995 1994
Balance, beginning of year $15,800 $(10,500) $ 1,107
Change in net unrealized investment gains (losses):
Fixed maturities $(59,427) $139,725 $(71,595)
Equity securities (251) 370 (713)
(59,678) 140,095 (72,308)
Changes in net unrealized investment gains (losses)
attributable to:
Deferred policy acquisition costs 24,098 (59,797) 31,692
Value of business in force 14,575 (39,807) 22,764
Deferred Federal income taxes 7,415 (14,191) 6,245
Total change in net unrealized
investment gains (losses) $(13,590) $ 26,300 $(11,607)
Balance, end of year $ 2,210 $ 15,800 $(10,500)
<PAGE>
The following tables provide additional information relating to fixed
maturities
and equity securities (in 000's):
<TABLE>
<CAPTION>
December 31, 1996 Gross Gross
Fixed maturities: Amortized Unrealized Unrealized
Estimated
Held-to-Maturity: Cost Gains Losses
Fair Value
<S> <C> <C> <C>
<C>
Mortgage-backed $85,265 $858 $(561)
$85,562
Corporate 54,862 870 (551)
55,181
U.S. Treasury securities and
U.S. government and
agency securities 47,235 439 (715)
46,959
Foreign governments 3,339 199 -
3,538
Redeemable preferred stock 176 73 -
249
Total held-to-maturity $190,877 $2,439 $(1,827)
$191,489
Available-for-sale:
Mortgage-backed 122,263 374 (1,248)
121,389
Corporate 1,124,273 15,349 (7,463)
1,132,159
U.S. Treasury securities and
U.S. government and
agency securities 111,145 512 (683)
110,974
Foreign governments 39,529 748 (307)
39,970
Total available-for-sale $1,397,210 $16,983 $(9,701)
$1,404,492
Equity securities:
Common stock $425 $190 -
$615
Preferred Stock 795 882 -
1,677
Total equity securities $1,220 $1,072 $-
$2,292
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995 Gross Gross
Fixed maturities: Amortized Unrealized Unrealized
Estimated
Held-to-Maturity: Cost Gains Losses
Fair Value
<S> <C> <C> <C>
<C>
Mortgage-backed $95,801 $2,587 $(28)
$98,360
Corporate 37,893 1,812 -
39,705
U.S. Treasury securities and
U.S. government and
agency securities 26,988 1,538 -
28,526
Foreign governments 3,338 339 -
3,677
Redeemable preferred stock 175 83 -
258
Total held-to-maturity $164,195 $6,359 $(28)
$170,526
Available-for-sale:
Mortgage-backed $87,469 1,535 (132)
$88,872
Corporate 1,120,807 59,734 (189)
1,180,352
U.S. Treasury securities and
U.S. government and
agency securities 82,599 2,500 (23)
85,076
Foreign governments 43,578 3,309 (40)
46,847
Total available-for-sale $1,334,453 $67,078 $(384)
$1,401,147
Equity securities:
Common stock $375 $- $-
$375
Preferred Stock 1,168 1,335 -
2,503
Total equity securities $1,543 $1,335 $-
$2,878
</TABLE>
The contractual maturity of debt securities at December 31, 1996 is
shown
below (in 000's):
<TABLE>
<CAPTION>
Held-to-Maturity
Available-for-sale
Amortized Estimated
Amortized Estimated
Cost Fair Value
Cost Fair Value
<S> <C> <C>
<C> <C>
Due in one year or less $- $-
$15,984 $16,021
Due after one year through five years 1,999 2,013
482,542 485,273
Due after five years through ten years 85,292 86,021
541,141 543,003
Due after ten years 103,586 103,455
357,543 360,195
Total $190,877 $191,489
$1,397,210 $1,404,492
</TABLE>
<PAGE>
Actual maturities may differ from contractual maturities because
borrowers may
have the right to call or prepay obligations with or without call of
prepayment
penalties.
The proceeds from sales of investments held-to-maturity of $11,052,000,
$19,113,000 and $2,793,000 in 1996, 1995 and 1994, respectively,
were generated by mortgage-backed security pay downs in 1996.
Proceeds from these sales in 1995 and 1994 were generated by $1,358,000
and $1,756,000, respectively, of involuntary call activity, $1,702,000
and $1,037,000, respectively, of mortgage-backed security paydowns and
$8,415,000 of matured securities in 1995. No gross gains were realized
on
these sales in 1996. Gross gains of $492,000 and $477,000 were realized
in
1995 and 1994, respectively. The securities had an amortized cost of
$11,052,000, $18,621,000 and $2,316,000 in 1996, 1995 and 1994,
respectively.
On November 30, 1995, the Company transferred $247,182,000 of securities
classified as held-to-maturity to the available-for-sale portfolio.
As a result, unrealized gains on fixed maturities increased by
$16,853,000
in 1995.
Proceeds from sales of investments in debt securities classified as
available-for-sale were $1,895,233,000, $2,142,146,000 and $77,589,000
in 1996, 1995 and 1994, respectively. Gross gains of $25,397,000,
$26,237,000 and $913,000 and gross losses of $10,703,000, $9,594,000
and $568,000 were realized on these sales in 1996, 1995 and 1994,
respectively.
Proceeds from the sales of debt securities classified as trading were
$3,365,152,000 and $238,457,000 in 1996 and 1995, respectively. Gross
gains
of $4,725,000 and $1,226,000 and gross losses of $7,557,000 and $234,000
were realized on these sales in 1996 and 1995, respectively. No
proceeds
from the sales of debt securities were classified as trading in 1994.
Proceeds from sales of all other securities were $2,113,040,000,
$1,415,600,000
and $4,119,000 in 1996, 1995 and 1994, respectively, comprised primarily
of short term investments. Gross gains of $468,000, $182,000 and
$278,000
were realized on these sales in 1996, 1995 and 1994, respectively.
NOTE 5 - FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments
Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of those instruments.
Fixed-income securities: The fair values of fixed income securities are
estimated based on quoted market prices for those or similar
instruments.
When there is no quoted market price, estimates of fair value are based
on
quotes from industry recognized rating services. Estimated fair values
of
these instruments are contained in Note 4 to the financial statements.
Equity securities: The fair values are estimated based principally on
quoted
market prices. These securities are carried at fair value.
Mortgage loans: The carrying amount approximates fair value, because the
average interest rates on outstanding balances are similar to current
market
rates.
Policy loans: Policy loans are issued with varying interest rates,
depending
on the terms of the insurance policies. Future cash flows are uncertain
and
difficult to predict. Accordingly, it was not practicable to estimate
fair
value of policy loans.
<PAGE>
Investment contracts: The carrying amount of $442,087,000 approximates
fair
values. The fair value of annuities in the payout phase is assumed to
be
the present value of the anticipated cash flows discounted at current
interest rates. The fair value of annuities in the accumulation phase
is
assumed to be the contract holders' account value less surrender charge.
Financial Instruments with Off-Balance Sheet Risk
In 1996 and 1995, the Company entered into forward purchase contracts
for
mortgage-backed securities which provide for future receipt of
securities
at specified prices. The contracts are then closed prior to settlement
without taking delivery of the securities. These instruments are
treated
as off-balance sheet items. No cash is required at inception, and the
cash
required at settlement is the notional value. The contract does not
require
collateral. Risk arises from the potential inability of counterparties
to
perform under the terms of the contracts and from changes in securities'
values and interest rates. Changes in unrealized gains and losses on
these
contracts are included in earnings, with corresponding offsetting
amounts
reflected as assets or liabilities.
At December 31, 1996, the Company had open forward purchase contracts
for
mortgage-backed securities which had a notional (contract) value of $75
million at an average price of $99.33. Net trading gains for 1996
related to forward purchase contracts was $298,000, including a $506,000
unrealized loss at December 31, 1996.
At December 31, 1995, the Company had open forward purchase contracts
for
mortgage-backed securities which had a notional (contract) value of $70
million at an average price of $101.03 (for Banner Life securities) and
$100.60 (for William Penn New York securities). The open contracts were
closed in January 1996 at a gain of $825,000. Net trading gains for
1995
related to forward purchase contracts was $1,503,000 including $889,000,
which was unrealized at December 31, 1995.
NOTE 6 - FEDERAL INCOME TAXES
The Company and its subsidiaries join in the filing of a life-nonlife
consolidated Federal income tax return with Legal & General America.
Each member in the consolidated return provides for income taxes under
the provisions of an intercompany tax sharing agreement. The tax
sharing
agreement provides that loss companies are given credit to the extent
that
such losses reduce the consolidated tax liability. The utilization of
operating losses of the nonlife companies are generally limited to
thirty-five percent of the lesser of nonlife subgroup losses or current
period life subgroup taxable income. William Penn New York will become
eligible to join the life-nonlife consolidated Federal income tax return
in 1995.
Deferred income taxes reflect the net tax effects of temporary
differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
<PAGE>
Significant components of the Company's deferred tax assets and
liabilities
as of December 31, 1996 and 1995 are as follows (in 000's):
1996 1995
Deferred tax assets:
Reserves $(41,797)
$(43,209)
Pension and compensation accruals (544)
(685)
Net operating loss carryovers (13,552)
(17,000)
Other, net (5,704)
(2,439)
Gross deferred tax assets (61,597)
(63,333)
Deferred tax liabilities:
Insurance in force 37,140
40,822
Policy acquisition costs deferred 52,149
45,378
Other, net 1,497
1,198
Valuation allowance 17,000
17,000
Gross deferred tax liabilities 107,786
104,398
Net deferred tax liability before deferred 46,189
41,065
tax on unrealized investment gains
Deferred tax on unrealized investment gains 1,100
8,515
Net deferred tax liability $47,289
$49,580
As discussed in Note 1, at December 31, 1995, Shawfield, Inc. was merged
into
Group Concepts. Shawfield, Inc. had net operating loss carryovers of
approximately
$50 million that are eligible to offset the future taxable income of
Group
Concepts and a deferred tax asset has been established for these loss
carryovers. It is expected that the loss carryovers will be utilized in
future periods. A valuation allowance has been established for these
loss
carryovers and will be reduced in future periods as such loss carryovers
are utilized.
The difference between the provision for income taxes and the amount of
income tax determined by applying the applicable U.S. statutory Federal
income tax rate to pre-tax income is due to the nondeductible expenses
and the expenses related to acquisition activities, none of which are
material in amount.
Income taxes paid by the Company during 1996, 1995 and 1994 were
$3,500,000,
$2,700,000 and $1,400,000 respectively.
<PAGE>
NOTE 7 - EMPLOYEE BENEFIT PLANS
Legal & General America maintains a non-contributory defined benefit
pension
plan (the Plan) covering substantially all full-time employees of the
Company.
Benefits under the Plan are based on years of service and compensation
levels.
The funding policies of the Plan are to contribute amounts that meet
minimum
funding requirements, but which do not exceed the maximum funding limits
as
currently determined under applicable tax regulations. The Plan has
reached
its funding limitation and, accordingly, the Company made no
contribution to
the Plan in 1996, 1995 and 1994.
The following table sets forth the consolidated funded status of the
Plan at
January 1, 1996 and 1995 and the amount of prepaid pension cost included
in
the accompanying balance sheets at December 31, 1996 and 1995 (in
000's):
1996
1995
Actuarial present value of periodic benefit obligations:
Vested $7,106
$6,441
Nonvested 351
340
Accumulated benefit obligation $7,457
$6,781
Projected benefit obligation $8,010
$7,351
Plan assets at fair value 9,450
8,105
Excess of Plan assets over projected benefit
obligation 1,440
754
Unrecognized prior service cost (150)
(171)
Unrecognized net gain (1,091)
(50)
Unrecognized portion of net transition assets (398)
(518)
(Accrued)/prepaid pension cost included in
other assets $(199)
$15
<PAGE>
The consolidated net periodic pension cost for the Plan in 1996, 1995
and
1994 included the following components (in 000's):
Year Ended December 31,
1996 1995
1994
Service cost $450 $347
$379
Interest cost 540 493
438
Actual return on plan assets (634) (580)
(546)
Net amortization (142) (142)
(142)
Pension cost $214 $118
$129
The assumptions used in the accounting for the Plan were as follows:
1996 1995
1994
Discount rate 7.25% 7.25%
7.50%
Rate of increase in compensation 6.00% 6.00%
6.00%
Expected long-term return on Plan assets 8.00% 8.00%
8.00%
The Company administers the pension plan funds for the group of
companies.
The Plan's assets are generally invested in U.S. Government securities,
listed common stocks and investment-grade corporate bonds. The assets
and
liabilities of the Plan are included in the accompanying balance sheets
as a component of separate account assets and liabilities.
Legal & General America also maintains a voluntary defined contribution
thrift plan (the thrift plan) available to substantially all eligible
employees
of the Company with one year of employment and 1,000 hours of service.
Employees'
contributions, up to the maximum of 6% of their defined compensation,
were
matched 100% by the Company in 1996, 1995 and 1994. The Company's
contributions to the plan are charged to expense and amounted to
$413,000, $505,000,
and $454,000 in 1996, 1995 and 1994, respectively.
NOTE 8 - COMMITMENTS
William Penn New York entered into an operating lease effective March
1992.
The lease contains escalation provisions for operating expenses and
taxes
of four percent per year after 1993 and two renewable option terms of
five
years each. The base lease terminates in 2002. Annual rent expense
incurred was $1,123,000, $1,065,000 and $1,047,000 in 1996 and 1995 and
1994, respectively.
Future minimum lease payments under the noncancellable operating
lease are as follows (in 000's):
1997 1,163
1998 1,205
1999 1,248
2000 1,293
2001 1,340
Thereafter 174
Total $6,423
<PAGE>
NOTE 9 - RELATED PARTY TRANSACTIONS AND PARENT COMPANY ACTIVITIES
Notes receivable from affiliates, included in Other assets in the
accompanying financial statements, include the following:
<TABLE>
<CAPTION>
December 31,
1996
1995
<S> <C>
<C>
Banner Life:
Note receivable from Legal & General America,
due December 1999 with interest at 7.8%,
collateralized by the Legal & General Data Center
$1,600,000 $1,600,000
Accrued interest
673,060 508,590
Total
$2,273,060 $2,108,590
</TABLE>
The Company had a net intercompany payable to affiliates of $287,000 at
December 31, 1996 and a net intercompany receivable of $4,837,000 from
affiliates
at December 31, 1995.
The Company paid cash dividends to its former parent company, Legal &
General Life,
totaling $6,300,000 on December 30, 1994.
The Company allocated $441,000, $561,000 and $541,000 of general and
administrative expenses to Legal & General America in 1996, 1995 and
1994,
respectively. Legal & General America allocated $9,402,000, $12,003,000
and
$10,807,000 of general and administrative expenses to the Company in
1996, 1995 and 1994, respectively.
NOTE 10 - CONTINGENCIES
In 1995, the Company, exclusive of its subsidiaries, was party to a
purported
class action suit alleging that the Company through one general agency,
misrepresented its universal life insurance policies as investment
products to
elderly consumers. The case was settled in 1996 and full refunds of
premium
plus interest and certain incidental expenses were paid to certain
qualifying
policyowners. Pre-tax costs incurred for premium refunds and associated
legal costs totaled $3.9 million.
<PAGE>
PART C - - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(A) Financial Statements
(B) Exhibits:
(1) Resolution of the Board of Directors of Banner Life Insurance
Company
authorizing establishment of the Variable Account.
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement by and between
Banner Life
Insurance Company, on its own behalf and on the
behalf of the
Variable Account, and Banner Financial Services
Group, Inc.
(b) Form of Broker-Dealer Agreement.
(4) Form of Policy for the Flexible Premium Variable
Annuity.(2)
(5) Form of Application for the Flexible Premium Variable
Annuity.(2)
(6) (a) Articles of Incorporation of Banner Life Insurance
Company.
(b) ByLaws of Banner Life Insurance Company. (3)
(7) Not Applicable.
(8) (a) Participation Agreement by and between Banner Life
Insurance
Company and Scudder Variable Life Investment Fund.(5)
(b) Participation Contract & Policy Agreement with
Scudder Fund
Dist., Inc.(5)
(c) Reimbursement Agreement with Scudder, Stevens &
Clark, Inc.4
(9) (a) Opinion and Consent of Counsel.(4)
(b) Consent of Counsel.
(10) Consent of Independent Accountants.(4)
(11) Not Applicable.
(12) Not Applicable.
(13) Schedules for Computation of Performance Data.
(14) Power of Attorney (5)
(1) Filed with the initial filing of this Form N-4 Registration
Statement
(File No. 33-31308) on September 28, 1989.
(2) Filed with Pre-Effective Amendment No. 1 of this Form N-4
Registration
Statement (File No. 33-31308) on January 24, 1990.
(3) Filed with Post-Effective Amendment No. 1 of this Form N-4
Registration
Statement (File No. 33-31308) on April 11, 1990
(4) Filed herewith.
(5) Filed with Post-Effective Amendment No. 6 of this Form N-4
Registration
Statement (File No. 33-31308) on April 26, 1995
Item 25. Directors and Officers of the Depositor
Name and Principal Positions and Offices with
Business Address1 Depositor
Mark A. Canter Vice President, Secretary and General Counsel
Timothy E. Deal (2) Director
Barbara A. Esau Vice President and Director
Robert E. Freeman(3) Director
Gene R. Gilbertson Senior Vice President, Chief Financial Officer,
Treasurer and Director
Dewey D. Goodrich, Jr. Senior Vice President and Director
Robert L. Hill Vice President and Controller
Bentti O. Hoiska Executive Vice President and Director
David S. Lenaburg Chairman, President & Chief Executive Officer
Charles A. Lingaas(4) Senior Vice President and Director
Otto P. Marracello(4) Senior Vice President and Director
Vicent R. McLean(3) Director
Michael D. Mullaney Vice President, Corporate Taxation
David J. Orr Senior Vice President and Director
Joseph M. Sullivan(4) Director
________________________
(1) The principal business address of each person listed, unless
other
wise indicated, is Banner Life Insurance Company, 1701 Research
Boulevard,
Rockville, MD 20850.
(2) 1015 15th Street, N.W., Suite 975, Washington, DC 20005
(3) Messers. Freeman and McLean are both retired and thus have no
principal
business address.
(4) 100 Quentin Roosevelt Boulevard, Garden City, NY 11530
Item 26. Persons Controlled by or Under Common Control with the
Depositor or
Registrant
Companies under common control with the depositor are listed below were
prepared on April 29, 1996.
Legal & General Group Plc
Country of
Share
Incorporation
Held
Legal & General Finance Inc. United States
100
Legal & General Finance PLC England
100
Legal & General Financial Services Limited England
100
Fairmount Group PLC England
100
Fairmount Stockbrokers Limited England
100
Fairmount Group Nominees Limited England
100
Fairmount Capital Management Limited England
100
Bell-Wild (Investment Managers) Limited England
100
British Organizers Limited England
100
Fairmount Financial Services Limited England
100
Fairmount Nominees Limited England
100
Fairmount-Wild Limited England
100
Investment & Estate Planning Services
Limited England
100
Individual Pension Funds Limited England
100
IPF Nominees Limited England
100
Fairmount Trust plc England
100
Ginn Reijs Nominees Limited England
100
Fairmount Trustee Services Limited England
100
Legal & General Estate Agencies Limited England
100
(50% owned by LGASL)
City & Urban Developments Limited England
100
Adam Kennedy Estate Agents Limited England
100
Land & Company Limited England
100
C J Hole Limited England
100
C.J. Hole (Bristol) Limited England
100
Ellis & Co (Estate Agents) Limited England
100
Ellis & Co. (Financial Services)
Limited England
100
Ellis & Co (Interiors) Limited England
100
Ronald Preston & Partners Limited England
100
Whitegates Estate Agency Limited England
100
William Parker and Son (Reading) Limited England
100
Legal & General Franchising Limited England
100
Whitegates (Holdings) Limited England
100
Keys & Company Limited England
100
The Key Group Limtied England
100
Whitegates Financial Services Limited England
100
Whitegates (Tyne & Wear) Limited England
100
Legal & General Financial Services Nominees
Limited England
100
(App to strike off)
Legal & General Holdings Limited England
100
Country of
Share
Incorporation
Held
Legal & General Insurance Holdings Limited England
100
Legal and General Assurance Society Limited England
100
Cogent (Holdings) Limited (50% owned by LGHL) England
100
Cogen Environmental Limited England
96
(Application made to Strike Off)
Cogent Investments Limited Scotland
85.80
Cogent Instrumentation Limited England
98.50
Cogent Limited England
100
Enterprise Capital Limited England
100
(Application made to Strike Off)
Cogent Management Limited England
100
(Application made to Strike Off)
Enterprise Capital Management Limited England
100
(Application made to Strike Off)
London Biotechnology Limited England
80
European Life (Channel Islands) Limited Guernsey
100
Legal & General Estate Agencies (FS) Limited England
100
Legal & General Healthcare Limited England
100
Legal & General Investment Acquisitions Limited England
100
Legal & General Investment Management (Holdings) Ltd England
100
Daytonian Limited England
100
Legal & General Assurance (Pensions Management)
Limited England
100
Legal & General Investment Management Limited England
100
Legal & General (Portfolio Management Services)
Limited England
100
Legal & General Portfolio Mangers Limited England
100
Legal and General Property Fund Managers Limited England
50
Legal & General Property Limited England
100
Legal & General (Unit Trust Managers) Limited England
100
Legal & General Ventures Limited England
100
LGV Candover Gellschaft fur Management Buy- Federal
Republic
Outs und Beteiligungen mbH of
Germany 51
Legal & General Ventures Partners Limited England
100
Legal & General Ventures Underwriters Limited England
100
Neonsystem PLC England
100
Legal & General Insurance Limited England
100
Gresham Insurance Company Limited England
90
Legal & General Direct Limited England
100
Legal & General GI Computer Services Limited England
100
Southgate Associates Limited England
100
Glanfield Securities Limited England
100
Bridge End Computers Limited England
100
Legal & General Investment Trust Limited England
100
Country of Share
Incorporation
Held
Legal & General Insurance Holdings Limited
Legal and General Assurance Society Limited
Legal & General Mortgages Limited England
100
Legal & General Mortgage Services Limited England
100
Residential Mortgages No1 Limited England
100
Legal & General Professional Trust Services Limited England
100
Legal & General Share Scheme Trustees Limited England
100
Legal and General (United Assurance) Limited England
100
Legal and General (Unit Pensions) Limited England
100
Lion Holdings Limited England
83.33
Shelfco (No. 873) Limited England
100
The Cavendish Land Company Limited England
100
Lawgra (No. 240) Limited England
100
Paramount Realty Holdings Limited England
100
General Housing Company Limited England
100
(Application made to Strike Off)
Tringham Housing Limited England
100
Key Consultants Mortgages Nationwide Limited England
100
Key Mortgage & Property Limited England
100
Key Surveyors Nationwide Limited England
100
Legal & General International (Holdings) Limited England
100
Legal & General International Limited England
100
Banner Insurance Holdings Limited England
100
Legal & General Holdings (Overseas) Limited England
100
Banner Life Insurance Company Limited England
100
Legal & General Netherlands Holdings B.V. Holland
100
Banner International Holdings BV Holland
100
Legal & General Australia Limited Australia
100
Legal & General Financial Services Limited Australia
100
Banner Consultancy Services Limited Australia
100
Legal & General Corporate Support Limited Australia
100
Subscriber 1 Pty Limited Australia
100
Subscriber 2 Pty Limited Australia
100
Subscriber 3 Pty Limited Australia
100
Subscriber 4 Pty Limited Australia
100
Subscriber 5 Pty Limited Australia
100
Legal & General Custodial Services Limited Australia
100
Country of
Share
Incorporation
Held
Legal & General International (Holdings) Limited
Legal & General International Limited
Legal & General Netherlands Holdings B.V.
Legal & General Austrialia Limited
Legal & General Financial Services Limited
Legener (Australia) Pty Limited Australia
100
Legal & General Property Investment
Limited Australia
100
Legal & General Superannuation Services
Limited Australia
100
Legal & General Life of Australia Limited Australia
100
Legal & General Properties No. 1 Pty
Limited Australia
100
Legal & General Properties No. 2 Pty Australia
100
Limited (In Liquidiation)
Legal & General Properties No. 3 Pty
Limited Australia
100
MicrOpay Pty Limited Australia
100
Legal & General America, Inc. United
States 100
Banner Life Insurance Company (USA) United
States 100
Group Concepts Incorporated United
States 100
Banner Financial Services Group,
Inc United
States 100
William Penn Life Ins. Co.
of New York United
States 100
Banner Life Insurance Company of New York United
States 100
Legal & General Finance Europe B.V. Holland
100
Legal & General Holdings (France) SA France
100
Legal & General Bank (France) S.A. France
100
Legal & General Bank Gestion S.A. France
100
Legal & General (France) SA France
100
Legal & General Risques Divers (France)
S.A. France
100
Legal & General Nederland Levensverzekering Holland
100
Maatschappij N.V.
Legal & General Nederland Exploitatie Holland
100
Maatschappij B.V.
Legal & General Nederland Vastgoed Holland
100
Maatschappij B.V.
Legal & General Overseas Holdings B.V. Holland
0
Item 27. Number of Policyowners
As of March 31, 1997, there were 322 Owners of the Policies.
Item 28. Indemnification
Insofar as indemnification for liabilities arising under the Securities
Act
of 1933 (the "1933 Act") may be permitted to directors, officers and
controlling persons of the Registrant, the Registrant has been advised
that
in the opinion of the Securities and Exchange Commission such
indemnificatio
n is against public policy as expressed in the 1933 Act and is,
therefore,
unenforceable. In the event that a claim for indemnification against
such
liabilities (other than the payment by the Depositor of expenses
incurred
or paid by a 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.
The By-Laws of Banner Life provide substantially as follows:
All Directors and Officers, former Directors and Officers of Banner Life
and any person who may have served at the request of Banner Life as a
Director or Officer of any other corporation in which Banner Life owns
stock or of which Banner Life is a creditor (and his heirs, executors or
administrators) shall be indemnified by Banner Life against all costs
and
legal or other expenses, including costs or amount of settlement,
reasonably
incurred by or imposed upon them, or any of them, in connection with or
resulting from any claim, action or proceeding, civil or criminal, in
which
they, or any of them, are made parties by reasons of being or having
been
Directors or Officers or a Director or Officer of Banner Life, or of
such
other corporation.
The right of indemnification shall apply whether or not such Director or
Officer or former Director or Officer or person indemnified is such at
the
time such costs or expenses are incurred or imposed. The right of
indemnification shall not apply, however, in relation to matters as to
which
any such Director or Officer or former Director or Officer or person
shall be
finally adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of his duty as such Director
or
Officer; provided, however, that an entry of judgment by consent as part
of a
settlement shall not be deemed a final adjudication of liability for
negligence or misconduct in the performance of duty. If any such claim,
action or proceeding is settled (by consent or otherwise), the
determination
in good faith by the Board of Directors that such claim, action or
proceeding
did not arise out of negligence or misconduct in the performance of his
duty
by the Director or Officer or former Director or Officer or person
indemnified,
and that such Director or Officer or former Director or Officer or
person
would not be held liable for such claim, action or proceeding, shall be
necessary and sufficient to justify indemnification. The right of
indemnification shall not be exclusive of any other rights to which
those
indemnified may be entitled under any statute, other by-law,
agreement, vote of shareholders or otherwise.
Item 29. Principal Underwriter
Banner Financial Services Group, Inc.
1701 Research Boulevard
Rockville, Maryland 20850
Directors and Officers of Principal Underwriter
Name and Principal Positions and Offices with
Business Address Underwriter
Edward J. Bove Assistant General Counsel and
Assistant
Secretary
Mark A. Canter Vice President, Secretary
and General Counsel
Gene R. Gilbertson Executive Vice President and
Director
Robert L. Hill Treasurer
David S. Lenaburg Director
David J. Orr President and Director
Banner paid $309,375 in commissions to the underwriter in 1996.
Item 30. Location of Accounts and Records.
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are
maintained by Banner Life Insurance Company at 1701 Research Boulevard,
Rockville, Maryland 20850.
Item 31. Management Services.
All management policies are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment
to
this registration statement as frequently as necessary to ensure
that
the audited financial statements in the registration statement are
never
more than 16 months old for so long as Premiums under the Policy
may be
accepted.
(b) Registrant undertakes that it will include either (i) a postcard or
similar written communication affixed to or included in the
Prospectus
that the applicant can remove to send for a Statement of Additional
Information or (ii) a space in the Policy application that an
applicant
can check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information
and any financial statements required to be made available under
this
Form promptly upon written or oral request to Banner Life at the
address
or phone number listed in the Prospectus.
Section 403(b) Representation.
Registrant represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No.
IP-6-88), regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment
Company Act of 1940, in connection with redeemability restrictions on
Section 403(b) Policies, and that paragraphs numbered (1) through (4) of
that letter will be complied with.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment
Company Act of 1940, the registrant, Banner Life Insurance Variable
Annuity
Account, certifies that this
amendment meets the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and
has
duly caused this Post Effective Amendment No. 8 to the Registration
Statement
to be signed on its behalf by the undersigned thereunto duly authorized,
and its seal to be hereunto affixed and attested, all in
the City of Rockville, State of Maryland on the 30th day of April, 1997.
By: Banner Life Insurance Company
(Depositor)
Attest: /s/ Edward J. Bove' By: /s/ Mark A. Canter
David S. Lenaburg*
Chairman, President &
Chief Executive Officer
Banner Life Insurance Company
* Signed by Mark A. Canter pursuant to a power of Attorney signed by
David S.
Lenaburg on April 26, 1994 which was filed as an exhibit in Pre-Effective
Amendment No. 1 to Form N-4 on June 24, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment
Company Act of 1940, Banner Life Insurance Company certifies that this
Amendment
meets the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused
this Post Effective Amendment No.8 to the Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, and
its
seal to be hereunto affixed and attested, all in the City of Rockville,
State
of Maryland on the 30th day of April 1997.
Banner Life Insurance Company
(Depositor)
Attest: /s/ Edward J. Bove' By:/s/ Mark A. Canter
David S. Lenaburg*
Chairman, President &
Chief Executive Officer
Banner Life Insurance
Company
Pursuant to the requirements of the Securities Act of 1933, this
amendment to
the Registration Statement has been signed below by the following
Directors
and Officers of Banner Life Insurance Company in the capacities and on
the dates
indicated.
Signature Title Date
/s/ Mark A. Canter
David S. Lenaburg* Chairman, President & April 30,
1997
Chief Executive Officer
/s/ Gene R. Gilbertson
Gene R. Gilbertson Senior Vice President, April 30,
1997
CFO, Treasurer and Director
/s/Dewey D. Goodrich, Jr
Dewey D. Goodrich, Jr Director April
30, 1997
/s/Bentti O. Hoiska
Bentti O. Hoiska Director April 30,
1997
/s/Charles A. Lingaas
Charles A. Lingaas Senior Vice President April 30,
1997
Administration and Director
/s/ David J. Orr
David J. Orr Senior Vice President, April
30, 1997
Chief Actuary and Director
/s/ Barbara A. Esau
Barbara A. Esau Vice President April
30, 1997
and Director
___________________________________________________________
* Signed by Mark A. Canter pursuant to a Power of Attorney signed by
David S.
Lenaburg on April 26, 1994 which was filed as an exhibit in Pre-Effective
Amendment No. 1 to Form N-4 on June 24, 194.
Exhibit Description of Page
No. Exhibit No.
(9)(b) Consent of Counsel.
(10) Consent of Independent Accountants.
<PAGE>
April 29, 1997
Banner Life Insurance Company
1701 Research Boulevard
Rockville, MD 20850
Re: Banner Life Variable Annuity Account
Form N-4, File No. 33-31308
Ladies and Gentlemen:
With reference to the Post-Effective Amendment No. 8 to the Registration
Statement on Form N-4 filed by Banner Life Insurance Company and its
Variable
Annuity Account with the Securities and Exchange Commission covering
individual variable annuity contracts, I have examined such documents
and such
law as I considered necessary and appropriate, and on the basis of such
examination, it is my opinion that:
1. Banner Life Insurance Company is duly organized and validly
existing under the laws of the state of Maryland and has been duly
authorized to issue variable life insurance contracts by the
Maryland
Insurance Administration.
2. The individual variable annuity contracts, when issued as
contemplated by said Post-Effective Amendment No. 8 to the
Registration
Statement on Form N-4, will constitute legal, validly issued and
binding
obligations of Banner Life Insurance Company.
I hereby consent to the reference to my name under the caption "Legal
Matters"
in the Prospectus filed as part of the Post-Effective Amendment No. 8 to
the
Form N-4 Registration Statement Amendment for the Banner Life Variable
Annuity
Account.
Sincerely,
/s/ Mark A. Canter
Mark A. Canter
Vice President, Secretary
and General Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form N-4 of our report dated February 10,
1997,
relating to the consolidated financial statements of Banner Life
Insurance
Company and of our report dated March 14, 1997 relating to the financial
statements of Banner Life Variable Annuity Account, which appear in such
Prospectus. We also consent to the references to us under the heading
"Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
April 30, 1997
